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AGENDA
Presented by RAWDON CHRISTIE
POWERING DOWN?
RAWDON The Bluff Aluminium Smelter announced on Friday that it was cutting back production by 5%, it's a position it says it was forced to take because of what appears to be a growing nationwide power crises caused by the very dry summer lowering hydro lake levels. Electricity Commission Chairman David Caygill denies that it is a crisis but says people need to be prudent in their power use. So what's going on? Energy Minister David Parker joins me now. Minister, the Electricity Commission says storage is well below the … zone there are lower flow levels to the lakes than in 1992, how serious is this power shortage?
DAVID PARKER – Minister of Energy
Well we've had a very big drought in New Zealand, we have quite good security margins in most years but when we have a drought our margins get thinner and prices for industrial users go up, they normally have lower prices than residential consumers but at the moment they're higher.
RAWDON How thin are those reserves getting?
DAVID We're not in the position that we were in 1992, 1992's the last time New Zealand had a serious power crisis. If we didn’t have inflows in the next month that were a bit higher than they have been for the last two months we could have a real problem, but it's better now than it was two weeks ago and it's better now than it was a week ago, so things are a wee bit better than they were.
RAWDON Now since 92 the Ministry for Economic Development ordered the building of Whirinaki, this is basically to act as a reserve come a crisis, that was following the 2003 Energy Strategy implementation. How successful has that been looking at the situation now given that there's another crisis?
DAVID Well no actually there isn't another crisis, there's a need to be prudent and it would be wrong of us not to send signals that we've got lower than average water storage which is why we're doing this, but it's too early to call it a crisis. Whirinaki's running about half of the time now, I expect if things stay as they are within the next week or two Whirinaki will be running even more.
RAWDON Whirinaki in last year didn’t operate for any day, zero days through the year, January 8 days, February 12 days, March of this year 12 days, April 20 days, it's going full tilt now isn't it?
DAVID No it's not going full tilt.
RAWDON It's getting there.
DAVID It's certainly running a lot more than it did last year and that’s its purpose, when you do have a dry year like this you do turn it on more often.
RAWDON But the lakes are getting low, Whirinaki running almost full time, NIWA says the weather outlook's not good, what else have we got.
DAVID Well what happens in an energy market is when water gets short the prices go up for industrial users and that encourages the industrial users to use less power, that’s exactly the purpose of having a market in that way, they normally benefit from lower prices and in a year like this they're higher. We run our system so that it will work in a one in 60 year drought. If you have a drought that’s a worse than one in 60 year drought you run short. The only way that you can actually do it differently to that is build so much capacity that in all the other years you have a lot of over capacity and of course power prices would be higher the whole time as a consequence.
RAWDON So we've told big industry users just to cut back slightly, Comalco has now said 5% down in production, now surely the last thing the government wants right now is to cut back any of its economic production tools like Comalco?
DAVID Well obviously it's better for us to have more water in the lakes but we don’t control the weather. What we do control is the settings under which the electricity system operates and we operate it so that there's enough there to cope with a one in 60 dry year, but any more than that and it costs everyone more money the whole of the time and so the economy would go backwards rather than forwards.
RAWDON What's Mr Cullen been saying to you about one of our biggest earners having to cut back and go slow?
DAVID His concern is the hydro levels not profitability of SOEs.
RAWDON So he's not concerned about the fact that we're now cutting our production levels back at a time when the economic constraints are tightening?
DAVID Oh of course it's undesirable, of course it would be better if we had more water in the hydro lakes, but that’s a consequence of an unusually long and severe drought, it's not a consequence of government policy.
RAWDON So what happens if this continues and Comalco says right well we've got to actually start cutting our employment levels and other companies who have been asked to reduce production start cutting their employment levels, these are your potential voters and now they're potentially gonna be out of a job as a result of this.
DAVID Well I think that most people know that governments aren’t in control of either the weather or international oil prices so yes that would be a terrible thing and we hope it doesn’t come to that and I don’t think it's likely that it will come to that but if it did I think most people know that the government doesn’t control the weather.
RAWDON Now you’ve said that the alternative is to build extra resource in the good years to accommodate the drought years, but a ban's been put in place on building new thermal base load stations we know that. Now that’s to accommodate the emissions …
DAVID Well that’s not correct. That’s not correct. There are restrictions on additional thermal but the exception to that is in respect of when it's needed for security of supply, so if it was needed for security of supply we'd do it.
RAWDON But why haven’t we don’t if we need it?
DAVID Well we need to build about 175 megawatts of capacity each year to meet increasing demand. Last year over 500 megawatts was put on the system, this year 300 megawatts of renewables has been built, so we're on the way.
RAWDON That sort of a building programme would completely compromise the emissions trading scheme though wouldn’t it?
DAVID No, no in face 175 megawatts of new renewables is what we need to build each year in order to meet our 90% renewable study. We're building 300 megawatts of renewables this year.
RAWDON As far as new thermal base load stations go that compromises the emissions trading scheme that’s why a ban's been put in place. So how much better off would we be without such strict promises being made?
DAVID Well it won't change the outcome because we're so rich in renewable resources it's not a case of having to sacrifice security of supply, and indeed the legislation that you refer to actually expressly makes that an exception anyway, if it was threatening security of supply we would make an exception but it won't come to that because we've got so much geothermal and wind power which is already economic.
RAWDON Although that’s also very dependent isn't it on external forces like the weather to an extent?
DAVID No that’s not correct, wind over a year is more reliable year to year than hydro is, geothermal is the most reliable base load it's more reliable than gas.
RAWDON Let's just talk about the Emissions Trading Scheme briefly. On Friday your office put out a statement saying that the government is open to making changes to the emissions trading framework to accommodate concerns which have been expressed by various stakeholders if the Select Committee recommends it. That sounds to me like a u-turn on the leadership which this government was showing.
DAVID No, in fact if you read the introductory statement to the Emissions Trading Bill we always made it clear that we were open to discussion on the very important issue of phase out of free allocation for industries that face competition from goods that come from countries that don’t have emissions pricing and that’s what that’s mainly a reference to, the phase out of free allocation.
RAWDON How economically viable is it for the government to continue with this leadership approach on the Emissions Trading Scheme?
DAVID Very, I mean the world has a problem with climate change, the country already faces an economic cost under the Kyoto Protocol as other developed countries do for increases in emission. What an Emissions Trading Scheme is make sure that what is already a signal for the New Zealand economy is reflected to businesses in the economy/
RAWDON So we're still taking it on our shoulders to show the world the way forward in spite of the fact that economically we'll be investing a huge amount of our security into making a very little difference?
DAVID The Emissions Trading Scheme doesn’t change the economic cost for New Zealand in fact it reduces it, and we're not out there alone, every developed country in the world is in the Kyoto Protocol and has liability for increases in emissions except for the USA who welshed on the deal and of course they’ve said they’ll be in after 2012.
RAWDON How come the Emissions Trading Scheme is not gonna cost us I mean you know the Institute for Economic Research, and they're not alone in this, has estimated the cost at more than 4.5 billion dollars, not to mention the 20,000 job which they believe, worst case scenario, could possibly be the result.
DAVID Can I deal with the jobs thing first because otherwise I won't have time to deal with it at the end. What the forecasts say is that the Emissions Trading Scheme or the Kyoto Protocol that lies behind it could cost 20.000 jobs over a five year period, but during that same period normally about 200,000 jobs are lost in the economy and about 250,000 jobs are normally created, so that needs to be put in perspective. In terms of the issue as to cost the cost arises from the Kyoto Protocol and the obligation to do something to stop emissions growing. The Emissions Trading Scheme reduces that cost to the country it doesn’t increase it.
RAWDON So Chris I'll bring you in here, we're being a bit unfair on the government then are we?
CHRIS TROTTER – NZ Political Review
Well I don’t know, I can't help thinking David that it's a very bad look as climate change changes the weather, and you're quite right the Labour government does not control the weather, but as climate change quite possibly produces more droughts there are those thermal stations pumping you know greenhouse gases into the atmosphere, it's a bad look. I know it's not in strict terms your fault but how does the government present this contradiction to the public?
DAVID Well the only way around that is to build more renewable capacity which is what we're doing. As I said you need to build 175 megawatts each year in order to meet the 90% renewable target and this year we're building 300 megawatts, so we're on our way. You can't get there overnight, I think that was a fair point that Russel Normal made earlier in the day, you can't automatically just close down what was built ten years ago and expect something to magically appear in its place, this is a transition.
JENNI McMANUS – Sunday-Star Times
David when you talk about the cost the economic cost and how it's not going to be as great as people believe, how are you going to explain to consumers that they're going to be paying an extra 30 cents a litre on fuel next year including the emissions trading, 10 cents for that, 7 cents for bio-fuel etc etc, regional petrol tax – how are consumers going to bear that?
DAVID Well for a start some of the figures like 30 cents are just a ridiculous exaggeration and it won't be anything like that, secondly you know the issue as to the timing of things has to be considered. In terms of the suggestion that the bio-fuels legislation I think you said was going to add 7 cents per litre to fuel costs that’s just again it's untrue.
JENNI Well the fuel companies are saying that, even the bio-fuels companies themselves are saying that, and the 30 cents…
DAVID The fuel companies are saying that but they said that the cost of going to unleaded petrol would be 7 cents a litre, the cost in fact turned out to be 1 cents a litre. I'm confident it will be a lot less than 7 cents a litre.
RAWDON Minister you just said that the issue of timing needs to be considered, can you just clarify what you mean by that?
DAVID Well we are conscious of the fact that people are facing high oil prices and food prices at the moment and these are things that the government and the Select Committee will be considering as they look at the Emissions Trading legislation I'm sure.
RAWDON We've made strong commitments on the timing front though?
DAVID We've said that by 2013 we want the Emissions Trading Scheme to apply across the economy. The key principle of the Emissions Trading Scheme is those that increase emissions take responsibility for increases in emissions, all of the rest is to a certain extent detail.
JENNI But they don’t pay for it, not initially at any rate, it's consumers and small businesses that are going to be paying for it.
DAVID At the moment it's taxpayers and they are consumers who are paying, there is also a cost to the country for increasing emissions, the Emissions Trading Scheme just makes that cost lower, it doesn’t create the cost.
RAWDON Minister can I just clarify something. When you're talking about the issue of timing needs to be considered are you talking about the Emissions Trading Scheme timing or the timing of petrol taxes?
DAVID I think all of those things are being considered by the government and I can't give you a definite indication as to what it is that we will do, the most important of these instruments is the Emissions Trading Scheme it's very important for the country that we manage our emissions down in the way that costs the least.
RAWDON Minister you mention that the petrol taxes timing is being considered, what detail can you give us on that?
DAVID No I didn’t say that, what I said was that the Emissions Trading Scheme…
RAWDON You said all these things are being considered including timing on petrol taxes.
DAVID Ah no, well what I meant in respect of petrol taxes is that there has been a suggestion around that this regional petrol tax is gonna put the petrol prices up everywhere, that’s patently not the case, the only place that’s looking at a regional petrol tax in the short term is the Auckland region and then only …
CHRIS That’s just the point Minister and how on earth does a government ever get around the enormous problem of it its trying to do something which is going to impose costs on a large percentage of the population, how does it get around the problem of its political opponents in the Opposition simply saying oh well we won't do that, we won't be mean like the government, we'll delay this. It puts enormous pressure on you I mean we can see the pressure on you right now.
DAVID Well you have to be doing more than just imposing cost you have to help people save cost.
JENNI But how are you going to help the ordinary consumer save costs?
DAVID Well let me finish the answer to Chris Trotter's question please. You have to help people save costs by helping them to save fuel costs for example, Russel Norman's quite right we do need to invest more in public transport, we've increased public transport funding 12 fold, we're looking at…
JENNI You’ve been saying that for 30 years.
DAVID We've actually in the last nine years increased it by 12 fold and we're electrifying rail etc, we've got the northern busway open, in addition we're doing things to improve the efficiency of the vehicle fleet. You know cars are the most energy intensive thing any of us use generally and we're introducing measures that make that car fleet more efficient so it uses less petrol so that people don’t hurt as much when they fill up at the petrol pump.
RAWDON Minister can I bring us back to the Emissions Trading Scheme. Will there be something put in on the commitment, what I'm trying to say is will there be a change on the commitments which the government to this stage has made on the Emissions Trading Scheme?
DAVID The basic commitment is that we will have an economy wide Emissions Trading Scheme in place by the end of 2012, that is the core issue. In terms of the detail as to the phase in it's one of the issues that’s being considered by the Select Committee and the government and you can expect that we'll be taking all of these factors including things like the rises in fuel prices and the effect on people's household budgets into account.
RAWDON How do you think that will affect the commitment or change government thinking?
DAVID Well obviously it wouldn’t cause us to go harder sooner, that’s all I'd say.
RAWDON Which means the government is seriously considering softening the commitments made under the scheme?
DAVID Ah well now the basic commitment is that you need to take responsibility or you need to devolve responsibility into the economy to those that produce emissions so as to give them an incentive to reduce emissions, and that core principle of the Emissions Trading Scheme will not be traded away because otherwise it wouldn’t work.
CHRIS How do you get around very quickly – you know the enormous problem it seems to me – New Zealand contributes 0.02% of the world's greenhouse gas emissions, we could stop everything in our tracks, return to a feudal society and you know not one gnu on the Serengeti or one alpaca in the Andes would notice one bit of difference.
DAVID We're 0.2% of the world's emissions cos we're far less than that of the world's population, the reality is climate change is a serious problem for us and for our children and if a country like New Zealand can't do its big and get it under control what hope is there for the world Chris, it's pretty grim, and we can do it, we can do it without compromising our living standards, we can do it without compromising the lifestyles that we have in New Zealand and yet we can still get our emissions under control.
CHRIS You’ve got to take people with you David that’s the problem I see, you’ve got to take the people with you.
DAVID You know there is a groundswell of people out there, people are worried about environmental matters, they see the collapse of fish stocks around the world.
JENNI Yeah but David there's a groundswell of people out there that can't pay the grocery bills, they're more worried about that at the moment.
RAWDON Or losing their jobs.
JENNI Yes that’s what's bothering them.
DAVID But these two things aren't mutually exclusive, you know you can't run a country and ignore environmental issues or economic issues or how people are feeling with respect to …
JENNI No I don’t think ordinary people give a stuff about environmental issues they just want to be able to pay the bill at the supermarket every week and give their kids two glasses of milk if the kid wants it.
DAVID No they're worried about both and indeed there's some good survey data from the Business Council from Sustainable Development to prove that point, people are worried about both.
JENNI If they had to choose as an election issue I don’t think they'd be worried about the environment, they might have been two months ago I don’t think they are now, if you listen to the talk out in the streets they're worried about food and fuel.
DAVID I've never thought that the election would be won or lost on climate change policy, I've never suggested it would be, it is important that New Zealand get it right and we are getting it right, but it's not the sole issue for the election, obviously people are worried about fuel prices.
JENNI Well I don’t know where you think you're gonna get votes by saying well we're gonna put another ten cents a litre on your petrol next year to pay for emissions trading because I honestly don’t think you will.
DAVID Well you’ve expressed that Jenni, that was a statement not a question so if you want to ask me a question.
RAWDON Jenni, you're just reiterating the point aren’t you?
JENNI Yes, well do you not understand that, would you not actually take that into account?
DAVID I've already said that we will take that into account.
CHRIS Yeah but people live in the here and now and I think this is the problem all over the world that we are seeing arising in terms of democratic politics is that as the reality of climate change is sheeted home the price that people have to pay comes into the foreground and some people just can't pay the extra costs.
DAVID You need to put this in perspective, with an Emissions Trading Scheme New Zealand's growth over the next five years might be 0.3% lower than it would otherwise be, i.e. if growth was going to be 2% per annum at the end of it as a country we'd be 9.8% wealthier rather than 10% wealthier, we will still be wealthier. These are not irreconcilable objectives, we have to do both, we have to lift the living standards of our people, we have to help them become more efficient in the use of energy and we also have to reduce greenhouse gases.
RAWDON And that’s a big ask there. Minister David Parker thanks for joining us this morning.
