6.1. Enabling a net-zero carbon emissions Aotearoa

E whakaahei ana i tētahi Aotearoa he kore-more tana tukunga waro

Climate change is the defining challenge of this century. Our infrastructure is a key part of the solution.

Our climate is changing rapidly. Global temperatures are rising faster than anticipated and unless serious change is made, we will exceed at least 1.5°C of warming this century.⁴⁵ New Zealand is committed to doing its part to help prevent this. The Climate Change Response Act 2002 was amended in 2019 to set three targets: net-zero carbon emissions by 2050, and biogenic methane emissions reduced below 2017 levels by 10% by 2030 and by 27 to 47% by 2050. These are challenging targets that require immediate and sustained action.

To meet our 2050 emissions targets, the Minister for Climate Change will set emissions budgets that will act as stepping stones to our long-term targets and emissions reduction plans that will set policies and strategies for meeting the budgets. Emissions reduction plans will include sector-specific emissions reduction plans and ways to mitigate the impacts that reducing emissions will have on people.

Achieving the above targets will also require industry and consumers to shift to new technologies like electric vehicles. We’re in a fortunate position. Our hydro, wind and geothermal power stations already provide considerable low-emission electricity. We have abundant potential sources of energy, which can be harnessed to produce more clean electricity than needed to meet our net-zero carbon emissions commitments. This would allow us to create sustainable high -wage jobs for New Zealanders by attracting new companies that produce energy-intensive goods and services.

At the same time, we’ll need to reduce or manage the emissions we produce when we build and operate our infrastructure. The decisions we make about investing in infrastructure today need to consider properly the long-term cost of carbon. The way we plan for, build and operate infrastructure will need to change for the sake of the generations to come.

6.1.1. Context

Decarbonising the transport sector will be a significant challenge.

Transport makes up 38% of New Zealand’s non-agricultural emissions, with most of these emissions arising from fossil fuels used to power vehicles.⁴⁷ Emissions from domestic transport have continued to rise in recent times. Biofuels, hydrogen and electrifying the transport system are likely to drive the decarbonisation of the transport sector, alongside increased levels of walking and cycling, mass public transport and mode-shift to reduce the carbon impacts of the domestic freight network. Emissions will still arise though, when the transport infrastructure and vehicles are built, although some of those emissions occur overseas and are not attributed to New Zealand.

Non-built solutions need to be considered, such as congestion charging to smooth traffic peaks. Local government must also encourage a greater use of public transport by making better use of existing urban space and increasing housing density in areas close to employment and other amenities. These mechanisms are only viable where options for public transport, walking and cycling exist. These issues are discussed further in Section 6.3, which focuses on building attractive and inclusive cities.

To achieve our 2050 target, large reductions in carbon emissions are needed over the next 30 years.

The reductions will primarily need to come from the transport, industry and forestry sectors, as shown in Figure 15.⁴⁸

We’ll need to dramatically alter our energy sources and remove carbon emissions where possible. Currently, only 30% of the energy we consume is from low-emission sources.⁴⁹ This will need to increase to 86% by 2050.⁵⁰ Most of this is likely to come from a greater use of biomass and clean electricity like wind and solar.⁵¹ Clean electricity will likely be used to produce hydrogen to fuel heavy vehicles and to power the heating used in industrial processes (high-temperature process heat). Biofuels are also likely to be used directly to fuel heavy vehicles and medium-temperature process heat. Capturing and storing carbon emissions from using gas and coal may be another option if the technology becomes cost effective. Over the next 30 years our existing gas and petroleum infrastructure will need to be re -purposed to support these alternative energies.⁵²

Most of the reductions in gross emissions are from the energy sector

Figure 15: Contributions to reducing emissions (million tonnes of carbon dioxide equivalent)

Clean electricity will be key to reducing carbon emissions from transport, process heat and agricultural activities.

The percentage of electric vehicles in our light-vehicle passenger fleet is projected to grow from less than 1% to 93% by 2050.^53,54 They’re expected to account for more than half of the additional electricity we’re going to need by 2050 (see Figure 16).⁵⁵

Electric vehicles will account for a large portion of the increase in demand for electricity

Figure 16: Contribution to increased demand for electricity in 2050

Over the next 30 years we’ll need to build significantly more low-emissions electricity generation.

This is needed to cater for our growing population, the greater use of electric vehicles, agricultural activities that require electricity and process heat.^56,57 Most of this low-emissions electricity will come from new solar and wind generation and with this come some challenges:

• We’ll need to prepare for times when quantities of wind and sunshine are low, particularly as this often occurs at the same time, in winter, when hydro-electricity generation is also low and demand for power is high.⁵⁸
• As our economy becomes increasingly reliant on electricity, we’ll also become more reliant on the national grid. This means the consequences of natural disasters like earthquakes, volcanic eruptions in the Central Plateau and extreme weather events would be very high.⁵⁹

The electricity sector will still produce carbon emissions in 2050.

The operation of geothermal generation isn’t carbon-free and gas-fired generation may still be needed to provide electricity when our wind, solar, geothermal and hydro generation can’t meet demand.⁶⁰ There might also be some industrial processes, like steel and cement production, that require very high temperatures and switching to electricity would be overly costly. In cases like these, we’ll need to explore options for offsetting these, such as by planting more trees and buying emission units from offshore.⁶¹

6.1.2. What we heard

Our consultation asked people for their views on meeting the government’s goal to have 100% renewable electricity by 2030. Submitters told us that setting targets for specific sectors, like transport and electricity, weren’t useful because of the Emissions Trading Scheme (ETS). If we do want to set targets for individual sectors, the submitters suggested the ‘100% renewable electricity by 2030’ target should be replaced with a broader renewable energy target.

We also heard that there’s a need to focus more strongly on the role that the gas sector and its infrastructure can play in helping New Zealand transition to cleaner energy sources. Submitters also told us to focus more strongly on the role of gas in ensuring we have a secure source of electricity and a sufficient gas supply for industry until better options are available.

6.1.3. Strategic direction

Moving to a low-emissions energy sector

We need to grow our clean electricity generation significantly over the next 30 years. This will require rules and regulations that support this change, sustained investment and the right mix of infrastructure to ensure we have reliable and resilient sources of power.

Streamlined regulatory processes are needed to enable the development of new energy projects.

We need to streamline the consenting process to enable low-emission energy infrastructure to be built. There are three areas of focus.⁶²

Renewable energy zones: Councils could identify renewable energy zones in their regional spatial plans. These zones are areas that would be suitable for renewable energy infrastructure and where there would be fewer barriers to gaining resource consent. At the same time, transmission and distribution infrastructure will also be needed to carry the energy produced in renewable energy zones to homes and businesses. In most cases regulated or contracted revenue will be sufficient to cover Transpower’s and the distributor’s costs. When this isn’t the case, innovative funding, financing or indemnity arrangements may be needed to strike a better balance between maintaining incentives for investors to make careful choices and reducing barriers to grid and network expansion. Similar arrangements may also be needed for other situations (outside of renewable energy zones) where Transpower or distributors may need to incur significant costs to provision for projected demand increases due to electrification of industry and transport.

Offshore wind farms: It’s currently cheaper to develop wind farms on land than offshore. However, it’s expected that offshore wind farms will be developed when technology improves and costs decrease. With this will come a need to balance their role in generating electricity with their impacts on the environment, as well as the importance of our coast to our economy, lifestyles and cultural values. Currently, we don’t have a specific consenting arrangement for developing our low emission offshore energy resources. To make the best use of those resources, the government may need to specify and allocate rights to certain areas, known as development blocks. New Zealand already has experience in regulating offshore oil and gas exploration and, like Australia, we can use this experience to grow renewable energy.⁶³

Distributed energy resources: Our regulations should help with the uptake of low-emission distributed energy resources, which are smaller devices for generating or storing power, such as rooftop solar panels, wind turbines, batteries and demand management systems.⁶⁵ Transpower estimates that solar panels that are connected to local networks will provide about 9.1% of total electricity supply by 2050.⁶⁶ The Minister of Energy and Resources, the Commerce Commission, and Electricity Authority all have key roles in developing a regulatory environment that enables households and businesses to install these types of technologies. The connection of tens of thousands of distributed energy resources to local distribution networks will create some challenges for network operators. Electricity distributors will also face additional complexities from the electrification of transport. Electricity-sector regulators will need to continue monitoring distributors to ensure they can meet these challenges in their current structure, and if not, whether some should be merged to improve their capabilities and get better results. The sector already has some joint-venture and out-sourced management arrangements for operating these networks and more of these types of arrangements may be enough to manage the complexities they’ll face in the future.

We need to invest more in clean electricity.

Our growing population and the need to phase out fossil fuels means we’ll need to increase the amount of electricity we generate each year by up to 70% by 2050.^67,68 New Zealand is fortunate to be embarking on this journey with an electricity system that in the past five years has generated 82% from low-emission sources. This will increase over the next five years.⁶⁹

Experience shows this is achievable. Relative to the size of our economy, we built at a faster pace between 1960 and 1990 than we’ll need to over the next 30 years (see Figure 17). We now have better construction technology and wind and solar farms should be easier to build than the hydro dams we’ve built in the past. These newer technologies also have lower impacts on the environment than our hydro dams. Already, four new players have announced plans for large-scale solar farms in New Zealand and several others have expressed interest in building large-scale offshore wind farms.^{71,72,73,74,75}

There will be challenges not faced in the 1960s, such as more stringent regulatory barriers to development. We also need to address the perennial challenge of ‘dry year’ risk.

The scale of energy infrastructure needed to meet net-zero carbon emissions has been done before

Figure 17: Historical and projected growth in electricity generation capacity, relative to GDP

We can leverage our low-emissions energy potential for economic advantage.

The Climate Change Commission estimates that to meet our net-zero carbon emissions target, we’ll need to be generating an extra 30 terawatt-hours (TWh) of electricity a year (see Figure 18).^76,77 But we have enough natural, clean resources like wind, solar, geothermal and hydro energy to generate much more than that. Even if we exclude offshore windfarms, we could generate enough power to not only meet our target but still have a surplus of 35 TWh, enough to supply about seven aluminium smelters of the same size as the Tīwai Point smelter. The surplus could be used to grow energy-intensive activities, with some of them better suited than others to achieving acceptable levels of energy security for households and other consumers. These potentially include hyperscale data centres⁷⁸ and the production of hydrogen or ammonia.⁷⁹ Attracting these activities to New Zealand would reduce global greenhouse gas emissions and create sustainable high-wage jobs for New Zealanders.

Abundant low-emissions energy resources are an economic opportunity

Figure 18: Potentially viable low-emissions energy resources

An even faster pace is possible if it becomes commercially viable to build windfarms offshore.

The opportunity to expand our energy sector is just one example of ways in which the wider economy may evolve over the next 30 years. We have a small, dynamic economy, with sizeable international trade and investment flows, which could affect ETS prices and the gap between our actual emissions and our international climate commitments.⁸⁰ The way the government addresses these issues, for instance through international carbon markets, will be important for investor confidence in the energy sector and more widely, and this needs to be addressed sooner rather than later. The Government has work underway to address these issues.

Businesses will find it attractive to locate their energy-intensive activities in New Zealand when they can earn higher returns or face lower risks than they would in other countries. We should not need to subsidise them. We just need to compete by being smart about how we plan, build, operate and regulate our infrastructure. However, we need to act quickly. Other countries are quickly moving ahead of us to leverage their low-emissions energy resources (see Case Study 2 for example). To be competitive with Australia and other Asia-Pacific countries, we need to allow large-scale commercial developments (to reduce costs). Our infrastructure and regulatory policies need to be highly reliable. We also need to build supporting infrastructure in a timely and efficient way, as well as develop and retain a skilled workforce.

We can support partnerships with and unlock opportunities for Māori in low-emissions energy production.

Māori are involved in energy production. A number of iwi are part of joint ventures in electricity generation and some also receive income as a result of geothermal generation on their land. Many have extensive interests in land, forestry (a source of biomass energy), geothermal and hydro resources. Māori are well positioned to be joint-venture partners in many forms of energy production and storage, such as investing in wind and solar generation schemes and in carbon capture and fossil-gas storage. Additional geothermal and hydro generation and storage, such as the proposed Lake Onslow pumped hydro storage scheme, are other possible areas for Māori investment.

Māori also have valuable knowledge to contribute to the development of the government’s Emissions Reduction Plan and National Energy Strategy and a regulatory framework that can enable offshore low-emission energy generation and storage.

Increasing energy prices could affect low-income and disadvantaged New Zealanders.

New Zealand scored highly in energy equity against 128 other countries surveyed by the World Energy Council.⁸³ However, the transition to a low-emissions economy could disadvantage low-income consumers, those on fixed incomes such as older people and people with disabilities and health needs.⁸⁴ Petrol and gas prices are expected to increase significantly over the next 30 years⁸⁵ and the daily fixed charge for electricity is estimated to increase by more than 200% by 2050.⁸⁶ These increases would disproportionately affect low income New Zealanders and those who can’t reduce significantly their use of petrol and diesel for transport and gas for cooking and heating.⁸⁷

Additional government support will be needed for those most disadvantaged. Some government initiatives are underway, such as programmes that offer low-income households education on how they can reduce their energy costs and a trial of renewable energy technologies for social and Māori housing.^88,89 The government may need to offer support to some people to pay the upfront costs of improvements that will save energy over the long term. It may also need to help workers who were in fossil-fuel industries to retrain or relocate for new jobs. This would come under its Just Transitions programme of work.

Reducing the emissions produced by our infrastructure

Business cases should incorporate the long-term cost of carbon.

The long life of our infrastructure and the high costs of replacing or changing it can mean that the decisions we make today result in carbon emissions for years to come. For example, extending or improving the road network can result in emissions for several decades because it is too costly to replace petrol and diesel vehicles quickly with electric and hydrogen ones. When the cost of repurposing or replacing infrastructure is prohibitive, the investment is said to be ‘irreversible’.^90,91 Irreversible investment decisions need to include the cost of carbon over the life of the infrastructure, as highlighted in Case Study 3. Getting the price right is fundamental to driving infrastructure decisions that support a low-carbon economy. In February 2022, the New Zealand ETS spot price reached $82.50 per tonne of carbon dioxide equivalent.⁹² ETS prices may need to be as high as $232 per tonne by 2050 to drive decisions that hold global warming at less than 2°C.⁹³ The Climate Change Commission has recommended changes to the trigger prices in the ETS that would enable it to reach these levels by 2050.⁹⁴

Both central and local government make decisions about investing in infrastructure based on business cases. These business cases should incorporate the expected future carbon-abatement costs, rather than current ETS prices, to inform better decision-making on which projects are worth investment. The cost of carbon used in business cases should be consistent with New Zealand’s net-zero carbon emissions commitment and reflect projected changes in the cost of carbon over the next 30 years. Adopting a more realistic cost of carbon will also help encourage businesses to develop low-carbon materials and processes for constructing infrastructure.

Although carbon-emission impacts should be considered in all business cases, carbon impacts are often locked-in at the strategic planning stage. For example, often the locations and nature of infrastructure investment shape the urban forms of our towns and cities, which can lock in long-term behaviour and associated emission impacts for generations. Where feasible, carbon impacts should be considered at the strategic planning stage, such as when spatial plans are developed.

Consider whole-of-life emissions when making infrastructure decisions.

As we make decisions on the infrastructure in which we invest, we need to consider the whole-of-life carbon emissions associated with infrastructure in our business cases.

Carbon is created in the production of many construction materials including asphalt, cement, steel and aluminium. The heavy machinery used to build and decommission infrastructure also emits carbon. The production of cement and steel are amongst the largest carbon-emitting processes on earth. Per tonne produced, steel emits roughly 1.9 and cement emits roughly 0.8 tonnes of carbon emissions.⁹⁸ These embodied emissions can be very high in infrastructure projects due to the use of carbon-intensive materials.

After construction, there’ll be ongoing emissions from the operations, maintenance and use of infrastructure. Emissions generated from operations, maintenance and renewal are referred to as operational emissions and can include the emissions from the energy used in a building.⁹⁹ Emissions from third parties using infrastructure are referred to as enabled emissions and can include the carbon emissions generated from driving on a road. Emissions can also arise when removing infrastructure, which we refer to as disposal emissions. Some infrastructure, such as a new hospital, can increase overall emissions. Other projects, such as wind farms, can decrease overall emissions.

A whole-of-life approach to carbon emissions looks at embodied, operational, enabled and disposal carbon emissions over the expected life of infrastructure. For projects that are intended to reduce carbon emissions, there’ll usually be a net increase in emissions during the construction phase that will be outweighed by reductions during the operational phase.

Using a whole-of-life approach to emissions can help us make investment decisions that are consistent with net-zero carbon emissions targets and should be used for projects that reduce and increase carbon emissions. A full consideration of whole-of-life emissions can encourage non-built infrastructure solutions, less carbon-intensive infrastructure options and the use of low-carbon construction materials.¹⁰⁰

A government work programme is needed to identify and understand which construction materials and methods produce the least carbon and then review regulations, standards and codes to encourage their use.

6.1.4 Recommendations