Brian Fallow: Generator ponders plan B

Marsden B is a black elephant among power stations. Built back in the Think Big era to run on fuel oil, it was obsolete as soon as it was finished in 1979 and has never generated a single kilowatt/hour.

But for Mighty River Power, which inherited it on the break-up of ECNZ, it has some advantages. It exists, for one thing, so it is only the capital cost of converting it to coal and replacing its chimney which was demolished that has to be compared with the cost of building a new power station.

It is near Whangarei port through which coal could be imported, is north of Auckland and the emerging transmission bottleneck south of the city and it is understandable that the company is keen on securing the option of firing it up.

The disadvantage, of course, lies in that word "coal". From the standpoint of climate change and greenhouse gas emissions, it is about the worst possible option.

Its antique technology is much less efficient at turning fuel into electricity than modern combined cycle gas turbine plants.

And whereas half the energy in natural gas comes from hydrogen, coal is to all intents and purposes all carbon.

All of which means that a recent decision by Justice Hugh Williams in the High Court is likely to prove a serious setback to plans to shake Marsden B out of its mothballs.

The ruling might also cast a shadow over plans for other fossil fuel-burning power stations.

Mighty River Power received a resource consent from the Northland Regional Council a year ago to go ahead with commissioning Marsden B. Greenpeace has appealed that decision to the Environment Court.

The substantive appeal has yet to be heard but by way of preliminary skirmish the company has sought the striking out of one element, albeit a major one, of Greenpeace's argument, which is that the effects of the project on climate change and the development and use of renewable energy ought to have been considered.

The Environment Court interpreted a provision inserted into the Resource Management Act in 2004 as meaning that local consent authorities are not to have regard to climate change effects when considering whether to permit discharge to the air of greenhouse gases.

The High Court has now overturned that.

It agreed with Greenpeace that the prohibition on considering climate change impacts is not absolute. The relevant statutory passage, section 104E, which says "a consent authority must not have regard to the effects of such a discharge on climate change" carries the rider, "except to the extent that the use and development of renewable energy enables a reduction in the discharge into air of greenhouse gases, either in absolute terms or relative to the use and development of non-renewable energy."

The company and the Environment Court take the rider as rendering the section inapplicable, on the grounds that there is no extent to which Marsden B as a coal-fired station would enable greenhouse gases to be reduced.

For Greenpeace, however, the load-bearing phrase "except to the extent that" means "except insofar as".

While it accepts that Parliament has precluded regional authorities from directly regulating emissions from a thermal power station, reserving that as a matter for national policy, it argues lawmakers left them a mandate to consider the indirect or spillover effects of consenting to such a plant.

To what extent would it crowd out renewable alternatives? To what extent would it raise the commercial hurdle for renewable alternatives? That sort of thing.

Greenpeace also emphasises that the 2004 amendment to the RMA inserted into the purpose and principles part of the act a requirement on anyone exercising powers under the act to have particular regard to the effects of climate change and benefits to be derived from the use and development of renewable energy.

Mighty River Power is still considering whether to appeal the High Court's decision.

But if it stands, it would put climate change back on the table when thermal power stations are seeking RMA consent, at least to the extent that they would impact on renewable alternatives.

How much difference that would make to plans for gas combined cycle plants such as Contact's Otahuhu, or Genesis's Rodney plant, one can only speculate. Their emissions per gigawatt/hour would be much lower than Marsden B's.

Underlying all this is the scrapping of the carbon tax in December last year.

The tax would have been at least a move towards internalising the environmental costs of fossil fuel use - the principle of polluter pays.

Without it the taxpayer, and not the company, will have to pick up the tab for every tonne of carbon dioxide Marsden B emits. That is $16 a tonne, at the carbon price used in the latest Crown accounts, times maybe 2 million tonnes a year.

Other countries would rather subsidise their wind farms.

Greens co-leader Jeanette Fitzsimons says the 2004 law change, which removed the ability of local government to consider the effect of CO2 emissions when determining air discharge consents ,was expressly linked to there being a national instrument instead, the carbon tax, even if it was not made legally conditional upon it. In effect the Government has reneged on the deal.

She has a private member's bill before a select committee (albeit stalled) which would reinstate the ability of consent authorities to consider climate change impacts.

The High Court decision, while a victory for environmentalists, is too slender a reed to substitute for the law change, back to the position before 2004, which she seeks.

Nor is the prospect of emissions trading in the electricity sector enough to redress the balance in her view.

But if existing emissions are grandfathered, as they would be under National's policy and most likely the Government's as well, the short-term impact of the scheme is limited.

If the electricity market works properly it pushes up the wholesale price of electricity to the cost of the cheapest next power station - the long-run marginal cost.

A carbon price, whether from a tax or emissions trading, will push up that marginal cost if the cheapest next power station is a thermal one. So consumers face higher prices.

But the average cost generators face will be lower than that, either because they have renewable generation or because their existing thermal plant has been grandfathered.

The result is a windfall which in the case of the European emissions trading scheme, running only since the start of last year, has run into billions of euros.

Some of the generators argue that it would be a kind of double jeopardy if thermal power projects had to not only jump through local RMA hoops over climate change impacts but also contend with national climate change policy - when there is one.

But Meridian Energy, which generates all of its power from renewables, says its fuel sources - water and wind - are subject to intense scrutiny at resource consent hearings while its competitors' sources are not.

At least not until Justice William's ruling.