Brian Fallow: Opening treasure trove comes at a cost

Flowers left at the Pike River Mine entrance. Photo / Doug Sherring

We need to have a debate about what to do about the country's most significant mineral resource: the lignite deposits of the far south.

With a mountain of overseas debt to service, can we afford to continue to ignore a resource which could yield an exportable commodity or substitute for imports of urea and diesel?

But is it smart to trade our clean green brand for a dirty brown one?

A major report released yesterday by the Parliamentary Commissioner for the Environment, Jan Wright, reminds us that the lignite resource is huge, containing as much energy as 70 Maui gas fields.

Unfortunately the environmental costs of exploiting it are also high. And as the emissions trading scheme's rules stand, to the extent that those environmental costs are monetised the financial burden would fall almost entirely on the taxpayer.

"It makes no sense that the ETS rules would lead to taxpayers subsidising, even at a modest level, new investment in outdated dirty technology," Wright concludes.

Of the three technologies under consideration the least problematic - from a national, though not a global, perspective - is briquetting.

Lignite is the lowest-ranking coal with a high moisture content. But it can be upgraded to something with a calorific value (or energy content per tonne) similar to sub-bituminous coal that is worth shipping to overseas markets.

Lignite is mined in open-cast pits. They are a blot on any landscape, until exhausted and remediated. But the tragedy at Pike River could make open-cast mining more acceptable than underground mining.

Under current international rules, if the briquettes are exported New Zealand would only be liable for the emissions involved in drying out the lignite (about 90,000 tonnes of CO2 per million tonnes of briquettes) not the 1.75 million tonnes emitted when they are burned. It is a different story with plans to use lignite as the feedstock for the production of urea.

New Zealand uses more than 600,000 tonnes of urea a year, mainly as a nitrogenous fertiliser but also in the manufacture of plywood and particle board.

About 240,000 tonnes a year is produced by Balance from Kapuni gas; the rest is imported mainly from the Arabian Gulf.

The commissioner's report says the process emissions involved in making urea from lignite would be about 20 per cent higher than at Kapuni and more than 60 per cent higher than in the Gulf. (The difference is that Kapuni gas is "fizzy" and already contains a lot of CO2.)

If a lignite-to-urea plant displaced the 390,000 tonnes of urea imported annually, it would add about half a million tonnes of CO2 to New Zealand's greenhouse gas emissions. If it was done on a scale that would provide a surplus for export, the emissions liability would be correspondingly higher.

That does not include the emissions of nitrous oxide from farm land arising from the use of urea as a fertiliser.

As the ETS stands, those emissions are entirely a charge on the taxpayer until at least 2015 and probably for longer than that, given the woeful global response to climate change.

But it would be a big call to decide that New Zealand's food production should be limited by how much nitrogen clover can fix.

From Solid Energy's point of view, one of the attractions of a lignite-to-urea plant is that the front end of the process, which involves gasifying the lignite, is the same as would be required for a lignite-to-diesel plant. It would give the company experience in that technology.

A diesel plant would use the Fischer-Tropsch process, used by Nazi Germany and adopted by South Africa and companies such as Sasol during the days of apartheid and oil sanctions.

But the process emissions involved would almost double emissions per litre of diesel consumed.

In theory, the process emissions (unlike those from vehicle exhausts) can be captured, compressed to a liquid and buried in suitable geological formations. That technology - carbon capture and storage - is still at the pilot plant stage, however, and Wright says that no suitable storage sites in the south have yet been identified.

Offsetting the CO2 emissions by planting more trees would require an ever-expanding forest estate.

A single lignite-to-diesel plant would increase national emissions by 20 per cent, Wright estimates, and would widen the already daunting gap between the couture's projected emissions and the target of a 10 to 20 per cent cut from 1990 levels by 2020, which the Government has tabled in international negotiations.

Because most of the world does not yet put a price on carbon emission, the ETS provides that emitters who have to compete with producers who do not face a cost of carbon qualify for free emission units up to 95 per cent of their emissions. And this is not grandfathered. They can increase their production, and emissions, and the carbon subsidy rises proportionately.

"As long as any free credits are provided by the Government there will be pleas for new industrial activities to be defined as eligible for allocation," Wright says.

She calls for the ETS to be amended so as to explicitly exclude new industries that use lignite from any free carbon credits, and to allow only new activities which will reduce net national greenhouse gas emissions to be eligible for a free allocation.

She argues that there are lower-carbon ways of making the same products as can be made from lignite. The Fischer Tropsch process, for example, can use wood as a feedstock.

The International Energy Agency estimates that the production of liquid hydrocarbon fuels from unconventional fossil sources - tar sands, natural gas and coal - will quadruple over the next 20 years, until they equate to the amount of oil Saudi Arabia now produces. Given that these products are fungible and traded internationally, so long as New Zealanders consume oil we will be responsible for our share of those increased emissions.

A technological shift to electric cars would help but globally, unlike in New Zealand, most electricity is still produced from fossil fuels.

In any case nearly half of the transport fuels produced are used to move much heavier things around, such as ships, aircraft and bulldozers. A plug-in car is one thing - a plug-in truck is harder to envisage.

Biofuels present a different set of difficulties. You have to look at the land they come from and ask if biodiversity has been sacrificed (as in palm oil plantations carved from rain forest) or if the same land could be used to produce food.