Dialogue: Energy self-sufficiency could be our salvation

KEN PIDDINGTON* says New Zealand can contribute to lowering greenhouse gas emissions and achieve maximum self-sufficiency in transport fuels if it is bold enough to embrace new technology.

Suddenly, as we read the New Year papers, we were asked to believe that the petrol price would somehow return to normal and stay there.

In the wake of the failed climate change talks at The Hague, the sceptics about global warming have also been asking us to believe that there is no need to pursue action under the Kyoto Protocol by limiting our release of greenhouse gases.

Finally, the signals from Washington warned us that the new occupant of the White House would support those same sceptics, and concentrate on the business of pumping more oil.

All three issues are interrelated and need to be examined carefully. There are great dangers ahead for New Zealand in the assumption that we can now return to business as usual. Locally, there are even greater dangers for Auckland if policies are not put in place to head off the creeping effects of the transport crisis, which has made it the country's least-liveable urban area. For the economy at large, there are also costs in avoiding the strategic management of climate change risk.

This is definitely the year in which to concentrate on some of these problems. In April, the Government will release a draft national strategy on energy efficiency and conservation. It will then consult, and the strategy will be issued on or before October 1. Is it too brave to hope that what emerges will look ahead to the energy revolution which will take place this century?

First, the petrol price. What happened late last year was not all the result of the fall in value of the dollar. Globally, oil is a diminishing resource and it is also a political lever that exporting countries will continue to apply at every opportunity.

Opec's latest decisions show clearly that it enjoys the cat-and-mouse game, especially as it becomes increasingly in control of it. Over the next 15 to 20 years, imported oil is likely to cost a lot more. By mid-century, three or fourfold increases in constant dollar terms are not outside the ballpark.

So the short oil shock of 2000 should at least have opened our eyes to the arithmetic. The annual bill for imports of crude ($2 billion) represents something close to the deficit on our current (external) account. It would be nice to get rid of it. Yet those same pundits who call for the rejection of the Kyoto Protocol want us to stay with fossil fuel on the grounds that our greenhouse gas emissions are minute in global terms.

The other costs of oil imports in New Zealand terms are, however, not minute. The (internal) economic costs imposed by higher petrol prices have been thoroughly analysed, even though the affected stakeholders did not take the sort of militant action seen in Europe when prices at the pump peaked. Add to this the environmental costs of collateral (non-carbon) pollution from transport fuels in public health terms and we begin to see that there is no such thing as cheap petrol.

In California, children's lung size has been shown to shrink by 10 per cent through exposure to this type of pollution. Evidence is mounting that particulates are at least a contributing factor in (and may sometimes be the direct cause of) increasing incidence of bronchitis, asthma and other ailments. Auckland should be concerned that it exceeds not only the tight Californian standards, but on occasion breaks World Health Organisation ceilings for individual pollutants.

Secondly, turning to the Kyoto Protocol argument, we must bear in mind this link between global carbon dioxide emissions and local pollution. What we do to the overall stock of atmospheric carbon may appear incidental, but this does not exonerate us from acting as a good global citizen.

The Government is right to accept the firming scientific consensus that human actions are likely to bring about climate change (together with the acknowledged uncertainties). No country in the world has rejected this view, despite the Canute-like position taken by individual politicians.

Even a very faint sense of environmental responsibility would lead one to interpret the breakdown of the talks in The Hague as a major setback. So the task is to strive harder for a global contract to build on Kyoto rather than demolish it.

There is, moreover, a possibility that oil prices might be pushed up more quickly if the Kyoto Protocol were simply allowed to lapse. Governments will not feel that they have to send any signals to the market penalising the use of fossil fuels. Those same signals would have accelerated the switch to new technologies which will ultimately reduce dependence on oil, particularly as a transport fuel.

Since the Kyoto Protocol was signed, these have been pushing closer to consumer markets. The first innovation, the hybrid electric vehicle, sells competitively in major markets.

Next, the new-generation vehicles will become available. First, the hypercars, with up to fourfold increases in fuel efficiency. Then the fuel-cell vehicles, which could run on methanol produced in New Zealand from natural gas. (Ultimately, by using biomass, we could grow our own). Both are proven technologies. Test vehicles are on the road.

Not so far away are the vehicles running on pure hydrogen. Some are modifications of high-quality vehicles (six BMW experimental models are running) and others use fuel-cells (demonstrated on buses in North America and in Europe).

This revolution will carry well beyond the transport sector. Take note, for example, that with the support of some big oil money, Iceland is geared up to be the world's first hydrogen economy.

We don't need proof of climate change to invest in these new technologies. We need to do the numbers. In particular, we need to look at the burden on our economy (and the serious health penalty) if in 20 to 30 years we still have inefficient vehicles using dirty engines dating from the last century.

What we are facing is the classic timing dilemma in a major technological transition. Do you invest early on the first-up, best-dressed principle? If we were the first hydrogen economy in this hemisphere, our entrepreneurs and technical experts would enjoy vast economic opportunities as the polluted cities of the Asia-Pacific region seek clean (and affordable) transport.

The business-as-usual case would have us leave any such moves until everyone else has made the start-up investment, mastered the technology and worked out how to exercise virtual monopolies in fringe markets. This seems to be the direction we are taking.

Perhaps our economic history over the past 25 years can offer us some guidance here. Few people can now list the drivers of the Think Big strategy of the Muldoon era. By and large, its architects have been discredited and its critics vindicated. As the Commissioner for the Environment of the day, I was counted as a critic. But not once did I question the goal of seeking maximum self-sufficiency in transport fuels.

We need to remember that in the early 1980s this doctrine was based on the experience of a persistent balance of payments deficit over two decades, plus the warning signs from the first and second oil shocks.

Which brings us full circle. In many ways, self-sufficiency for all our energy needs is an even more valid goal for public policy today than it was 25 years ago.

The big difference over the next decade is that instead of reaching for second-hand industrial plant and large foreign investments, we can use small-scale, cutting-edge technology and distribute the benefits to all sectors and all regions.

* Ken Piddington is adjunct professor of environmental policy at the University of Waikato.