Sometimes it seems like providence is screaming in our ears. A few days before confirmation that the Winstone mills in the central North Island were closing due to high wholesale energy prices, with the loss of more than 230 jobs, the Australian physicist Saul Griffith published a co-authored report on the economic benefits of electrifying New Zealand’s energy system. This would start with households and cars, with the aim of reducing prices and increasing efficiency across the sector.
It would be nice to have an electricity market that lifted us out of a recession instead of deepening it.
Griffith has become a central figure in energy policy in Australia and the US. For more than 20 years, the debate about energy generation has fixated on climate change and the daunting cost of the transition from fossil fuels to renewables. We had to choose between climate and the economy, and this polarised across left-and right-wing lines.
Across the developed world, voters overwhelmingly chose the economy and environmental activists furiously denounced them for their sins. The cultural moment peaked when Greta Thunberg denounced the United Nations for stealing her dreams and her childhood, which the general assembly greeted with rapturous applause.
But, Griffith points out, while that debate raged, a rapid revolution in green technology rendered it pointless. The efficiency of photovoltaic panels, wind turbines and rechargeable batteries have undergone staggering improvements in efficiency over the past 15 years, even as their prices have fallen dramatically – mostly because of the economies of scale delivered by mass-production in China. They are now far more cost-effective than traditional alternatives – you’d want to transition to them even if they didn’t reduce emissions.
Griffith’s report argues for a national, state-financed shift to rooftop solar, household batteries and electric vehicles (and the replacement of gas-powered heaters, stoves and hot-water systems with electric alternatives).
This replaces our traditional electricity network, in which energy flows in one direction from dams, coal stations and windfarms, with a distributed system in which every household can sell surplus energy into the grid.
The report estimates savings to households of about $10.7 billion a year by 2040, improvements in our terms of trade (we spend approximately $20b a year importing fossil fuels, predominantly diesel and petrol, and pay some of the highest prices in the world).
Costs would also come down for industrial users as supply increased. The system would be more resilient – we would stop losing power across vast reaches of the country every time there’s a storm.
Market mockery
There’s an old joke: Two economists are walking along the road. The younger one sees $100 on the ground and bends to pick it up, but the older economist says, “Don’t bother. If there really were $100 lying there, someone else would have picked it up.” It’s mocking the alleged efficiency of markets – and in New Zealand, markets are always constrained by politics.
It’s easy – even likely – for the country to leave tens of billions of dollars lying on the ground if vested interests gain a couple of hundred million dollars for themselves by leaving it there. The generator-retailers that dominate New Zealand’s energy markets maximise profits by restricting supply. The petrol retailers swiftly increase prices when international oil markets go up or the exchange rate changes but are unanimously slow to lower them (a price-fixing tactic they refer to as “rockets and feathers”).
Both sectors would ferociously resist any government policy that threatened their price-gouging.
There’s also an ideological barrier. It is possible to imagine the John Key government delivering a project like mass-electrification if the technology had been mature. It would have been a logical extension of Simon Bridges’ electric vehicle policies when he was transport minister and the ultra-fast broadband rollout, accompanied by lots of rhetoric about delivering resilience and energy sufficiency to rural communities.
Jacinda Ardern could have announced an identical scheme – although it’s doubtful her government would have built anything. But the current Transport and Energy Minister, Simeon Brown, seems instinctively opposed to any policy that might reduce carbon emissions, even incidentally.
Solar & wind distrust
The old climate vs economy debate still plays out in the imaginations of some politicians and activists. On the radical left, it takes the form of the degrowth movement, which believes climate change can be solved simply by convening a world government that dismantles the industrial economy. On the conservative right, there’s a deep suspicion of green technology: a belief there’s something unsound about the electrons generated by wind and solar; not like the solid, dependable energy you get from burning good old hydrocarbons.
Brown is one of the most capable ministers in the coalition cabinet – but arguably the most conservative. Quite an achievement when you consider who else sits around that table.
The nation’s interest has moved on from the mid-winter energy crisis. It rained; the lake levels rose. Prices declined. The government is still considering its options. Brown has said, rather vaguely, that the sector needs competition.
Industry lobbyists will be swarming the Beehive like flies around a dead cat ensuring there’s as little change as possible to the highly profitable status quo. (“Perhaps a voluntary code of conduct will set things right, minister?”)
The will of the lobbyists usually prevails, no matter who is in government. But a functional energy system is quite important to the economy. If energy prices are shutting down factories, the growth this government regards as a panacea will keep going backwards. The foreign direct investment won’t come. The torrent of qualified workers leaving the country because the jobs are bad, wages are low and prices are high will only increase.
Eventually, someone will have to notice tens of billions of dollars lying on the ground, just waiting to be picked up – even if political expedience and ideological dogma are screaming at them to ignore it.
