Environment Minister David Parker is now hinting that the Tiwai Point aluminium smelter may be able to survive.
New Zealand Aluminium Smelters (NZAS),smelter at Tiwai Point, will close in August 2021 after a strategic review found the business was not viable.
But yesterday Parker appeared to endorse NZAS’s fundamental argument that the transmission component of the power price they pay is crippling.
He was speaking at a BusinessNZ forum on the environment, which, perhaps understandably, tended to focus more on the economy rather than pure environmental issues.
Tiwai Point is one of a number of major industrial plants that is threatening to close because of the Government’s zero carbon and electricity pricing policies.
The transmission charges component of the electricity charges paid by Tiwai Point is currently based on a system which spreads the cost of the transmission network across the country.
NZAS argues that it pays 11 per cent of the cost of the 11,803 km-long national electricity grid even though it is only 160 km from its power source, Lake Manapouri.
“In respect of transmission charges that is where I do have some sympathy for the Tiwai position,” said Parker.
“They pay as much in transmission charges at Tiwai as they would if they relocated the smelter to Auckland.
“They would suffer a higher power price for transmission losses or electricity losses during transmission, but they would pay the same amount for the wires themselves, which is ludicrous.
“And there is work being done as to whether a solution can be brokered there.”
However, the Electricity Authority contest part of the NZAS argument that Parker supports.
Rob Bernau, the Authority’s Director Transmission Pricing Methodology, says it is not correct to say the Tiwai Point smelter only uses two per cent of the transmission grid.
“That is a simplistic view of the smelter’s energy needs, for example assuming it only uses the line from Manapouri to Tiwai,” he said.
“The smelter gets important benefits from its connection to the wider national transmission grid such as improved reliability and energy security, even in a dry year.
“When hydro lakes are low, the smelter, like all South Island customers, has access to power generated in the North Island.
“A substantial proportion of the national transmission grid assets are used to get this power South, including the Cook Strait cable.”
The Authority has been reviewing the way the transmission charge is calculated since 2009, and it has been a political minefield.
In 2016 it proposed what it calls a “benefit based approach” in which those who benefited from transmission investments would pay for them.
That would have seen the smelter’s bill drop from $61 million to $40 million a year.
But that saving would, in effect, have been re-couped from upper North Island consumers, particularly people living in Auckland.
It was opposed by then-Energy Minister, Judith Collins, who asked the Authority to think again.
They did, but in their final decision, released in June this year, the savings to NZAS were reduced to $10 million.
Perhaps surprisingly, Greens co-leader, Marama Davidson, also yesterday saw some logic in Parker’s argument.
“I agree somewhat with David Parker that there is a solution for Tiwai,” she said.
This optimism that the smelter might be able to stay open runs counter to what both the Prime Minister and the Energy Minister, Megan Woods have been saying.
They have been emphasising the need for a “just transition” as the smelter closes down. They may be motivated by the fact that if the smelter closed it would free up 13 per cent of New Zealand’s total power production and thus allow a relatively pain-free path through to the 100 per cent renewable energy goal they have set for 2030.
This a key “branding” goal, particularly for Jacinda Ardern, but it is fraught with practical problems, not just at Tiwai Point.
Aside from stopping fossil fuel power generation, the primary tool the Government has to push action on climate change towards its goal of reducing greenhouse gas emissions by 30 per cent below 2005 levels by 2030 is the carbon price.
Currently that price is around $35 a unit which means that a hectare of pine trees can earn between $500 and $1000 a year in carbon credits .whereas hill country sheep and cattle farms make a profit of less than $500 a hectare each year.
The consequence is that there are now significant conversions of hill country land to forestry. This has been incentivised by Shae Jones’ “One Billion Trees” programme.
The National Party have endorsed farmer opposition to this through the “50 Shades of Green” movement.
Critics of the forestry scheme blame the high carbon price for what is happening.
National’s environment spokesperson, Scott Simpson, made the obvious point at the BusinessNZ forum that planting trees does not decarbonise the economy.
“I always like to think of offsetting as something akin to the old fashioned medieval religious buying of indulgences,” he said.
“It’s kind of like trying to buy your way out of sin without changing your behaviour.
“We do actually need to change behaviour.
“And as a country, I don’t think we have yet to begin to have a serious conversation about the role of offsetting in terms of our pathway to net zero,”
Simpson quoted a report from the Parliamentary Commissioner for the Environment, Simon Upton, which said simply that fossil fuels have to go.
“Fossil emissions need to be reduced to zero by the second half of the century,” the report said.
“That should be the aim.
“Reducing them by only half that and claiming to have managed the problem by planting forest sinks to cover the rest is a poor alternative.
“Not only would the sinks need to be maintained in perpetuity, but planting would also have to continue as long as there were any residual emissions.”
But the architect of the forestry scheme, Shane Jones, said there had been a lot of misinformation about decarbonising.
“How does New Zealand society want to meet the cost of decarbonising?”
“If we’re not going to use pine trees as the nation’s lung then what?
“These issues are unlikely, sadly, to be dealt with in this election because everything is eclipsed by the uncertainty around it because of Covid.
“I’m deeply worried that there are very few deep policy debates actually happening in the election.
“So we will not be turning our back on what we’ve already agreed to, but we will not agree to anything unless it’s rooted in hard science.”
Ironically the closure of the Tiwai Point smelter would reduce New Zealand’s carbon emissions by around 500,000 tonnes a year.
That’s roughly 25,000 hectares of pine trees.
Nothing is easy trying to decarbonise the economy.
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