Eve of disruption

Just transition or heart over head? In grabbing back the political agenda after a messy March, the Government has made a string of brave calls, all intended to prove that it will walk the talk on a “transformative” agenda. Some were well-signalled. For example, shifting transport funding from highway construction in favour of urban public transport, rail and road safety should have come as no surprise. The same goes for the demise of Government backing for large-scale irrigation schemes, part of a wider agenda still being developed that aims to make intensive agriculture pay its way environmentally, as well as in export dollars.

However, the decision to stop issuing offshore oil and gas exploration permits was not pre-election policy. Although Prime Minister Jacinda Ardern was musing privately months ago about the politics of such a move, it is barely a month since she broke from her formal programme to accept a petition from Greenpeace on the forecourt of Parliament.

Always with an eye to powerful imagery, Greenpeace backed the moment with pictures of history-changing Labour leaders of the past: Savage, Kirk, Lange and Clark. Ardern could enter that pantheon with a huge symbolic gesture designed to make real her claim that climate change is “this generation’s nuclear-free moment”.

She has done so, in a move that is at once measured and justifiable yet also naive and arguably cavalier with a major industry. No other country with a significant oil and gas industry has made such a decision.

Signalling today that domestic supplies of natural gas will wind down over the next 30 years is a powerful incentive to industries dependent on gas to adapt or disappear.

The electricity industry has already proven that 10 years is plenty of time to make such a big adjustment. Just a decade ago, Contact and Genesis Energy were planning to import natural gas and talking up fears of a gas shortage.

Instead, rising electricity prices funded a switch to more wind and geothermal power plants and delivered 85% renewable electricity. Power companies have closed some gas-fired power stations and have been notably silent on the Government’s oil and gas decision.

They have moved on. For other major gas users, it is not so simple. Methanex, which exports more than a billion dollars’ worth of natural gas a year as methanol, will probably disappear. Its Think Big-era plants at Motunui and Waitara can be unbolted and moved to another country.

Fonterra, which uses gas for milk processing in the North Island and coal in the south, may use more coal, although in the longer term, the absence of gas will force it to switch to electricity for industrial heat.

However, the naivety of the Government’s new policy is that it will not, of itself, reduce global carbon emissions, but could increase New Zealand’s if it leads to more coal use in the meantime.

To head off that possibility, the soon-tobe-announced Interim Climate Change Committee will need to give the ineffectual emissions trading scheme teeth to drive the carbon price high enough to encourage industry to adopt cleaner fuels – just as electricity has already done.

To its support base, the Government’s oil and gas decisions are an overdue breath of future-focused fresh air. To those working and investing in affected industries, however, it is creating uncertainty over the country’s fourth-largest source of export receipts. That is a big call.

But by leaving in place existing production and exploration rights, there is no immediate Rogernomics-style shock reaction to a crisis. Ardern is making much of differentiating hers as a reforming Labour Government but not a brutal one.

And as recent reports make clear, decarbonising early is less costly than sudden change forced by slow progress on carbon reduction targets.

There are, of course, risks. It is disingenuous to claim that existing permits might sustain a healthy oil and gas sector until the 2040s. The fruitless hunt for major gas fields in the Great South Basin since the 1960s proves the point that exploration is expensive and usually unsuccessful.

But perhaps the biggest risk is the promise of a Governmentled “transition” to new industries of the future. Airy ministerial talk of capital being redeployed to new activities is a carbon copy of Rogernomics-era rhetoric. Capital was redeployed, but not necessarily in New Zealand.

The Government is talking a big game on its ability to direct the emergence of such new industries, but its capacity to deliver this upside of transformative change is untested and the value of the industries it is disrupting is all too measurable.

Signalling today that natural gas will wind down is a powerful incentive to industries dependent on gas to adapt or disappear.