Coal and a lower-carbon economy - what are the alternatives?
We're all agreed the world must transition from coal and fossil fuels, and must deal with the CO2 emissions from coal. What we don't know is how quickly a transition from coal can be achieved, despite the Government’s ambitious proposal of banning of coal in new low and medium-temperature industrial process heat from 31 December 2021, and phasing out all such existing boilers by 2037. Unintended consequences of a rapid transition are likely to be significant, as are the climate consequences of too slow a global transition.
Governments face a multitude of priorities, and a key problem we face from an environmental perspective is that many governments, particularly of developing countries, place a higher priority on energy / economic progress, than on the environment. For many years, many of these Governments have believed coal-fired electricity is the only current realistic option, and that is still the case in some countries around the world.
Yet the longer we use coal (and other fossil fuels), the greater the environmental risk, in terms of global climate.
Coal, and fossil fuels generally, are a conundrum: the world must transition from fossil fuels, but can't - and won't - do so without economically-viable alternatives, including capturing and storing the CO2 emissions from the burning of fossil fuels.
There is no one solution, and all of them come at a cost, or will require new, cost-effective technologies to be developed. Policy-makers will need to think carefully about the effect of the carbon price imposed on emitters, if the lower-carbon technologies do not yet exist, and if different carbon prices around the world favour some trading partners and competitors over others.
At issue for New Zealand’s international competitiveness is that less than 22% of global emissions face any carbon pricing, and of this group the average price is USD$2/tonne of CO2e (World Bank, State and Trends in Carbon Pricing, May 2020). In other words, there is almost no carbon pricing globally, and New Zealand’s current NZU price of $37/tCO2e is already impacting on our ability to export and produce to meet domestic demand.
While many of New Zealand’s major trading partners do have significant carbon pricing at a national scale, Australia and the USA are notable exceptions.
The future of world coal demand is uncertain because of the dampening effect of the Covid-19 pandemic in 2020, and projections for a return to market buoyancy from late 2021. In April 2020, the International Energy Agency forecast an 8% drop in global consumption for the 2020 calendar year, down to around 5 billion tonnes of coal equivalent. According to the IEA, coal fires 38% of global electricity generation, down slightly in percentage terms from the 41% of five years prior.
The transition to the lower-carbon economy will entail a multitude of actions.
Switch from coal to a less emissions-intensive fuel
Much is being made in New Zealand of the possibility of converting coal-fired industrial and commercial process heat to electricity, e.g. heat pump technology and electrode boilers. The jury is out on whether this technology is cost-effective let alone effective in applications such as dairy processing and commercial greenhouses. Barriers include the capital cost of conversion, upgrading electricity capacity in parts of New Zealand and establishing transmission to sites of use. More importantly, line charges would need to come down significantly to make this option workable. That would almost inevitably require government subsidies, even if the capacity could be made available in the parts of the country where the electricity would be needed.
Already, New Zealand is seeing government subsidies in the form of co-investment in industrial projects to reduce coal use, including via greater energy efficiency, or to eliminate coal use by converting existing boilers to wood waste or electricity. The Government Industry Decarbonisation Initiative fund granted in April 2021 $22.8 million to 14 projects, of which 11 concern coal. It is important to note that none of these projects are proven to work at this stage; time will tell whether they do.
The Government is proposing to build a pumped hydro scheme at Lake Onslow in Otago, which would top up Contact Energy’s Clyde and Roxburgh dams on the Clutha river as needed. The cost of this scheme will run into the billions, and it will take years to build, if it is ever built. There is no guarantee of cheaper electricity for consumers via this ambitious though imaginative route; a range of experts in the field have warned of much higher electricity prices. This is certainly a concern held by the Major Electricity Users’ Group.
According to Fonterra, electricity today is 3.25 times the cost of coal as a source of process heat. Noting that energy costs without including the price of carbon already exceed 10% of total production costs for milk powder, converting to electricity at scale would impose unaffordable costs on organisations like Fonterra.
Synlait Milk has confronted the issue of cost with its electrode boiler at Dunsandel, Canterbury. Because of cost, this plant provides peaking energy with most of the heat effort provided by coal. The company is now switching one 15MW boiler to biomass, however, the remainder of production will still be fuelled by coal.
Horticulture New Zealand has bid for funding support to research and develop heat pump technologies for use in greenhouses. Again, it is one matter to prove the technology, another to be able to afford to use it. NZIER research commissioned in this area suggests that a carbon price of $50 per tonne of CO2 equivalent would put most of the covered crops sector out of business, so the cost of alternative technologies would have to be less than that in terms of CO2 emissions avoided.
In New Zealand, industrial energy consumers in the North Island use either coal or gas. For these businesses, gas is an option, with an operational cost similar or lower to that of coal per unit of energy produced. While still a fossil fuel, the emissions per unit of energy produced for gas are on average half that of coal, so the carbon price faced by businesses reduces accordingly. That said, businesses switching from coal to gas will have to pay for new boilers, the economics of which depend largely on scale.
They also face uncertainty in future supply because of the Government’s 2018 ban on new oil and gas exploration everywhere in New Zealand except for Taranaki non-conservation land. Unless New Zealand establishes a way of importing liquid natural gas, this fuel will be an option with a limited life. The Government acknowledges it has contributed with its policies to heightened future gas supply risk.
In the South Island, gas is not available. A possibility here would be a substantial gas discovery in the South Island, onshore or offshore, followed by the required infrastructure development, however, new exploration has been banned, as discussed above. (In such a case, there would be a strong temptation to convert the gas into liquid petroleum gas, LPG, and export it, so a gas discovery in the South Island would not lead inevitably to gas use there.)
Electricity generation is the most likely scenario for a switch from coal to gas in New Zealand – noting that at present the opposite is occurring – and overseas where there is gas supply.
Switching from coal to gas-fired electricity generation has occurred in particular in the US, and in parts of Europe. For some countries, this is low-hanging fruit, often because it is happening in any case, and will enable them to meet their Paris Agreement targets at a lower cost per tonne of emissions reduced than will be the case for New Zealand.
Dr Scott Tinker, University of Texas, is among proponents for increasing the use of gas and nuclear, if the world is to transition away from using coal in electricity generation by 2050. This is a more achievable and defendable target than the highly challenging goal set by Prof James Hansen of NASA and Columbia University for the world to cease all coal mining by 2030. The principal reason is that renewables (wind, solar, hydro, geothermal) can help, but the technology advances required for these, and other, options to replace coal at scale are not evident yet.
Wood/Plant waste (biomass)
Wood waste (which is basically firewood), also known as biomass, is a viable idea, in principle, as a source of industrial process heat because this is renewable energy. It does come with challenges:
- Price of biomass - similar to electricity as a source of heat, approximately 3x the cost of coal
- Transport - biomass is bulky - approximately 3 truckloads of biomass for every truckload of coal to the equivalent energy value
- Diffuse energy source - biomass is spread across the landscape, a challenge in collecting material into one place, whereas coal in New Zealand comes from 16 mines, and, because of its low energy density biomass is best used near source
- Quality - moisture content in wood waste can vary widely, affecting consistency of combustion and heat production, and the achievement of required temperatures
- Dilute energy source - it would take 90,000 hectares of trees planted specifically for biomass harvesting to fuel South Island dairy production
- Reliability and availability of supply - unproven or non-existent at scale, and also unevenly distributed in New Zealand
- Storage - similar issue as for transport
The above appear highly challenging to resolve at this stage, and it will take time, and research & development, to enable biomass as a viable option for industrial process heat at scale in New Zealand, and globally, if this is at all achievable. The Bioenergy Association has said that the wood-based industry could add only 3.5 MW a year to New Zealand heat energy supply (which would fuel 3-4 commercial greenhouses).4
There have been trials of miscanthus, a type of grass related to sugar cane, as a biomass crop for use with coal in boilers, and this has had initial interest from Westland Milk Products.
Moving to a lower-carbon economy
New Zealand can explore and adopt other technologies that bypass coal as part of reducing greenhouse gas emissions and meeting our Paris Agreement target. The coal sector in New Zealand produces 8% of gross GHG emissions (Ministry for the Environment greenhouse gas inventory), and the figures for other sectors are: agriculture (47%), energy, including transport (43%), and waste (3%). This gives an idea of where the priorities and the opportunities lie.
A greater uptake of hybrid and electric vehicles in New Zealand could significantly reduce our dependence on petrol and diesel. Once the infrastructure is in place with recharging facilities, supply of reliable vehicles, and a variety of vehicles, at affordable upfront prices, and with new-generation and proven battery technology and a longer range, the economics would favour New Zealand motorists switching to EVs. Those are a lot of qualifications, which will take decades to address.
Nonetheless, the potential for New Zealand is highly encouraging - with a market opportunity of more than 3 million light vehicles nationwide. The industry association for EVs, Drive Electric, proposes a target of 250,000 EVs in New Zealand by 2025. It is noted that as at 2021 the EV and plug-in hybrid models available in New Zealand are overwhelmingly geared towards compact cars for urban use, and the upfront expense is still relatively high, a major barrier to increasing uptake.
In January 2021 the Government introduced further measures to force the transition to hybrids and EVs. It proposes to legislate a Clean Car Import Standard of 105 grams of CO2 emitted per kilometre driven from 2025. Only the most efficient, compact, petrol-driven cars would meet this standard. The Government also wants to fully decarbonise the New Zealand bus fleet from 2035, and has committed $50 million in support for this aim.
The Climate Change Commission sees electrification of the vehicle fleet as playing “a crucial role in meeting later emissions budgets and the 2050 target” (of net zero emissions across the economy). It proposes a pathway to reduce New Zealand’s transport emissions from 16.6 Mt CO2e (2018) to 8.8 Mt CO2e by 2035, noting constraints in supply of secondhand EVs, their upfront expense, and limited choice in types of EV.
Renewable electricity generation
New Zealand has one of the highest rates of renewable electricity generation in the world, often exceeding 80%, compared to the global average in 2019 of around 27% (IEA). That is a fortunate situation for New Zealand to be in, as well as posing the challenge of further improvement in that figure.
Prior to the October 2020 general election, the Labour Party signalled it would bring forward from 2035 to 2030 the delivery of 100% renewable electricity generation in New Zealand, disregarding advice on the cost of this unrealistic proposition.
The Government’s Interim Climate Change Committee earlier advised that the last few percentage points to 100% would cost $1200 per tonne of CO2 emissions avoided. That is because of the redundancy in capacity that would be necessary to deal with the variability of hydro, wind and solar. Note that geothermal electricity is a low-emissions technology, not a zero emissions technology.
The Climate Change Commission that replaced the ICCC in 2020 reported in January 2021 with draft advice to Government on emissions budgets. It also cautioned against the 100% goal: “While a solution to this challenge could enable Aotearoa to reach 100% renewable electricity, it could cost taxpayers billions of dollars.” It proposed to bring the issue of electricity generation into a wider strategy for decarbonising energy use in New Zealand.
Subject to technology developments, some fossil fuel-generated electricity will be necessary for the foreseeable future for base load generation to guarantee energy security. No one likes black-outs, as occurred repeatedly in the early 2000s. Increased uncertainty over the future supply of gas from the Pohokura well in Taranaki – partly stemming from the Government’s 2018 oil and gas exploration ban - will lead to New Zealand having ironically a greater dependence on coal for backup electricity generation.
Forest carbon sinks - a temporary fix
The growing of trees is to a degree an attractive way of capturing carbon, especially if the foresters earn carbon credits along the way. This method has shortcomings, which the New Zealand government fully recognises.
Once the trees are grown, forest owners have earned a carbon store that deals with past emissions, on land that cannot now be used for anything else (without penalty). In the same vein, the owner has to ensure the forest does not burn down in a fire, or get diseased and die, or fail to replenish itself over time.
Plantation foresters would normally plant, earn credits as the trees grow, and then harvest the forest, pay 75% of the accumulated carbon liability, and replant and start the cycle anew. In that scenario, New Zealand principally reduces emissions through the planting of new forest. While there is a practical limit to the area of land in New Zealand that can be planted in new forest, for a considerable period at least, there is an important opportunity in this space.