PM Ardern says government giving oil and gas sector years of notice on move away from fossil fuels to avoid harsh Rogernomics-type impact on economy

The economic reforms of the mid-1980s appeared to be top of the Government’s mind when announcing New Zealand’s transition away from fossil fuels.  

On Thursday morning, Prime Minister Jacinda Ardern revealed the Government is banning all future offshore oil and gas drilling by axing exploration permits.

The 31 oil and gas permits currently active, which run out as far as 2030, will not be affected.

Speaking to media, Ardern pointed out numerous times the movement away from fossil fuels was a “transition.”

She was at pains to point out “no current jobs will be affected” by the Government’s decision, as it is a process that will be underway for decades to come.

“Transitions have to start somewhere – unless we make decisions today that will eventually take effect in 30 or more years’ time, we run the risk of acting too late and causing abrupt shocks to communities in our country.”

She referenced the economic reforms of the 1980s, colloquially referred to as “Rogernomics,” where the Labour Government embarked on a campaign of deregulation and market-led restrictions, as a way of illustrating this point.

Ardern says as the Government is giving the oil and gas sector years of notice, the impact on the economy will not be quite so severe as if the transition happened overnight.

“I have seen that happen once in the 1980s, I don’t want to see it happen again.”

Minister of Economic Regional Development Shane Jones, who was speaking at the press conference alongside the Prime Minister, was singing a similar tune.

“There will be those in the regions fearful of this transition.

“I say to them: ‘think back to Rogernomics when change was imposed on people such as my father, a farmer, who was powerless to deal with it.’”

Where will the jobs go?

Minister of Climate Change James Shaw says the announcement represents “the greatest economic opportunity in a generation.”

“It will create new jobs and new technology that our dependence on fossil fuels has held us back from for too long.”

The “transition” will be aided by the Government’s Green Investment fund, agreed to in the Labour/Greens supply and confidence agreement.

The fund will: “Stimulate up to $1 billion of new investment in low carbon industries by 2020, kick-started by a Government-backed Green Investment Fund of $100 million.”

The Treasury is seeking financial advisors tasked with seeking the best use for the money – they will report back in July.

As well as this, Ardern says many of the jobs – such as engineers –  which will be lost due to the Government’s plans, will be available in other areas of the economy.

For example, working on the infrastructure for below-ground water pipes.

“There are needs in the future where we can very easily transition some of that specialist knowledge. We just need to make sure we have a plan for it and the onus is on the Government to make sure we are producing that plan.”

Energy industry blindsided

The move away from fossil fuels has been “well signaled” by the Government, Ardern says.

Last month, she met with Greenpeace protestors outside Parliament to accept a petition which was calling for the end of oil exploration. She told them the Government was “actively considering” the request.”

Hours later, in her weekly post-Cabinet Press conference, she appeared to downplay those comments.

“What I [was] pointing out was that every Government, at around this time of year, actively considers how it will manage block offers, that’s what we’re doing.”

Her comments left many in the energy sector confused about the Government’s position.

It is understood that at the Petroleum New Zealand Conference last month, Energy Minister Megan Woods was not able to give a straight answer to questions about the future of block offers.

Thursday’s announcement caught many in the energy sector by surprise.

“We are disappointed there has been no direct consultation with the industry and it is also a surprise given the Labour Party’s 2017 energy manifesto talked of continuing offshore exploration,” The Petroleum Exploration and Production Association of New Zealand said in a statement in reaction to the news.

But Ardern says she would be “surprised if they [the energy sector] were blindsided.”

“We have flagged our interest as party and as a Government towards moving away from fossil fuels. We have always talked about a transition and a lead time.”

She says Woods has met with many within the sector and the Government was aware of its views on the matter.

“If you indicate that fossil fuels are not your future, that means making decisions about the future of oil and gas exploration permits.”

Questions still remain

One of the biggest question marks of the announcement hangs over what will happen with gas.

Almost 30% of New Zealand’s net gas production was used for energy generation – 20% for electricity. Around 45% was used for petrochemicals, methanol and fertiliser.

New Zealand doesn’t import gas; but a lot of the gas that is extracted is used in the production of methanol, which is exported.

At the moment, it is impossible for New Zealand to import natural gas, as the right infrastructure is not in place.

Without a major find that could be monetised, different forms of energy would have to be identified and made accessible at large.

This is likely to mean as New Zealand transitions away from gas, a supply gap will likely form in the market.

Asked if the Government will need to begin exporting gas, the Prime Minister says: “we’re already indicating there is still potential in the existing permits that are already out there.”

Greenhouse gas emissions rising

Meanwhile, the latest inventory of New Zealand’s greenhouse gas emissions shows at as of 2016, there had been an almost 20% increase on 1990 levels.

Gross emissions in 2016 were 78.7 million tonnes of carbon dioxide – 2.4% lower than 2015.

Methane from dairy cattle digestive systems and carbon dioxide from road transport were the biggest contributors to emissions increase.

The agriculture and energy sectors contribute 49.2% and 39.8% respectively to New Zealand’s gross emissions.

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