Kea

Kea are collaborative, curious and innovative. Their problem-solving ability is well-known, they will eat anything, and they readily adapt to live and survive in different environments and habitats. Their intelligence and curiosity are crucial to their survival in harsh mountain environments.

Kea represents a future in which climate change is seen as the most pressing issue. A broad economic transformation is pursued by New Zealand society and government, deliberately choosing to be a global leader in the pursuit of a low-emissions society.

Tūī

Tūī are territorial and competitive, resulting in a lively and vibrant forest environment. As mainly nectar feeders, their specialised energy needs limit them to specific habitats and ways of living but provide benefits to others through pollination and seed dispersal.

Tūī represent a future in which global communities, businesses and governments believe that climate change is only one of several competing priorities. Economic growth remains a priority not to be undermined by pursuit of decarbonisation goals so New Zealand follows behind the rest of the world in its pursuit of a low emissions society.

Technology & Innovation

Technology changes driving opportunity

Energy systems are complex and interconnected. Innovative technologies and services enable carbon emission reductions in all sectors and facilitate the current trend towards the democratisation of energy. But what might it take to decarbonise the entire New Zealand economy by 2050? How do we unlock sufficient innovation?

The BusinessNZ Energy Council has partnered with the public and private sectors to develop two plausible and coherent stories about New Zealand’s energy future. Having modelled these stories, the results will help you to better understand the challenges and opportunities faced by New Zealand businesses and consumers as we grapple with important issues such as the role of technology and innovation in the transition to a low carbon economy.

Kea

a future where climate change is recognised by society as the most important priority. New Zealand aggressively transforms itself into a low-emissions economy, faster than its global trading partners, competitors and peers.

Tūī

a future where climate change is recognised as one of many competing priorities. New Zealand leverages off its traditional comparative advantage to generate wealth. A ‘follower’ approach is taken to climate policies and solutions made possible by the actions of trading partners and competitors.

The key differences of the two stories

New Zealand is moving faster than the rest of the world when acting on climate change. The carbon price is higher than the global price.

New Zealand is moving more slowly than the rest of the world in acting on climate change. The carbon price is lower than the global price.

New Zealand is an early adopter and actively provides a testbed for emissions-reducing technologies.

New Zealand is a fast follower and favors market-based instruments when adopting new technologies.

Government facilitates the swift uptake of new energy technologies within New Zealand and supports the local deployment of energy technologies developed overseas.

Government has a light-handed approach and intervenes where there are market failures. New Zealand adopts new energy technology when it becomes price competitive.

Lower rate of population and GDP growth, and risk of growing unemployment as the economy restructures.

Faster annual population and GDP growth, using New Zealand’s traditional competitive advantage in primary sectors. Risk to trade emerging because of this.

Technology Costs

The scenario narratives are driven by society’s response to the climate change challenge. A key way the two responses are reflected in the modelling is through the input of technology price trends.

Both scenarios assume a further cost reduction of about 12% for wind power over the next 10 years.

Under Kea, hydrogen electrolyser costs drop almost 50% over the next 10 years.

In Tūī, these costs drop by 20%.

Kea assumes a cost reduction of 40% for li-ion battery storage over the next 10 years, Tūī another 30%.

Renewable Energy Technologies

In Kea new technology is adopted faster, though the rate is constrained by low growth during the economic transformation in the first decade. New technologies include solar and wind as well as more distributed energy systems in cities and towns, which arise in the second and third decades. The overall demand for energy recovers during the latter decades, with a focus on decarbonising the energy system.

Under Tūī, the renewable portion of electricity drops from a high of 96% in 2035 back to 88% in 2040 as a combination of gas, and coal with carbon, capture and storage (CCS) is used to meet the increase in security of supply requirements.

Energy Savings through Technology Efficiencies

In Kea efficiency gains in technology lead to an energy saving of almost 400 PJ by 2040 and 800 PJ by 2060. Tūī will save up to 350 PJ energy by 2040 and 600 PJ by 2060, overall 25% less than Kea

Tūī's energy savings are driven by the transport sector while Kea's energy savings are driven by greater energy efficiency in the industry.

Technology changes in Transport

Electricity is critical for the economic transformation. Under Kea, electrification of mass transit begins early and alternative fuels for trucks are being trialed extensively. By 2040 the electrification of the vehicle fleet is widespread, coupled with the emergence of automated mass transit. A key innovation is the growing use of mobility-as-a-service by 2060, the vehicle fleet (all types) is electrified, and there is more extensive use of active modes, such as mobility-as-a-service. Public transport has rendered private car ownership obsolete.

In contrast, Tūī, the passenger fleet continues to be dominated by private vehicles, with long commutes required from the development of greenfield areas. Electricity displaces petrol gradually, but the heavy vehicle fleet doesn’t make the switch until the last decade. By 2040, commuting remains the key driver for travel. The gradual adoption of automated cars makes the long commute more bearable but urban sprawl hampers productivity. By 2060, the number of vehicles rises as people maintain vehicle ownership, although most of the fleet is powered by renewable energy.

Key insights

Both scenarios illustrate that the race of technology is finely balanced and mitigation policy should be technology agnostic as much as possible. Based on uncertainty surrounding the pace of technological change, and the fact that New Zealand imports most technology, we need to make sure that we provide the right environment for business and consumers to transition to a low carbon and climate change resilient innovation-friendly environment.

If mobility-as-a-service is growing, then New Zealand’s road legislation needs to be able to facilitate this.

Cross-sector collaboration is crucial: interconnectivity between sectors is growing and to optimise outcomes for all, we need to think outside the energy box.

The prevailing carbon price will be a key ‘carrot and stick’ for the pace and scale of technological adoption and innovation across all sectors. Technologies, systems and infrastructure that optimise New Zealand’s renewable energy advantage and largely renewable national electricity grid is a key opportunity.

Business

Transforming New Zealand's Businesses

A significant part of GDP in New Zealand comes from the tertiary service sector, with around 23% of total GDP coming from business, property and financial services. The primary industry contributes about 8% to GDP, with over half of this coming from agriculture comprising 4% of total GDP. The main engines of economic growth – industrial, commercial and primary sectors - account for about 50% of total energy demand, half of which is carbon-based. The Government aims for a net-zero carbon economy by 2050, which raises the crucial question how we, as a country, will plan – through our policies and investments – to meet the target.

The BusinessNZ Energy Council has partnered with the public and private sectors to develop two plausible and coherent stories about New Zealand’s energy future. Having modelled these stories, the results will help you to better understand the challenges and opportunities faced by businesses as they grapple with important issues such as emerging technologies, changing consumer preferences, and the shift from fossil fuels as we seek to decarbonise New Zealand’s economy.

Kea

a future where climate change is recognised by society as the most important priority. New Zealand aggressively transforms itself into a low-emissions economy, faster than its global trading partners, competitors and peers.

Tūī

a future where climate change is recognised as one of many competing priorities. New Zealand leverages off its traditional comparative advantage to generate wealth. A ‘follower’ approach is taken to climate policies and solutions made possible by the actions of trading partners and competitors.

The key differences of the two stories

In response to climate change, New Zealand commences a fast transition away from a goods producing economy to one dominated by low energy demand and low energy intensive production.

NZ adopts a ‘wait and see’ mode. The economy continues to grow, relying on market incentives. Traditional competitive advantage in primary sectors.

The fast transition is underpinned by a high carbon price, subsidies for a ‘just transition’, and high research and development investment in new technologies.

An incremental approach, the domestic carbon price is lower than the global carbon price and economic growth relies on market-based signals.

Lower population and GDP growth

Faster population and GDP growth

Risk of high unemployment in primary sectors as economy restructures.

Risk of reputation damage and customer dissatisfaction if businesses not actively pursuing low carbon alternatives.

Government facilitates the swift uptake of new technologies within New Zealand and supports their deployment overseas.

Government has a light-handed approach and intervenes only where there are market failures.

Businesses aggressively trial and invest in energy efficiency and alternative fuels to play their part in reducing emissions.

Businesses switch to emerging technologies where they are the least cost solutions to their needs.

Energy in business

Energy use by Sector

Today, the industrial, commercial and primary sectors account for 50% of NZ’s energy demand.

Under Kea, New Zealand undergoes a difficult economic transition to a low-emissions economy. Total energy demand decreases about 30% by 2040. This trend is driven by two main factors: economic contraction in large industrial sectors (although the wood processing sector escapes this to some degree), and the introduction of electrified transport. While industrial energy demand decreases, commercial demand increases by over 30% as the services sector begins to take a larger role in the transformed economy. Beyond 2040, energy demand goes up again by about 40% as the decarbonised economy grows at a rapid rate, albeit with some offsetting energy efficiency across all businesses.

In Tūī, total energy demand increases about 25% by 2040 as all business sectors enjoy continued growth fuelled by traditional economic policies. In 2040, industrial, commercial and primary sectors account for 60% of NZ’s energy demand. Beyond 2040, New Zealand’s failure to fully decarbonise compromises the ability of traditional export sectors to compete on the global stage, and governments institute carbon policies which businesses find challenging. Energy demand reflects this difficult business environment.

Commercial Energy use by Technology

By 2060, heating, ventilation and air conditioning (HVAC) makes up over 1/3 of the commercial energy consumption under Kea.

Industrial Energy use by Fuel Type

Today, NZ’s economy is heavily reliant on hydrocarbon-based fuel inputs, with 55% of the country’s total primary energy requirements being met by oil and gas and 7% by coal. In both scenarios, after 2040, electricity and wood dominate as fuel for industry. However, under Tūī, industry relies heavily on natural gas until 2040.

Commercial Energy use by Fuel Type

Today, New Zealand’s economy is heavily reliant on hydrocarbon-based fuel inputs, with 55% of the country’s total primary energy requirements being met by oil and gas and 7% by coal. In both scenarios, after 2040, electricity and wood dominate as fuel for industry. However, under Tūī, industry relies heavily on natural gas until 2040.

Total Energy Carbon Emission (MtCO2-e) Industrial Carbon Emission (MtCO2-e) Commercial Carbon Emission (MtCO2-e)
2015 31 7.5 1
2040 -70% vs -20% -80% vs +25% -60% vs -20%

Key insights

The use of natural gas in industry differs markedly under the two scenarios.

In both stories, air conditioning will contribute most to the commercial energy consumption portfolio by 2060.

Businesses need to shape public expectations on how sustainable growth can be advanced. As a result, businesses need to share their insights and experience to inform Government policy and regulation. It is important that the business and Government work together so barriers preventing the removal of inefficient equipment can be removed and investment in best practice energy efficient technology can be promoted.

Households

The energy future for New Zealand Households

No consumer has ever before had such choice in participating in the energy market. With the increasing uptake of more sophisticated electricity market tools, batteries, electric vehicles, solar panels and home energy management, the role of the consumer is shifting from passive user to electricity storage provider, energy producer and energy aggregator. What will this mean for New Zealand households and what will be the key opportunities and challenges they face when decarbonising New Zealand?

The BusinessNZ Energy Council has partnered with the public and private sectors to develop two plausible and coherent stories about New Zealand’s energy future. Having modelled these stories, the results will help you to better understand how New Zealand households may be impacted, and the range of choices and trade-offs that might emerge.

Kea

a future where climate change is recognised by society as the most important priority. New Zealand aggressively transforms itself into a low-emissions economy, faster than its global trading partners, competitors and peers.

Tūī

a future where climate change is recognised as one of many competing priorities. New Zealand leverages off its traditional comparative advantage to generate wealth. A ‘follower’ approach is taken to climate policies and solutions made possible by the actions of trading partners and competitors.

Under Kea, households have a strong common purpose to transition quickly to a lower emission economy. Households act increasingly for the common good on environmental issues, change behaviours to reduce emissions, and accept other environmental solutions such as moving towards a circular economy, recycling and the reduction of wasteful disposable activities and products. Household travel increasingly switches to public transport, active modes and ride-sharing for mobility. In Tūī, there are polarised views and nomandate for Government to transition away from the historically light-handed approach to climate change and emission reduction. The emphasis is on the rights of individuals and households to make their own decisions, and the continued reliance on market signals to influence decisions. Deciding to leverage off our traditional competitive advantage and short-term prosperity that allows price signals to initiate a transition include behavior and technology adoption, but the pace of changes is slow.

Energy in Households

Household Energy Consumption

Household energy consumption declines significantly in both scenarios from 2020 on.

Kea's non-transport energy consumption per household is slightly higher, however, this is offset by lower transport energy consumption. Electrification of transport and greater use of public transport lowers consumption.

Tūī shows a lower non-transport energy consumption per household from 2040 due to appliance efficiencies.

Household Energy use by Fuel Type

Household (non-transport) Energy Use by Technology

Domestic Travel

VKT per Capita

Under Kea, VKT remains stable over the time period. New Zealand households have a faster uptake of EVs and changing consumer preferences leaning toward more higher frequency mass public transport making it an increasingly preferred method of travel within New Zealand’s cities. Ride-sharing, active modes and autonomous public transport reduce single occupant vehicle travel and private vehicle ownership. CO2-e reduces by 80% by 2040.

Under Tūī, in the longer term, autonomous vehicles make the longer commutes more tolerable, ensuring VKT per capita increases. The passenger fleet continues to be dominated by private car ownership, with only limited uptake of shared vehicles, public transport and active transport modes. CO2-e halves by 2040.

Number of Households in Millions Transport Energy Consumption in PJ Transport Carbon Emission (MtCO2-e) Car Stock in Millions Cars per 1000 people
2015 1.8 257 15 3.5 760
2040 2.2 vs 2.6 153 vs 217 3.5 vs 7.3 3.7 vs 4.0 660 vs 650

Space of living

Insightful urban design in Kea leads to a concentration of population and household growth in urban areas, moving residents closer to where they work, shop and play and encourages a shift to public transport and more active modes of transport. In Tūī, the boundaries of towns and cities continue to expand driven by the focus on increasing the supply of land in response to market demand, rather than urban intensification. More people live in sprawling suburban areas, and rely more on private travel to work, shops and leisure.

Speed of technology change

Under Kea, households switch to low carbon fuels and technology, including electricity for transport and heat. Households are willing to try out emerging technologies as early adopters. Households support decarbonisation and recognise the dual role of electricity to both reduce its own emissions and support other heat and transport sectors to electrify. For Tūī, households switch to emerging technologies where they are the least cost solutions to their needs. Consumers are followers of technology, dependent on the price point and quick payback.

Key insights

Decarbonising New Zealand economy requires work on both sides of the energy value chain, supply and demand.

Pricing is a significant lever to reduce household energy consumption, especially for appliances.

Transport forms a significant part of household energy use. The electrification of transport remains one of the key ways to reduce household emissions.

Transport

Exploring New Zealand's Transport future

The government aims to transition New Zealand’s economy to net zero carbon by 2050. Today, the energy sector is the second largest carbon emitter with almost 20% of carbon emissions coming from domestic transportation. How the transport sector evolves will be critical to the future of New Zealand energy sector and the quality of our lives.

The Business New Zealand Energy Council has partnered with the public and private sectors to develop two plausible and coherent stories about New Zealand’s energy future. Having modelled these stories, the results will help you to better understand the challenges and opportunities faced by the transport sector as we grapple with important issues such as the end of oil and gas exploration, the uptake of new technologies and changing consumer preferences.

Kea

a future where climate change is recognised by society as the most important priority. New Zealand aggressively transforms itself into a low-emissions economy, faster than its global trading partners, competitors and peers.

Tūī

a future where climate change is recognised as one of many competing priorities. New Zealand leverages off its traditional comparative advantage to generate wealth. A ‘follower’ approach is taken to climate policies and solutions made possible by the actions of trading partners and competitors.

The key differences of the two stories

Early adopter of technology to reduce emissions

Follow global technology trends to reduce emissions

Domestic carbon price is higher than global price, New Zealand a world leader in carbon pricing.

Domestic carbon price is lower than the global price

Mass public transport increasingly a preferred method of travel in New Zealand cities

Passenger fleet is dominated by private car ownership

Consumers and businesses favor non-fossil fuel sources

Consumers and businesses favour lowest cost energy sources

Government encourages a fast transition to non-fossil fuel sources

Government doesn’t push a switch from fossil fuels instead relying on incremental market-led change

Higher road pricing and environmental charges used to support carbon pricing

Limited road pricing is used to fund expansion of road infrastructure to ease congestion

Reducing emissions in Transport

Under Kea, transport energy consumption and transport emissions drop significantly throughout the period to 2040 due to a higher carbon price and lower economic activity and population growth. This is underpinned by business and consumers early adoption of low emission technology in the transport sector.

In Tūī, businesses and consumers are slow followers rather than early adopters of low emission technologies. As a result, energy consumption and emissions rise until 2025, indicating continuing reliance on fossil fuels. However, from this point on, clean energy and low emission fuels become more prevalent as markets respond to international trends.

Total car stock in Millions Vehicle Kilometres Travelled (VKT) per capita Cars Ownership (Cars/1000 people)
2015 3.5 8653 760
2040 3.7 (EVs=3) vs 4 (EVs=2.3) 9038 vs 11053 696 vs 672

Under Kea, transport energy consumption and transport emissions drop significantly throughout the period to 2040 due to a higher carbon price and lower economic activity and population growth. This is underpinned by business and consumers early adoption of low emission technology in the transport sector.

In Tūī, businesses and consumers are slow followers rather than early adopters of low emission technologies. As a result, energy consumption and emissions rise until 2025, indicating continuing reliance on fossil fuels. However, from this point on, clean energy and low emission fuels become more prevalent as markets respond to international trends.

Electricity is critical for the economic transformation. Both scenarios move to predominantly electric vehicles (EVs) by 2040 although Tūī still has a significant portion of hybrid petrol cars. Intentional and clever urban design, coupled with other central and local government incentives to reduce private car transport (e.g., public and active transport investment) leads to a moderation in growth in VKT in Kea. A lack of these policies in Tūī result in single-person journeys in private cars remaining dominant, however, with VKT increasing 35% from 2020.

Energy Use in Transport

Kea and Tūī electrify transportation to over 50%. In Kea the use of fossil fuel declines significantly from 2025 as a result.

From 2045 onwards, aviation is the larger share of transport fuel consumption and contributor of carbon emissions with around 40% of transport fuel being domestic and international jet fuel.

In 2040, overall transport fuel consumption has dropped by 40% under Kea whilst in Tūī transport fuel consumption decreases by only 10%. Consumption reductions are driven by electric efficiency.

Transport Fuel

Energy used in Transport

In both scenarios, consumers and businesses switch to low carbon fuels and technologies, seen in the fast uptake of electric and hybrid petrol vehicles for private travel and the switch to electric and hydrogen vehicles in heavy haulage.

Kea and Tūī have a fully electrified car fleet by 2050. A higher carbon price under Kea makes fuel substitution more desirable and we see a faster pace of switch to electric vehicles. Under Kea, around 30,000 hydrogen trucks appear by 2035 and stay for around a decade, then get superseded by electric trucks by 2045. Over 90% of the bus and truck fleet will be electrified by 2040. In Tūī, there is more of a mix of diesel and electric outside the light-duty vehicle fleet.

Car Fleet

Truck Fleet

Key insights

The degree to what New Zealand can electrify its transport system (and maintain a growing and largely decarbonised electricity system) is critical to determining the future of the energy system.

The scenarios illustrate that the race for technology is finely balanced and mitigation policy should be technology agnostic as much as possible.

We widely decarbonise transportation, except aviation, which gives guidance as to where to focus effort.

Questions remain on what infrastructure is required by the changes in transport energy. What are the implications for cities, businesses and consumers? What is the overall contribution of transport to changing New Zealand's total energy system?

Carbon Pricing & Emissions

Carbon pricing to reduce Carbon Emissions

New Zealand’s total annual gross greenhouse gas emissions are about 80 million tonnes of carbon dioxide equivalent (MtCO2-e). The agriculture and energy sectors (energy including transport, accounts for ~34 Mt pa greenhouse gas emissions) are the largest contributors to New Zealand’s gross emissions.

As part of the Paris Agreement to limit the global average temperature increase between 1.5° to 2° Celsius above preindustrial levels, the plans are to decarbonise New Zealand’s economy to achieve net zero carbon emissions by 2050. Energy will play a key role in achieving this commitment. Carbon pricing is a key plank in the government’s response to climate change.

The BusinessNZ Energy Council has partnered with the public and private sectors to develop two plausible and coherent stories about New Zealand’s energy future. The model gives us the opportunity to see the effect of different carbon prices. Carbon prices are a key input in this model.

Having modelled these stories, the results will help you to better understand the challenges and opportunities faced by New Zealand businesses and consumers as we grapple with important issues such as carbon pricing as a major driver to influence changing consumer behaviour.

Kea

a future where climate change is recognised by society as the most important priority. New Zealand aggressively transforms itself into a low-emissions economy, faster than its global trading partners, competitors and peers.

Tūī

a future where climate change is recognised as one of many competing priorities. New Zealand leverages off its traditional comparative advantage to generate wealth. A ‘follower’ approach is taken to climate policies and solutions made possible by the actions of trading partners and competitors.

The key differences of the two stories

High uptake of technology to reduce emissions

Businesses and consumer follow global technology trends to reduce emissions

Consumers and businesses favour non-fossil fuel energy sources

Consumers and businesses favour energy sources based on market pricing

Government encourages a fast transition to non-fossil fuel sources

Government doesn’t push a switch from fossil fuels, relies on incremental market-led change

Domestic carbon price is higher than global carbon price

Domestic carbon price is lower than the global carbon price

Integrated, mixed-useland development within urban areas, supported by a shift to active mode

Greenfields outside cities, supported by autonomous cars to make the long commute more comfortable

High road pricing and environmental charges to support carbon pricing for transport

Limited road pricing of carbon, used to fund expansion of road infrastructure to ease congestion

Mass public transport increasingly a preferred method of travel in New Zealand cities

Passenger fleet is dominated by private car ownership

Reduction in New Zealand pastoral agriculture to plant-base production and forestry. Emphasis on high value products,new manufacturing producing low emissions

New Zealand’s economy thrives in the near-term based on its primary sector comparitve advantage.

Carbon pricing and energy sector CO2 Emission Curves

Under Kea, the economy is mostly decarbonised by 2040. Under Tūī progress to decarbonise the economy is slower, with energy sector emissions 50% higher than in Kea by 2040.

The scenario narratives are driven by society’s response to the climate change challenge. A key way the two responses are reflected in the modelling is through the carbon price.

By 2030 the difference between the carbon price in Kea and Tūī is $65/tCO2-e with Kea at $105/tCO2-e and Tūī at $40/tCO2-e. That spread widens to $100/tCO2-e by 2060. The emissions outcome shown reflects the carbon price model inputs and all the behaviours refelcted in the narratives.

Emission reductions by sector

2020 2040 2050
34mt -24mt -10mt -26mt -17mt
The agriculture and energy sector account for about 34mt gross emissions. Significant economic transformation. CO2-e emissions decline to around 10mt. CO2-e emissions fall slowly to reach 24mt. In 2050, CO2-e emissions fall to 8mt and then increase slightly before leveling off at 10mt in 2060 CO2-e emissions bottom out at around 17mt.

Emissions by Sector

A $90/tCO2-e difference between the two carbon price paths after 2030 (in combination with accompanying policy settings) delivers a significantly different emissions profile between the two scenarios – Kea and Tūī. In transport, the introduction of electric vehicles significantly reduces emissions for both scenarios in the long term. Kea’s focus and prioritisation on removing emissions from New Zealand’s economy can be driven from 34mt pa in 2020 to 10mt pa by 2040. However, some “sticky emissions” remain from natural gas usage in the food product and other manufacturing sectors as well as geothermal use in the electricity sector and make a full decarbonisation of the energy sector difficult. In Tūī, New Zealand takes more of a follower approach to addressing its CO2-e emissions profile, CO2-e emissions fall from 34mt pa in 2020 to 16mt pa by 2050.

Key insights

The model shows that pricing alone will not drive out emissions.

In both scenarios some stubborn emissions remains including from aviation (domestic and international), rail, shipping, geothermal in electricity, diesel in agriculture and industrial sectors.

In Kea the aggressive transition to a low emission economy comes with some costs including, potentially, low economic growth through to 2040, failure of some businesses, higher unemployment and impacts on lower income households. The payoff for this strategy is a transformed economy and restoration of economic growth in the later part of the modelled period albeit with the lowest emission profile sustainable.

Under Tūī, the path for economic growth in the follower scenario remains robust through to 2040 but New Zealand faces costs and harder trading conditions subsequently when the imperative to transform to a lower emissions-based economy comes into play

Further emission reductions in either scenario are possible through compact urban development integrated with transport in New Zealand cities, which increase the use of public transport, walking and cycling, and rely less on private car travel.

Power

Powering New Zealand to a more sustainable future

The government aims to transition New Zealand’s economy to net zero carbon by 2050. Today’s energy sector (incl. transport) accounts for over 40% of New Zealand’s greenhouse gases, mainly in the form of CO₂. 85% of New Zealand’s electricity is supplied from renewable energy sources, the 3rd highest renewable electricity share in the OECD countries. This positions us well for a low emissions future. A vibrant electricity market is opening opportunities for consumers across the electricity sector. But what role might electricity play in New Zealand’s energy outlook?

The BusinessNZ Energy Council has partnered with the public and private sectors to develop two plausible and coherent stories about New Zealand’s energy future. A scenario approach has been used to explore the dynamics of the sector, and the country, to meet the decarbonisation goal. The results will help you to better understand the challenges and opportunities faced by the energy sector as they grapple with important issues such as emerging technologies, the role of electrification in enabling decarbonisation, changing consumer preferences, and the shift from fossil fuels as we transition our economy.

Kea

a future where climate change is recognised by society as the most important priority. New Zealand aggressively transforms itself into a low-emissions economy, faster than its global trading partners, competitors and peers.

Tūī

a future where climate change is recognised as one of many competing priorities. New Zealand leverages off its traditional comparative advantage to generate wealth. A ‘follower’ approach is taken to climate policies and solutions made possible by the actions of trading partners and competitors.

The key differences of the two stories

In response to climate change, New Zealand commences a fast transition away from a goods producing economy to one dominated by low energy demand and low intensity production.

New Zealand climate policy adopts a ‘wait and see’ mode to stay in sync with global developments. The economy continues to grow, relying on market incentives.

Fast transition is underpinned by a high carbon price, subsidies for a ‘just transition’, and high R&D investment in new energy technologies.

An incremental approach, economic growth relies on market-based signals

District plans promote a compact city approach, supported by more public transport, cycling and walking.

Urban development practices continue resulting in more greenfield residential development located further from jobs.

Lower rate of population and GDP growth, but with risks as the economy restructures.

Faster annual population and GDP growth, using New Zealand’s traditional competitive advantage in primary sectors, but trade risks emerge.

Businesses and communities aggressively trial and invest in energy efficiency and alternative fuels to play their part in reducing emissions.

Businesses and consumers only adopt energy and carbon-efficient tecnologies when they become price competitive

High road pricing and environmental charges to support carbon pricing for transport

Limited road pricing of carbon, used to fund expansion of road infrastructure to ease congestion

Mass public transport increasingly a preferred method of travel in New Zealand cities

Passenger fleet is dominated by private car ownership

Reduction in New Zealand pastoral agriculture to plant-base production and forestry. Emphasis on high value products,new manufacturing producing low emissions

New Zealand’s economy thrives in the near-term based on its primary sector comparitve advantage.

Exploring Tomorrow's Energy System

The shutdown of Huntly (coal) drives renewables to 95% by 2030 in both scenarios. Only Kea increases further to 97% in 2050, relying on over building of geothermal to provide seasonal flexibility. However, after the peak in 2050, the renewable proportion in Kea declines slightly back to 95% as a small coal and carbon capture storage (CCS) plant is used to meet growth. In Tūī, the renewable portion of electricity drops from a high of 96% in 2035 back to 88% in 2040 as a combination of gas, and coal with CCS is used to meet the increase in security of supply requirements. This balance between renewable and non-renewable is maintained through to 2060.

Under Kea, wind and geothermal become increasingly present. After 2035, solar begins to have a substantial presence, driving a need for more system flexibility. In Tūī, the system prefers a stronger reliance on geothermal and coal with CCS over wind and solar. Gas and coal with CCS rather than renewables overbuild, are chosen to provide security of supply.

Electricity Generation by Fuel Type

Kea sees a significant reduction in emissions in the electricity sector due to higher renewable penetration and the closure of thermal power stations in response to the prospect of tighter climate policy and higher carbon prices. Tūī is slower to transition away from fossil fuels as some gas-fired power stations remain in the mix as they see more moderate future carbon prices. Rising demand for electricity and maintaining security of supply requires increasing use of CCS later in the time-period for both scenarios.

In both scenarios, electricity as a renewable proportion of energy rises, illustrating the increasing importance of electricity in the decarbonisation of the economy. The main driver in the shift is the switch to electricity for transport and industrial process heating. Electricity is critical for the economic transformation.

Kea electrifies transport and maintains a growing and largely decarbonised electricity system. Under Kea, there will be more than 3m EVs on the road in 2040. In Tūī there will be 2.3m EVs on the road and a significant portion of hybrid petrol cars.

Key insights

The biggest opportunity to decarbonise is to leverage New Zealand’s world-leading renewable electricity resources and convert much of the transport fleet and industrial heat to electricity.

The degree to which New Zealand can maintain a growing and largely decarbonised electricity system (and electrify transport) is crucial for progressing towards a net-zero carbon future

Maintaining security of supply for electricity will be amplified by the effects of climate change, as more of the supply is weather dependent. We must invest in the resilience of our electricity system to ensure the wider economic reach of electricity is not compromised by the very problem it is trying to fix.

Fugitive emissions from geothermal stick and make a full decarbonisation of the energy sector difficult. It raises the question as to whether future geothermal developments will be more or less carbon-intensive than today.

Resources

Resourcing New Zealand

New Zealand has an abundance of natural resources and we depend upon access to affordable, reliable and sustainable energy to maintain our prosperity. While dependent on it, we increasingly live in a world where energy systems are changing fast and being shaped by many factors and diverse actors. New Zealand is ranked in the world’s top five developed countries for electricity produced from high levels of renewable sources. About 40% of New Zealand’s total primary energy supply comes from renewable energy sources. However, heat and transport fuels remain largely fossil fuel-based resulting in 60% of primary energy supply coming from hydrocarbon fuels. The Government aims for a net-zero carbon economy by 2050. What might be the role of hydrocarbon-based fuel tomorrow?

The BusinessNZ Energy Council has partnered with the public and private sectors to develop two plausible and coherent stories about New Zealand’s energy future. Having modelled these stories, the results will help you to better understand the challenges and opportunities faced by the energy sector as we grapple with important issues such as emerging technologies, changing consumer preferences, and the shift from fossil fuels as we seek to decarbonise New Zealand’s economy.

Kea

a future where climate change is recognised by society as the most important priority. New Zealand aggressively transforms itself into a low-emissions economy, faster than its global trading partners, competitors and peers.

Tūī

a future where climate change is recognised as one of many competing priorities. New Zealand leverages off its traditional comparative advantage to generate wealth. A ‘follower’ approach is taken to climate policies and solutions made possible by the actions of trading partners and competitors.

The key differences of the two stories

In response to climate change, New Zealand commences a fast transition away from a goods producing economy to one dominated by low energy demand and low intensity of production.

New Zealand adopts a ‘wait and see’ mode. The economy continues to grow, relying on market incentives.

Less investment in exploration, lower reserves, less investment in infrastructure, and rising oil and gas production costs leads to significantly higher gas prices.

Energy resources are managed carefully, with effective governance and in a way that preserves the energy market.

Process heat moves completely away from using coal with gas serving as a transitional fuel. Gas-fired power generation declines but continues to support grid reliability until investment decisions in solar, geothermal and bioenergy by generators, industrial companies, commercial businesses and small consumers can enable demand to be met in all conditions.

Production from fossil-fuelled heat and power generation systems (such as natural gas peaking power plants, coal-fired generation and coal-driven process heat) continues to be considered on its merits. Society doesn’t value renewable energy just to reduce carbon emissions, instead prefers to support leastcost electricity and process heat production options.

Businesses and communities aggressively trial and invest in energy efficiency and alternative fuels to play their part in reducing emissions.

Businesses and consumers only adopt energy and carbon-efficient technologies when they become price competitive.

What might be the role of Hydrocarbon-based fuel tomorrow?

Today, New Zealand’s industry is heavily reliant on hydrocarbon-based fuel inputs. Over 50% of the country’s total primary energy requirements being met by oil and gas and 7% by coal.

Primary Energy Consumption by Fuel Type

Natural Gas use by Sectors

Under Kea, industrial used natural gas drops 50% by 2030, and 80% by 2035%. The reliance of natural gas within industries reduces from 30% to 9% by 2035 as it electrifies.

In Tūī, industry relies on natural gas for longer. After 2040, natural gas consumption in industry has dropped 70% by 2050.

Under Kea, due to the electrification of the transport sector, the use of oil in transport falls radically after 2030, reducing by 75% in 2040.

In Tūī, the transformation takes longer. However, transport oil consumption drops 65% by 2050.

In both scenarios, the amount of fossil fuel used in transport declines significantly. From 2045 onwards, aviation is the largest share of transport fuel consumption and contributor of carbon emissions with around 40% being domestic and international jet fuel.

Oil use by Sectors

Coal use by Sectors

In Kea, the use of coal declines by almost 60% across all sectors, over the next 10 years. Coal consumption drops to almost zero by 2050. Coal is eliminated from the industrial sector, with some manufacturing and dairy processing plants retaining coal boilers for heat applications.

In both scenarios, electricity as a renewable proportion of energy rises, illustrating the increasing importance of electricity in the decarbonisation of the economy. The main driver in the shift is the switch to electricity for transport and industrial process heating. Electricity is critical for the economic transformation.

Kea electrifies transport and maintains a growing and largely decarbonised electricity system. Under Kea, there will be more than 3m EVs on the road in 2040. In Tūī there will be 2.3m EVs on the road and a significant portion of hybrid petrol cars.

Domestic Gas Production

Fuel Imports

Key insights

Decarbonisation is a priority in Kea and not in Tūī but in both cases the biggest opportunity to decarbonise is to leverage New Zealand’s renewable electricity resources and convert as much of the transport fleet and industrial heat to electricity as possible

Gas continues to play a role in providing security of supply, but natural gas is supplemented by LNG in Tūī.

The increasing role of the carbon price in decision making is one example in an energy industry that is becoming more and more interconnected. There will be a period where both electricity and fossil fuels will compete for the transport consumer’s dollar.

BEC2060