About the arguments for Oil and Gas exploration.

blockade

In 2003 National MPs thought that an emissions tax on cows was ridiculous. By the 2017 election, the fart jokes were still in use, making it clear that they still don’t really understand how emissions work. This year it’s oil and gas exploration. Will it become another confusing mess?

The Environment Select Committee published written and live submissions for this bill on its facebook page: oil company execs, lawyers, activists and politicians all getting a few minutes to make their case.

The arguments against ground themselves down to these points:

  1. The CMA amendment was rushed and prepared without consultation
  2. Carbon Emissions will go up
  3. It will cost will tens of billions of dollars
  4. Foreign investment will be driven away
  5. We’ll face an energy crisis

The argument for mostly stuck to one:

80% of discovered reserves were un-burnable in 2011. All exploration since then is mutually assured destruction.

This implications of this are inconcievable: a new geological era. Our chances of survival depends largely on the handful of people who currently alive to the problem.

Until people feel the urgency of this situation the first five arguments matter more. If they become common wisdom they may block other attempts to change. In two years time even this timid advance could go since the National party has committed to overturning it should they win the next election.

These five points can help us think clearly about the problem that blocks all others: how do we end our dysfunctional relationship with Big Oil.

1. The CMA amendment was rushed and prepared without consultation

“One of the most important aspects of any kind of environmental assessments is the public review process, as I’m sure you’ll all know, and yet the process for this bill has afforded a single week for public review. That is certainly not best practice and it certainly doesn’t allow submitters to gather their thoughts.”
— Renee Grogan – World Ocean Council

“If there are sound reasons for it, it should stand up to scrutiny. … If you’re truely proud of the decision you’re about to make, you’ll be prepared to hold it up to scrutiny. That you attempt to rush it through gives the impression that you are not proud of what you are doing.”
— Cameron Madgwick, PEPEANZ CEO.

“I’m hiding under my desk crying at the moment. There goes our local economy. Please tell us its all a bad dream.”
— Neil Holdom, Mayor of New Plymouth district.

This amendment is tiny but significant. It is essentially the first tranche in the removal of fossil fuels. We all knew this was coming. Its to our shame that we are so unprepared. Anyone younger than 31 has never known a month that was colder than average. A few more weeks may have been appropriate, but they clearly would not have given Mayor Holdom a chance to catch up.

After more than a decade spent campaining for this, there is certainly little sympathy from Greenpeace for the argument. As a response to its demonstrations at sea, and following a secretive, undocumented meeting with Oil Industry execs, Simon Bridges once amended the Act under urgency with no consultation at all. This removed the one remaining forum, bobbing at sea in front of the ship, by making it illegal.

Despite the tight timeframe there were more that 2200 submissions with 61% in support. This probably favoured the activists, many of whom have been working for years to make the ban happen. Many of these were quick to point out that most drilling and exploration activities in New Zealand are not notifiable at all. Where exploration and mining operations are open to submission the terms of those discussions don’t provide for the affects of climate change, placing a coral expert like Dr Lyndon DeVantier in a Catch-22: don’t mention the place where one quarter of marine species are dying, just stick to the details of a the cleanup schedule on a drilling platform.

Within government the consultation period was considerably longer: at least three months. The Ministry for Business, Innovation and Employment (MBIE) was providing the Minister for Energy and Resources, Dr Megan Woods, with briefings and options on petroleum.

This report, based on a series of papers released under the OIA, also states that the Minister for Energy and Resources, the Prime Minister and other ministers received inadequate, misleading and occasionally biased advice from MBIE officials. This misleading information included the number of jobs affected, the likely change to gas prices and the number of wells that had been fracked. This period also included meetings with the billionaire owner of NZOG, Eyat Ofer.

PEPANZ policy manager Joshua O’Rourke suggested the government should seek advice from the International Conference on Climate Change, a Heartland Institute funded think tank that disputes the warming affect of carbon in the atmosphere (in the 90s the Heartland Institute also worked with tobacco giant Philip Morris to dispute the dangers of smoking).

This puts him out of step with the rest of the oil industry. Since it has long been the primary career path for anyone studying earth sciences it is little surprise that they were among the first to understand the greenhouse affect. By 1979 a combined working group of the ten biggest oil companies met regularly to discuss the problem. In 1983 Exxon cut funding to the research. Since then they have run a steady campaign of misinformation, ensuring they get to keep drilling for as long as possible.

The chief weapon of the sea pirates, however, was their capacity to astonish. Nobody else could believe, until it was much too late, how heartless and greedy they were.
— Kurt Vonnegut

Activists puzzle over this regularly: how can they persist when they know? Perhaps it helps to understand that Oil has long been the base material for building empires. It seems no coincidence that resistance to it leads back towards Parihaka. People struggle to visualise that too.

So finally, here are a few moments that should have lead us to prepare for this:

  • 1988 – Climate change is described to the U.S. Senate. The IPCC is formed. We know fossil fuels have to go.
  • 2005 – NZ Climate Change Ministry formed. NZ agrees to takes the issue seriously.
  • 2017 – Labour/Green/NZFirst coalition government elected on the understanding that it would implement the Zero Carbon Act.

The timeframe was brief, but the process was open and public. This did not come out of the blue to anyone who was paying attention.

2. Carbon Emissions will go up

Let’s recognise for a start that this is counter-intuitive. This statement is repeated in so many places without clarification its a wonder the laws of physics aren’t changing around it. Burning fossil fuels makes emissions go up. That observation has not changed.

This idea came from an OIA-released MBIE briefing titled ‘Petroleum Allocation Scenarios’, addressed to Dr Woods in February. It concluded with a four page section suggesting possible consequences of the decision. The idea about emissions increasing is covered, for the most part, in one page (19).

It points out that a discovery of gas in the South Island would result in a cheap alternative to coal for users there, in particular the milk drying operations which consume most of the supply.

So the highest polluter in the country (Fonterra), might miss out on a chance to pollute a bit less at a good price. This assumes that they won’t be expected to make a serious commitment of its own to lower these emissons.

It also points out that most of the gas extracted in New Zealand feeds the SouthEast Asian market. If there are no new discoveries here, resulting in a drying up of gas exports, those markets will need to look elsewhere for feedstock. Assuming the oil industry failed to come up with gas elsewhere (and remembering that its already too risky to burn 80% of discovered gas, oil and coal), they may choose to use coal instead.

There was no information to support this, not that there could be since it depends on the choices of other nations and the global supply of fossil fuels ten years into the future. It does pre-suppose that none of them will do much to reduce emissions in that time, which is depressing in a paper that uses the word ‘aspiration’ so liberally.

Environmental lawyer Tom Bennion points out that the problem we’re discussing here, ‘carbon leakage’ is addressed under the Paris Accord in a specific way (11:58).

There’s a big answer to all of that. Which is the Paris Agreement. The whole point of all of the climate negotiations are that everyone realised, years and years ago, that one person reducing emissions would just allow someone else, possibly to increase them. So that, everyone said you have to have everyone on board. That is what Paris does. That is what Tim Groser’s methane research does, that is what Paula Bennett said the Paris Agreement was about. So to me the disturbing thing is to have public servants producing a regulatory impact statement on the petroleum bill that just repeats, almost word for word, the PEPANZ submissions, on earlier things, and just says ‘Oh well, look the emissions will be increased somewhere else.’ and not simply go ‘Well that’s an interesting argument but now put to bed because the appropriate approach now is that we are all in this common device, and we’ve all agreed to ambition, and we’ve all agreed to increasing ambition.

Economist Sam Warburton goes a step futher. His 23 page submission includes an extensive analysis of trends and possible outcomes and concludes that the global emissions will in fact reduce as a result of this bill.

Finally, addressing carbon leakage through trade requires an international emissions trading market. New Zealand is not prevented from joining such a scheme in the future, but its worth noting that in ten years time price of carbon will far too high for it to matter. The price per tonne of carbon modelled by MBIE was ridiculously low ($22 in 2025, $140 in 2040), while the Productivity Commission uses estimates that are over $400 per tonne. (Tom Bennion’s submission, page 5).

3. It will cost tens of billions of dollars

Winston Peters was challenged on MBIE’s report stating the cost could be as high as 22 billion dollars. He points out that the report provided a range starting at 200 million. If NASA’s calculations were that broad, Neil Armstrong would still be circling the moon.

This one was cleared up pretty quickly by the financial experts. First by business journalist Matt Nippert, then followed up with submission by economist Sam Warburton.

The oil industry factors in the uncertainty of future events using a discount rate. This is way to factor in things that may alter value in the future. This is normally high in the oil industry (around 10%) but MBIE used a very low value (3%) which effectively assumes that there is no risk in oil exploration.

Sam Warburton’s submission is brief and explanatory. It comes up with a much lower high point of 1.8 billion, before going on to estimate the impact on global emissions (they ought to go down too).

There is little questioning these numbers. MBIE provided scant workings and evidence, and the discount rate error was a transparent one. The question here is the same implied by Terrence Loomis in the critique of their advice to the Minister. Who are they really working for?

4. Foreign investment will be driven away

to see it go out the window with a piece of dodgy legislation like this makes me angry.
Kim Campbell, Employers and Manufacturers Association (23:00)

Kim Campbell said it would surprise the committee to know how strong the support for climate action was. The trouble was that the Bill destroyed that momentum. His advice to the committee was to park it and follow up with something more coherent:

Fit it into a strategy, show us hows its all going to fit together, what is our energy future going to look like. And how are we going to manage the process.

The bill does not outline a strategy. Not to transition to Zero Carbon energy, or to end the relationship with Big Oil. While the supporting submissions are imagining the second, Kim Campbell is probably talking about the first.

Now I don’t want to talk about whether there’s climate change or not, that gets into a discussion about religion and I’m not going there.
… And now they say don’t do gas. Now I don’t argue whether its a good or bad idea.

Of course the discussion is about science, and the amendment implies that gas is a Bad Idea. For the sake of this argument he needs to take a position. Until he does the bill makes no sense.

There is no doubt that it sends a clear signal to the oil industry: ‘don’t invest here’. But that might change nothing. Big Oil operates where-ever it finds resources and does so with long timeframes, high levels of discipline, an absolute minimum of fanfare. Take a photo of any major event, a geopolitical nightmare, an election or an environmental catastrophe and you’ll see them somewhere in the frame. Its rare to see them as the cause of problems, but common to see them profit from them.

It’s usually a long and creative game: complex actions driven by simple goals. Crude Oil. Natural Gas. While Austrian giant OMV has secured rights for another two years the others have taken a step back. They’ll work to tip the scales for the next election, after which, providing National wins, the doors will simply re-open.

These companies live and die by their fuel reserves: if they can show that they are obtaining rights to new fuel as quickly as they sell current stocks all is right with their worlds. The carbon levels are simply not relevant to them.

What we are really fighting about here is whether the oil companies are in the business of burning the world down. It’s un-imaginable, and yet, after all these years, here we are. Kim Campbell, like many people, expects that somehow this change will happen on our terms.

I don’t believe that we have to significantly compromise our standard of living by doing this.

Dystopian fictions often present a world enthralled by Artificial Intelligence that somehow forgot its prime directive. Algorithms were here long before computers as we know them, and the largest industries in the world operate as self-learning engines with very simple prime directives. They are fabulously inventive and they know how many small adjustments over time can tip the scale. Their means can be fluid and complex because their goals are simple and clear. More oil. More gas. We can not expect them to leave their programming. They have no sense to come to. They are complete and perfect engines of the Anthropocene.

Will foreign investment be driven away? If its the wrong kind, we can only hope that it is.

Creating Risk

Several submitters used the more specific term Sovereign Risk to address this point. This term is used to assess the chance that a nation may fail to repay a debt. Factors like aging populations, climate change, political instability or economic weakness are used assess this value.

In general investors shy away from nations with a high sovereign risk, for obvious reasons. Not oil companies though: high levels of risk are common in oil producing nations. Countries such as Chad, Nigeria, Equatorial Guinea and Iraq draw plenty of investment from Big Oil. Clearly they’ve found ways to profit from it.

New Zealand seems nicer than those places, so lets stop and think a bit more about what this risk means. John Carnegie, of the Business Energy Council puts it this way:

These doubts manifest in an elevated sovereign risk (or in more practical terms the weighted average cost of capital or ‘hurdle’ rate required to invest in New Zealand), dampens the desire to invest, and ultimately increases the cost of business through inadequate infrastructure as growth opportunities are missed.

Business NZ’s submission to the Bill.

There is no doubt that the infrastructure for creating emissions may decrease if the gas starts to run out. It’s also clear that the industries around it will need to look elsewhere for profits.

Business NZ’s case is hard to parse, since they support a reduction in emissions on paper, but when it comes to the obvious changes they demand alternatives that better reward the explorers. John Carnegie complains that the concept of a just transition was dealt a damaging blow when it became clear that one of the exploration companies would take a loss. Deborah Russell’s double take at this point was quite a moment (50:20):

JC: The specific example I had in mind is the multi client seismic survey, where they had spent one hundred million and now that investment is effectively worthless. So it has cut right across those rights.

DR: Right. So it’s a sunk cost to them. And you see this … even though it was always a future oriented permit process anyway. So they were investing in the expectation.

DR: (pause) Ok. All right.

Fudging it.

Two lawyers making separate submissions that each point out that assuming a goal to scale back the petroleum industry, it doesn’t go nearly far enough.

The minister is, and will be bound by the view, that New Zealand’s economic wealth
is best acheived by maximising the recovery of New Zealand’s petroleum resources.

This bill will provide irreconcilable contradictions for the minster to address.

You’ve got to make up your mind. Are you going to say we do not promote petroleum exploration and we’re going to say that we don’t believe that New Zealand’s wealth is maximised. Be specific about it, don’t be afraid, or, do away with the bill all together.
— James Willis, Barrister. (Specialising in the CMA and offshore oil and gas exploration rights.)

James Willis points out that its companion legislation, the Minerals Programme for Petroleum (MPP, 2013) expects the Minister to act as an active salesperson for fossil fuels. There is simply no room in this act for the government to take a negative, let alone a soft approach to fossil fuels.

The Minister considers that, within the context of the Act “the benefit of New Zealand” is best acheived by increasing New Zealand’s wealth through maximising the economic recovery of New Zealand’s petroleum resources.

So why, after having a Ministerial Portfolio for eight years with a sole purpose to reduce emissions does the government create an obligation in law to act like oil company? Perhaps a good place to start is Terrence Loomis’ book “Petroleum Development and Environmental Conflict in Aotearoa New Zealand“. It outlines the development of the Business Growth Agenda and details the changes in New Zealand as over more than twenty years we became embedded with this industry.

Environmental lawyer Tom Bennion (1:45:37) highlights the need for a purpose provision in the amendment. When parts of the act are contested in court, as they invariably will be, there ought to be a clear statement of the intended purpose so that the Bill is not watered down. In this case the intent ought to reflect the statement of the UN Secretary General in 2018, “we face a direct existential threat”.

It doesn’t take a lawyer to see this. Activist Greg Rzesniowiecki has the same opinion:

Hard to sell the fact that we’ve got this real problem called climate change because you’re fudging it.

5. We’ll face an energy crisis.

We’re going to drive up the price of energy to household consumers by a factor of two or three times the level of inflation.
— Neil Holdom, Taranaki Mayoral Forum (34:00)

The next source of energy is more expensive than the last. Unless we have some magical breakthrough that makes the next source cheaper
— John Carnegie, NZ Business Energy Council (55:00)

Its hard to get people out of a burning building if they are more concerned by the rain outside. The mechanism to get the sense of urgency across is a carbon price. That is the “magical breakthrough” that would make us value the right things. So let’s not imagine that we can meet future energy needs at a price that competes with subsidised oil, not even if it’s possible. Its a stupid and dangerous constraint to add.

Currently around 15% of our electricity is created using fossil fuels. As electricity starts to take on more of the load the grid will need to expand and become more reliable. The productivity commission’s paper “Low emissions economy” contains a 35 page section on the plans for the electrical network. When the critics of renewable power ask the question ‘what happens when the sun doesn’t shine or the wind doesn’t blow’ this section is a good place to send them.

These problems affect every grid in the world, but there is a change going on and it’s happening in so many small ways at once that you might not have seen it yet. The grid is entering the internet age, and that changes everything. Imagine turning your dishwasher on at 11pm, and wanting clean dishes at 7am. The grid is a bit low on power at the time so it checks a few things: there’s a strong nor-easter coming through the Manawatu at 3am, so it waits until then. Imagine a car that rarely uses more than 30% of its battery on a week day. It spends 95% of its time on the grid, since you plug it in at home and at work. The car tells the grid about it’s usage patterns, it might even take a look at your calendar. When the sun shines, it puts extra power into your car. When the sun doesn’t shine the grid takes a bit out. It even works out how much to pay you for the service.

These ideas are examples of Demand Response systems (DR) and Distributed Energy Resources (DER). Demand Response systems are the changes that occur on the user’s side to adjust to availability of power. One example of this is the ripple system that has been used for decades to turn water heating off. Distributed Energy Resources are systems that add to the grid’s capabilities, feeding power back in when its needed. Rooftop solar has been used this way for years.

The new grid sounds pretty high-tech but the way it works is nothing new. Millions of inter-connected snap decisions like this happen all the time on the internet. The gaming industry has us simulting entire worlds in real time: smart DR and DER are easier than that.

Some critics of renewables talk about inertia: this is the ‘spikiness’ of renewable power compared to traditional coal and gas.

South Australia’s system lacks inertia, because it generates 70% of its electricity from intermittent renewables (mostly wind and solar) and has closed two coal-fired plants. The lack of inertia was a large contributor to the blackout.

— NZ Productivity Commision, “Low Emissions Economy”

This problem was fixed without returning fossil fuels. The spikes were evened out by a grid scale battery connected to a wind farm.

The last part of the solution here is the best: change your definition of battery. We always imagine an AA cell, or a package containing many of them, and we can expect to see many more of these. But it’s not the only way to store energy. Untapped geothermal power is a store of power, so is a hydro dam. You can even recharge hydro power; pumping water back to the top when upward spikes appear in the grid.

Some grids are using raised weights to store power. Swiss company Energy Vault builds huge Jenga towers, with cranes and 35 tonne blocks to add inertia to power systems. While this is still a new technology it’s clearly capable of working. This is the way we used to power clocks combined with standard industrial equipment and driven by the same algorithms that manage battery life in your cellphone.

I’m seldom this positive about technologies, since some of the most dangerous wishful thinking in the world is based on inventions that were promised decades ago and still have not appeared. We can’t extract carbon from the air in useful ways, we can’t burn fossil fuels cleanly and cows still emit huge amounts of methane. The grid technologies are different: they are simply a re-combining of technologies we already have to solving new problems. After the algorithms make there way into the grid we can also expect new technologies (different battery chemistries, better solar panels) to make it even better.

Climate Change is real and none of this matters!

There’s a line that slides easily into any conversation. After watching the many videos the strongest impression is that the current emergency does not feel real to most people. Plans for the future need to address technical, economic and legal issues, taking them into areas of specialisation and jargon that will inevitably leave most of us behind, much of the time. That said, its pretty apparent when the predatory delay kicks in, and its clear that many people in the room, some of them in the select committee itself, do not recognise climate change as a clear and present danger.

Author: ishmael

Wanting to throw some light on the climate issue.

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