Thursday, July 16, 2015

Are fossil fuels really an industry we want to promote?

The Herald this morning has a piece about one aspect of the government's subsidy of the fossil fuel industries over renewables:

Government spends up to 20 times more money on wooing oil and gas companies to New Zealand than it does on promoting renewable energy, newly released figures show.

The disproportionate funding was justified, Government officials said, because of the large royalties paid by petroleum companies. The Green Party said it further confirmed the Government's misplaced priorities.


Officials said the amount of taxpayer money spent on attracting petroleum and mineral exploration was small compared to the returns. "For example, the 15 petroleum exploration permits granted [in 2014] had $110 million in committed work programme expenditure. In the year to June 2014 the Crown received $389 million in petroleum and minerals royalties and levies."

Which sounds good, but of course it ignores something: the cost of carbon. According to the 2013 ETS Annual Report, mining of coal produced 1,574,162.2 tons of carbon dioxide equivalent, while mining of natural gas produced 8,039,823.9 (there is no figure for mining of oil, but I assume its in the natural gas figure), for a total of 9.614 million tons of CO2. Note that that's just from the mining, not the carbon contained in the fuel dug up. Carbon prices are artificially low at the moment, at ~$7 / ton, due the legacy of the government's disastrous policy of allowing bullshit credits into our market, but even at that rate the carbon from mining costs us $67.3 million, nearly 20% of the total value. At the more realistic social cost of $25 / ton, we're looking at $240 million, over 60% of the total (the difference, $173 million, is basicly a subsidy we're paying for the oil industry in fire and flood). And if the social cost of carbon goes over $40 a ton - something Treasury assumes will happen by 2020 - then we're looking at the carbon cost outstripping the royalties.

Theoreticly this isn't a problem provided the mining industry is actually paying that social cost. But when that social cost is already a significant fraction of total revenue (and is arguably much higher and being artificially subsidised by a denier-government) then we should really be asking ourselves whether this is an industry we actually want to promote, or whether we should cease promotion and let it fend for itself because the social costs - which the government will have to pay for - are outweighing the benefits.