Fossil fuel industry lies and three decades of corresponding political inaction have left New Zealand vulnerable to the volatile prices of the global oil market, Marc Daalder writes
Comment: The cause of the sudden surge in fuel prices is global, but the solutions can be carried out right here in New Zealand.
We won't be able to improve our resilience to future oil price shocks by ramping up production dramatically or subsidising petrol and diesel. Instead, we have to reduce our reliance on all overseas fossil fuels to both bolster New Zealand's energy security and preserve a liveable planet for future generations.
Why should we import costly foreign commodities that prop up dictatorships like Russia and Saudi Arabia when we can power our industries, homes and vehicles with electricity from our own wind, sun and water?
The solutions here are not new. They've been subject to decades of lies by fossil fuel companies focused only on lining their pockets and abandoned by successive governments who find it easier to believe those lies than risk unpopularity by proposing a transformation of the New Zealand economy. Corporate greed and political inaction are to blame for our exposure to the volatile global oil market, but it's not too late for that to change.
Supply and demand
Expect to see an overseas pattern reflected here: Critics of the Government seizing on any and all climate policies as the root cause of the current crisis. The 2018 ban on new offshore oil and gas exploration seems like the mostly likely target, particularly given it has previously been attacked in misleading ways.
There are three clear reasons the exploration ban has nothing to do with fuel prices today. First, any offshore finds from permits that would have been issued in 2018 would probably still be some time away from production. Second, even if we could start extracting, the light crude oil that New Zealand produces can't be turned into fuel by our only refinery. Third, even if we could process the light crude, there's no reason to think New Zealand extraction companies wouldn't charge the same premium for domestically-sourced fuel that overseas companies are charging.
While New Zealand's fuel taxes have come under the spotlight, data from the Australian government shows our fuel taxes are far below the average, as of September 2021. The price of petrol excluding tax, however, is higher for New Zealand than for any of the other countries included in the Australian survey.
The unfortunate reality is that the spike in fuel prices isn't the fault of any sole country.
The sharp rise in New Zealand past $3 per litre has been mirrored around the world. It's a combination of failure by oil and gas companies to invest in new production as post-pandemic demand rose and the shock from the Russian war on Ukraine and associated sanctions.
Demand for petrol cratered when most of the world locked down in March and April of 2020, so production folded as well. Demand for oil returned to pre-pandemic levels in early 2021 and is now close to double that. Production, however, has been slower to recover - in the United States, the number of active oil rigs is only now returning to January 2020 levels.
Outside of the US and Canada (which produce a quarter of the world's oil), the recovery has been even slower, with the rig count only halfway back to January 2020 levels from the pandemic low.
Oil and gas companies were stung hard when investments made during the post-GFC boom became worthless when oil prices crashed in 2014. Shareholders would rather not risk a loss by investing in new production that makes sense at US$100 per barrel but which would be financial ruin at US$30. Instead, they can coast on the profits from the mismatch between supply and demand and reap the dividends.
With companies staring down the barrel not just of war-fuelled uncertainty but also the near-certainty of pressure to decarbonise, new investments in production seem unlikely to pay off.
Executives from the sector recently gathered in Houston, Texas for the industry's biggest conference, CERAweek. There, they said government climate policies weren't hindering them, but bearish shareholders are.
"So far, and I am on the frontlines, I see this every day, there is no interest to go in this space," Goldman Sachs' global head of commodities research Jeffrey Currie told the conference.
Climate action
The cause is out of our hands. There's also only a limited amount that New Zealand can do to ease price pressure in the short term.
On Monday, Prime Minister Jacinda Ardern announced an immediate 25 cent cut to the fuel excise and road user charges for diesel users, as well as a halving of public transport fares nationwide. All three interventions will last for three months.
The relief will be valuable, but may be overtaken by price rises in a matter of weeks. Provisional data from the Ministry of Business, Innovation and Employment shows the average price of 91 unleaded petrol has risen 25 cents in just over a month. By the end of April, fuel prices may well have returned to current levels.
While the spike in prices couldn't have been prevented by Government action, the impact of that price rise on New Zealand households is far greater as a result of the failure of successive governments to pivot away from reliance on fossil fuels.
Less than 1 percent of New Zealand's vehicle fleet was electric or a plug-in hybrid by June 2021. Compare that to Norway, where nearly a quarter of the fleet is electric and where nine in every 10 vehicle sales is for an electric vehicle. Price spikes will have an impact on Norwegians, but they are much less exposed to fuel price volatility than New Zealanders.
Norway moved early to incentivise uptake of electric vehicles. Their equivalent of GST was stripped from EVs in 2001 and electrics were exempted from the road user charge equivalent in the 1990s. EVs could drive freely on toll roads between 1997 and 2017 and can drive in bus lanes since 2005.
Now, uptake is so high that they can strip away these subsidies - EVs are now paying the full equivalent of road user charges.
In New Zealand, efforts to disincentivise fossil fuel usage through the Emissions Trading Scheme were watered down in 2009. For years, our only EV subsidy was a road user charge exemption. That only reduces operating costs, which are already lower for EVs.
The new feebate scheme, which subsidises the purchase price of EVs by placing a corresponding fee on fossil fuel vehicles, was first mooted in 2019 but criticised relentlessly by National and axed by New Zealand First. Even now, National leader Chris Luxon says he would remove it if elected.
It was finally introduced in 2021, two years behind schedule, but has already seen enormous success. More EVs have been purchased in the eight months since the rebates went into effect than in the 22 months prior.
Of course, it isn't all about cars.
We could also have improved our resilience to oil prices by making it easier to get around without needing any kind of private vehicle. Not every solution works for every New Zealander, but 84 percent of the population lives in urban areas. Accessible, affordable and reliable public transport systems could replace the need to use personal, petrol-fuelled cars to get around. Safe walking and biking paths which connect into a network that allows travellers to get to where they need to go would have a similar impact.
As with electrifying the fleet, New Zealand is behind our peers, although the halving of public transport fares from April 1 is a step in the right direction. New Zealand is ranked fourth in the OECD for car ownership rates, with only Luxembourg, Iceland and Italy ahead of us. As of January, dozens of cities around the world had more affordable public transport than Auckland or Wellington.
Can New Zealand cities really achieve the affordability levels of Beijing, where the cost of 15 km journey by public transport could be earned by less than two minutes of work on the average wage?
Seriously reducing our reliance on fossil fuels to get around may be hard to imagine. That's the result of intentional work by fossil fuel companies to make cleaner transport less believable than a world in which the only solution to twin climate and energy crises created in large part by those same companies is to subsidise them to produce more fossil fuels.
If we can look past the fossil fuel industry's propaganda, we can see plenty of examples of other countries making these sorely-needed transformations. In 2005, fewer than 10,000 cycling trips were made on any given workday in Seville, Spain. By 2011, the city had undergone a complete transformation and more than 70,000 trips were made every weekday on a 180-kilometre network of cycleways.
Seville has a population of 1.1 million people, just shy of Auckland's 1.4 million and well above New Zealand's other large cities. If they can do it, there's no reason we can't.
If we remove our dependency on private vehicles by providing greater public and active transport options, we can greatly increase our resilience to oil shocks. If we electrify whatever cars we still need, we could be almost fully insulated from the instability of global fossil fuel markets.
It's a no-brainer to power transport and industry with our domestic natural resources (wind, sun and water), rather than fuelling them with a finite foreign commodity subject to price volatility that is also, don't forget, helping kill the planet.
None of these things are short-term solutions to the current crisis in fuel prices. But they're absolute necessities if we want to shield New Zealand from the next one.
