New Zealand Energy: Oil Use Rises Despite Renewable Electricity Gains

New Zealand’s oil consumption, after a dip following the COVID-19 pandemic, unexpectedly climbed to a five-year high even before the recent escalation of tensions in the Middle East began to significantly impact global oil prices. This counter-trend, detailed in the latest quarterly energy report, highlights the country’s ongoing vulnerability to international fuel markets and raises questions about the effectiveness of current energy policies.

A Shift Away From Renewable Momentum?

While New Zealand continues to lead in renewable electricity generation – exceeding 90% in the latest quarter with record-low emissions from power production – the resurgence in oil demand is a concerning signal. The report, analyzed by Distinguished Professor Robert McLachlan of Massey University, reveals that oil now accounts for the largest share of New Zealand’s overall energy emissions on record. Specifically, 77% of carbon emissions from burning fossil fuels stemmed from oil, primarily for transport, with gas (12%), coal (6%), and electricity generation (5%) making up the remainder. This contrasts with the positive trajectory of decarbonization in the electricity sector.

The timing is particularly noteworthy. The increase in oil consumption occurred before the current crisis involving Iran, which has sent global oil prices surging and prompted the New Zealand government to develop a National Fuel Plan outlining potential rationing measures, as reported by RNZ here. The fact that demand was already rising indicates underlying economic factors and behavioral patterns are driving the trend, independent of immediate geopolitical shocks.

Echoes of Past Oil Shocks

New Zealand’s history is punctuated by periods of high oil prices and missed opportunities to reduce dependence. The 1978 oil shock severely impacted the economy, and it took over a decade for oil consumption to return to previous levels. Similarly, the 2008 financial crisis, accompanied by soaring oil prices, saw a prolonged period of recovery in oil demand, not fully realized until 2015. During both periods, policy responses were either incomplete or reversed, hindering long-term progress towards energy independence. One example cited is the cancellation of planned fuel economy standards for new cars in 2008, a regulation common in most OECD countries.

Currently, New Zealand consumes nearly twice as much transport oil per capita as the United Kingdom, where such standards have been in place since 2001. This illustrates the potential impact of proactive policy measures.

Policy Shifts and the Emissions Trading Scheme

The current government’s approach differs from its predecessor. While the previous administration committed to a comprehensive renewable energy transition plan in 2022, the focus has shifted towards “energy security,” including plans to import liquefied natural gas (LNG). This move, while intended to bolster supply, potentially undermines long-term decarbonization goals.

The government is now heavily relying on the Emissions Trading Scheme (ETS) as its primary climate tool. However, at the current carbon price of NZ$40 per tonne of carbon dioxide, the ETS adds a mere nine cents per litre to the price of petrol. Professor McLachlan argues What we have is insufficient to significantly alter consumer behavior or incentivize a shift away from oil, especially given New Zealand’s high rate of car ownership.

Transport: The Core of the Problem

Approximately 80% of New Zealand’s oil consumption is attributed to air and land transport. Addressing this sector is therefore crucial for reducing overall oil dependence. The “avoid, shift, improve” framework – reducing travel demand, promoting public transport and active modes, and improving vehicle efficiency – offers a proven pathway. However, recent trends are moving in the wrong direction. Over the past decade, the total distance driven by light vehicles has increased by 20%, while distance travelled by utility vehicles has surged by 55%. Utility vehicles, with their higher emissions, are exacerbating the problem.

The rise of electric vehicles (EVs) is helping, but the pace of fleet turnover is leisurely. The government recently announced plans to roll out over 2,500 new EV chargers according to 1News, but mass adoption requires a combination of incentives and stronger emissions standards.

Geopolitical Risks and Supply Chain Vulnerabilities

New Zealand’s geographic isolation and reliance on imported fuel make it particularly vulnerable to global supply disruptions. The closure of the Marsden Point refinery in 2022 has further increased this dependence, forcing the country to rely on refineries in Singapore, South Korea, and China – all of which depend on crude oil transiting the Strait of Hormuz. As The Conversation reports, New Zealand currently holds approximately seven weeks of fuel supply in storage and en route, a buffer that could be quickly depleted in a prolonged crisis.

Prime Minister Christopher Luxon has described the current situation as “one of the most significant oil shocks in history,” prompting a re-evaluation of the country’s energy strategy. The government’s National Fuel Plan, mirroring the alert level system used during the COVID-19 pandemic, outlines rationing measures that could be implemented if supplies become critically constrained.

Looking Ahead: A Complex Equation

The confluence of rising oil consumption, geopolitical instability, and a shifting policy landscape presents a complex challenge for New Zealand. While the government is focused on energy security through increased supply, a more sustainable long-term solution requires a concerted effort to reduce oil dependence. This will necessitate a renewed commitment to policies that promote energy efficiency, incentivize the adoption of electric vehicles, and invest in alternative transportation infrastructure. The current trajectory, however, suggests that New Zealand may be facing a prolonged period of vulnerability to global oil market fluctuations.

The next steps will likely involve ongoing monitoring of global oil prices and supply chains, continued implementation of the National Fuel Plan, and further debate over the appropriate balance between energy security and decarbonization goals. The effectiveness of the ETS in curbing oil consumption will also be closely watched, as will the impact of the government’s LNG import plans.