Oil and Gas Exploration: What Does the Ban Mean for New Zealand?

By Nithya Narayanan

For New Zealand, “clean and green” is much more than a slogan—it represents a brand. Amidst growing global concern around climate change, the introduction of a ban on future offshore oil and gas exploration provides the perfect opportunity to examine how the permit system in New Zealand functions, and the impact that the ban may have in various spheres.The BanOn 12 April 2018, the government introduced a ban on all future offshore oil and gas exploration in New Zealand. In the official announcement, Prime Minister Jacinda Ardern described the move as “an important step to address climate change and create a clean, green and sustainable future for New Zealand”.[1] It has been clarified that the ban concerns future exploration and permits only, and that it will not have any impact on existing rights.The government has drawn considerable criticism for the sudden introduction of the ban, with many from the industry claiming that they were not appropriately consulted with. The Petroleum Exploration and Production Association of New Zealand (PEPANZ) has claimed that the decision came as a surprise and that there was neither any consultation with the industry, nor any mention of the prospect in pre-election discussions.[2]However, Minister of Energy Megan Woods has argued that the government had in fact signposted widely about its intentions prior to the announcement. In late March, Ardern personally accepted a Greenpeace petition calling for the end of oil exploration and said the government was seriously considering the issue. In 2017 on the campaign trail, she also infamously called climate change this generation’s “nuclear-free moment”.[3]

Westpac NZ found that moving to a low carbon economy sooner rather than later would allow New Zealand to reap up to $30 billion in economic benefits

Obligations under the Paris agreement One of the key reasons that the New Zealand government has taken this step is to uphold the country’s obligations under the 2015 United Nations Paris Agreement. As a party to the agreement, New Zealand has made a commitment to contribute to the mitigation of climate change. Article 4 (1) of the agreement states that, in order to achieve the temperature goals set out in the document, “Parties [should] aim to reach global peaking of greenhouse gas emissions as soon as possible”.[4] Article 4 (2) requires specific action from Parties, stating that “each Party shall prepare, communicate and maintain successive nationally determined contributions that it intends to achieve”, and that “Parties shall pursue domestic mitigation measures”.[5] It is hoped that the ban on future offshore exploration will help to reduce New Zealand’s emissions in accordance with this agreement.What is the status quo, and how might this ban change it? Since 2012, New Zealand has allocated permits for petroleum exploration annually using a ‘Block Offer’ system. Each year, areas are selected based on commercial interest, and since 2013 companies have been able to bid for their own block outlines. The release areas are reviewed annually and there is a process that must be followed before the Block Offer is announced. Typically, the industry will nominate areas for exploration, after which consultations will be set up with iwi and hapu in the nominated areas. Finally, the proposed areas are discussed with local government.Block Offer bidding typically opens in April, with release areas being named around this time. After bidding closes approximately six months later, the government will assess the bids. Assessment is based on a wide range of criteria including the applicants’ perceived ability to meet health and safety requirements, proposed plans, and technical and financial capability. These criteria are made available in the ‘Invitation for Bids’ document that is released by the government each year.[6]The ban means that companies will no longer be able to place bids for offshore blocks. Limited onshore blocks will continue to be available, but this decision will be reviewed after a period of three years. In 2018 the proposed release area, spanning 1,703 kilometres, will be restricted to the Taranaki Basin.[7]According to the PEPANZ, New Zealand’s oil and gas industry contributes over $2.5 billion to the New Zealand economy, provides the government with approximately $500 million in royalties and income tax, and employs 11,000 people.[8] Oil and gas exploration is particularly vital to Taranaki in particular; the industry accounts for 41% of its regional GDP, and makes up two per cent of its employment[9].What impact will the ban actually have on emissions?It is expected that the shift in the industry will be gradual. Data from the Ministry of Business and Employment supports this notion, showing that though there are not many permits issued annually, the length of each permit is relatively long. Only one permit has been issued in each of the last two years. In 2017, a twelve-year offshore permit for the Taranaki Basin was issued to Westside New Zealand Limited[10], while in 2016, Todd Exploration Limited was granted one ten-year onshore permit for exploration in the same area.[11] Prime Minister Ardern acknowledged the lengthy nature of permits in her press release, stating that “unless we make decisions today that will essentially take place in thirty years’ time, we risk abrupt shocks”.[12] The last of the currently active permits will expire in 2030; however, if a discovery is made, production could potentially continue beyond this.[13]Arguments against the ban Opinions vary regarding whether or not the ban on offshore exploration will actually have an effect upon the level of emissions. The National party has staunchly opposed the ban, with Opposition Leader Simon Bridges claiming that the policy fails to make sense both economically and environmentally. When asked what National would do differently to fulfil New Zealand’s commitments under the Paris agreement, Bridges said that the party would explore pricing mechanisms and a Climate Commission, and that they would aim to reduce transport emissions by growing the electric car fleet.[14] He also maintained that National would reverse the ban if elected back into government in the 2020 election.National’s stance has been further articulated by their energy and resources spokesperson, Jonathan Young. Young has pointed to the fact that New Zealand only has approximately ten years’ worth of gas reserves left, questioning what will replace gas when, eventually, it runs out. He argues that the likely answer will be coal—which would not contribute much in the way of reducing emissions at all. He expects that the ban will simply lead to the same production being shifted elsewhere in the world, and that it is unlikely to reduce emissions overall.[15]In defence of the ban

30% of the Maui dolphin’s marine habitat is currently open for oil exploration, and the offshore ban will change this.

Despite these criticisms, there are ample arguments to support the government’s move. American economists Covert, Greenstone and Knittel claim that “without robust efforts to correct the market failures around greenhouse gases, relying on supply and/or demand forces to limit greenhouse gas emissions is relying heavily on hope”.[16] They attack the notion that use of fossil fuels will simply decline when we run out of them, and that advances in technology will lead to the discovery of low-carbon technologies: “the historical record indicates that the supply of fossil fuels has consistently increased…and that their relative price advantage over low carbon energy sources has not declined substantially over time”.[17]In their Climate Change Impact Report published in April 2018, Westpac NZ found that moving to a low carbon economy sooner rather than later would allow New Zealand to reap up to $30 billion in economic benefits.[18] In the report, EY and Vivid Economics model two different routes to fulfilling New Zealand’s obligations under the Paris agreement: a ‘central scenario’ in which the transition to a low-carbon economy is swift and smooth, and a ‘shock scenario’ in which the transition is sluggish at first, with abrupt cuts in emissions from 2030. Westpac New Zealand chief executive David McLean said, of the report’s results, that “if we wait to take action on climate change it may mean a very slightly healthier economy in the near term, but this gain would be lost in future as emissions-intensive sectors were forced to play catch up”.[19] In light of this model, the government’s policy—which prioritizes immediate action and aligns more with the ‘central scenario’ than it does with the ‘shock scenario’— appears quite sensible.The ban has also garnered support from conservation groups. Livia Esterhazy, chief executive of WWF New Zealand, has said that the offshore ban will have positive outcomes for endangered marine life. 30% of the Maui dolphin’s marine habitat is currently open for oil exploration, and the offshore ban will change this. Seismic blasting for oil can have both physical and behavioural impacts on marine environments; the ban will help mitigate this also.[20]Because existing permits will continue to be honoured, the true impact of the ban is something that we are likely to see unfold gradually. The overall effect of the policy will also be contingent on the decisions made at the 2021 review of exploration in Taranaki. However, this much is clear: the ban is certainly a bold move, and demonstrates a serious commitment to mitigating climate change. _The views expressed in the posts and comments of this blog do not necessarily reflect those of the Equal Justice Project. They should be understood as the personal opinions of the author. No information on this blog will be understood as official. The Equal Justice Project makes no representations as to the accuracy or completeness of any information on this site or found by following any link on this site. The Equal Justice Project will not be liable for any errors or omissions in this information nor for the availability of this information. [1] BusinessDesk, “NZ govt ends new offshore oil and gas exploration” NZ Herald (online ed, 12 April 2018).[2] Dan Satherley “Oil industry says it had no warning of ban” Newshub (online ed, 12 April 2018).[3] Hamish Rutherford “Ardern says Government ‘actively considering’ call to end oil exploration” Stuff (online ed, 19 March 2018).[4] United Nations Paris Agreement (opened for signature 16 February 2016, entered into force 4 November 2016), art 4.[5] Above n 5.[6] “Block Offer annual exploration permit tender process” New Zealand Petroleum & Minerals <www.nzpam.govt.nz>.[7] Hon Dr Megan Woods “Consultation opens on Block Offer 2018” Beehive <www.beehive.govt.nz release/consultation-opens-block-offer-2018>.[8] An Introduction to New Zealand’s Oil and Gas Industry (Petroleum Exploration & Production Association of New Zealand) at 10.[9] Above n 8.[10] “Block Offer 2017” New Zealand Petroleum & Minerals <www.nzpam.govt.nz>.[11] “Block Offer 2016” New Zealand Petroleum & Minerals <www.nzpam.govt.nz>.[12] Hamish Rutherford and Laura Walters “Government aims to strike balance ending offshore oil exploration: PM” Stuff (online ed, 12 April 2018).[13] Above n 12.[14] Isaac Davison “National will reverse Govt’s offshore oil exploration ban if in power in 2020: Bridges” NZ Herald (online ed, 12 April 2018).[15] Neil Sands “New Zealand halts new offshore oil and gas exploration” Yahoo New Zealand (online ed, 12 April 2018).[16] Thomas Covert, Michael Greenstone, and Christopher R. Knittel “Will We Ever Stop Using Fossil Fuels?” (University of Chicago, 2016).[17] Above n 15.[18] Climate Change Impact Report (Westpac NZ, April 2018) at 3.[19] Charlie Mitchell “Early action on climate change would save New Zealand $30b, report finds” Stuff (online ed, 4 April 2018).[20] Newshub staff, “No more oil exploration permits” Newshub (online ed, 12 April 2018).[21] Featured image sourced from hgcaptain.com/photos-giant-blue-whale-ii-drilling-rig-nearing-completion-in-china/