The IEA applauds New Zealand’s steady commitment to liberalised energy markets, but urges government to finalise its climate policy and comply with its oil stock obligation

(Wellington) — 11 May 2006

“New Zealand has been a model of energy market liberalisation for many IEA countries, a feat made more remarkable given the country’s small size and isolation. The country is continuing to improve its markets, especially through the establishment of strong regulatory institutions”, said Claude Mandil, Executive Director of the International Energy Agency (IEA), today in Wellington at the launch of Energy Policies of IEA Countries – New Zealand 2006 Review. “We urge New Zealand to build on this strong policy base and take action to improve energy efficiency, finalise its climate change policies, reduce regulatory uncertainty and come into compliance with its IEA oil stock obligation”.

“New Zealand encourages investment through undistorted prices to energy producers and customers. This is commendable”, Mr. Mandil said. “The government should, however, improve the climate for proper infrastructure investment, as concerns about security of supply have grown.” In the electricity sector, the Auckland area may face power supply concerns in the near future. As to natural gas, new domestic resources must be found or an import capability developed if gas is to remain a significant part of the country’s energy mix. These challenges intensify the need for stable regulations that provide appropriate long-term investment signals. The supply challenges also underscore the need for improved energy efficiency in the country. Rising energy prices will encourage energy efficiency, but the government should strengthen energy efficiency policies as well. Greater energy efficiency would reduce the impact of high prices on customers as well as overall energy demand.

Climate Change
More should also be done to address climate change issues. The country’s greenhouse gas emissions are expected to be 21% higher than its Kyoto target during the fast-approaching commitment period. Furthermore, the government has recently decided not to proceed with its planned carbon tax. This is disappointing as a carbon price signal is a cost-effective means of reducing greenhouse gas emissions. This policy change has also escalated regulatory uncertainty in the market. The IEA urges the government to finalise and implement a revised climate change policy package as quickly as possible. Settled climate change policy will help set the stage for a more stable energy policy, as will the energy strategy that the government is preparing. Improving energy efficiency can significantly reduce greenhouse gas emissions at a low cost. The IEA is encouraged by recent efforts aimed at the building sector and calls on the government to implement policies that dramatically improve efficiency in the transportation sector.

Regulatory Uncertainty and Infrastructure Investment
The establishment of the Electricity Commission and the Gas Industry Company provides much needed regulatory oversight to industries that had previously been left to self-regulation. The new regulatory threshold regime for network businesses may enhance business flexibility, but improvements could be made to reduce regulatory uncertainty and underpin appropriate investment. In addition, the Electricity Commission should be made independent from the government, increasing the transparency and predictability of this critical institution and supporting investor confidence in the market.

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