Submission on: New Zealand Productivity Commission (2017) Low-emissions economy: Issues paper. Ballance Agri-Nutrients Limited

Transcription

1 Submissin n: New Zealand Prductivity Cmmissin (2017) Lw-emissins ecnmy: Issues paper. Frm Ballance Agri-Nutrients Limited 2 Octber 2017 Private Bag 12503, Tauranga 3143, New Zealand. TEL , WEB.

2 SUBMITTER DETAILS Name f submitter/rganisatin: Ballance Agri-Nutrients Limited Name: Physical Address: Pstal Address: Bruce Taplin Grup Manager SHEQ Hewletts Rad, Mt Maunganui Private Bag Tauranga Telephne: (07) bruce.taplin@ballance.c.nz COMMERCIAL SENSITIVITY Nthing in this submissin is cnfidential. 2 Octber

3 Intrductin Ballance Agri-Nutrients Limited ( Ballance ) wuld like t thank the New Zealand Prductivity Cmmissin fr the pprtunity t make this submissin n the recently issued the Lwemissins ecnmy: Issues paper. Cmpany Overview Ballance is a farmer-wned c-perative with ver 18,000 sharehlders and apprximately 800 staff thrughut New Zealand. We wn and perate super-phsphate manufacturing plants lcated in Tauranga and Invercargill, as well as New Zealand s nly ammnia-urea manufacturing plant lcated at Kapuni, Suth Taranaki. The Cmpany als wns and perates SuperAir, an agricultural aviatin cmpany; SealesWinslw, a high-perfrmance cmpund feed manufacturer. Ballance has a netwrk f fertiliser strage and dispatch facilities acrss the cuntry. As well as supprting New Zealand farmers, Ballance als supplies prducts t a range f dmestic industrial businesses including the dmestic wd prcessing sectr: Urea, is used in the prductin f frmaldehyde based resins, a key ingredient in the manufacture f particlebard and MDF. In additin, an extremely high purity urea slutin is used t prduce GClear at the Kapuni plant. GClear is an exhaust system additive and scrubbing agent that reduces harmful nitrgen xide (NOx) emissins frm diesel engines, breaking the NOx dwn int harmless water vapur and nitrgen gas. Other prducts imprtant t nn-farming industries include ammnia, used as a refrigerant; sulphuric acid used in the dairy, pulp and paper and pwer generatin industries and liquid alum and hydrflusilicic acid, bth used in water treatment prcesses. Ballance places a strng emphasis n delivering value t its sharehlders and n the use f the best science t infrm and deliver sustainable nutrient management. Ballance s Engagement in Climate Change Plicy Develpment Ballance strngly supprts New Zealand playing its part in internatinal climate change mitigatin actin and fully endrses New Zealand s ratificatin f the Paris Agreement. Ballance takes an active rle in the develpment f dmestic climate change plicy, dating frm the riginal industry vluntary agreements f the late 1990 s thrugh t the current New Zealand Emissins Trading Scheme (NZ ETS). Ballance s Expsure t the NZ Emissins Trading Scheme Ballance s peratins are directly impacted by the New Zealand Emissins Trading Scheme (NZ ETS): The Kapuni Urea manufacturing facility is an Emissins Intense Trade Expsed (EITE) industry cmpeting against imprted Urea; 2 Octber

4 As a manufacturer and imprter f Urea, Ballance is a mandatry participant (within the Agriculture Sectr), fr synthetic fertiliser cntaining nitrgen. All f Ballance s peratins are expsed t NZ ETS csts passed thrugh by energy suppliers and secnd rund impacts including freight csts and inflatinary pressure. Any change in plicy that leads t an increase in ETS related csts is therefre a significant cncern t Ballance. Submissin Pints A summary f ur submissin is prvided belw. Answers t the specific questins where Ballance believes it can mst add value are als prvided and include further detailed supprting material. Submissin Summary 1. Ballance recgnises that New Zealand and the wrld are embarking n a transitin t a lwer emissins ecnmy. Hwever, this des nt mean that it is lgical t lse ecnmic activity in New Zealand and displace emissins ffshre (carbn leakage): a. In the case f urea manufactured at Ballance s Kapuni plant, the dmestic demand fr the utput f that activity will remain fr many decades t cme. b. Until such time as a (mre) level playing field is achieved thrugh ther natins placing a price n carbn, industrial allcatin remains the mst apprpriate plicy measure t avid carbn leakage and negate premature clsure f manufacturing. 2. Ballance recmmends that the Cmmissin be transparent in its findings n dmestic emissin reductin scpe, identifying clearly where carbn leakage may result and recmmending mitigatin ptins. 3. Ballance strngly supprts the efficient use f prducts, such as urea, and in the cntext f agricultural emissins recmmends that emissins abatement measures shuld be recgnised at the farm level. 4. In Ballance s view emissins pricing alne will nt be sufficient t transitin the ecnmy at the pace required and supprtive plicies, in the frm f R&D supprt plicies r direct cntestable research funding, are als required t accelerate the develpment & uptake f slutins. 5. The majr uncertainty facing Ballance in cnsidering investments relevant t a lwemissins future is the nging plitical uncertainty regarding the pace f change required and the plicy instruments t be applied. 6. One aspiratin fr the Prductivity Cmmissin s wrk is that it prvides a sund factual basis upn which a plitical cnsensus can emerge. 2 Octber

5 Submissin Details Q1 Hw can the Cmmissin add the mst value in this inquiry? Ballance endrses the Cmmissin s listing f areas f where it can best add value: The Cmmissin cnsiders that it can add the mst value in this inquiry in the fllwing ways: prviding an independent and rbust analysis f whle-f-ecnmy trade-ffs based n sund ecnmic analysis; develping ways t assess the benefits and csts f different pathways fr New Zealand t transitin t a lw-emissins ecnmy (rather than, fr example, prviding mre r different scenaris f what the future might lk like); taking a lnger-term perspective in identifying plicies and institutins that will be required t achieve a lw emissins ecnmy that enhances prductivity and wellbeing; describing what a lw emissins ecnmy will mean fr the many different businesses and husehlds in New Zealand; develping cnceptually sund but dable recmmendatins fr change; and bringing its expertise and understanding f innvatin, and the develpment, adptin and diffusin f new technlgies, in the New Zealand ecnmy t this task. Surce: Issues paper, p4 Further t this Ballance suggests that the Cmmissin shuld aim t prduce the definitive reference resurce that educates and infrms plicy makers and stakehlders f the challenges and pprtunities ahead, that is NZ specific, and that is widely accepted as the sund fundatin fr decisin making. In carrying ut its wrk, we recmmend that the Cmmissin takes full accunt f the fllwing pints: In the statinary energy and industrial prcesses sectr, New Zealand s emissins prfile is skewed with a relatively small number f large emitters, each ften carrying ut a unique activity a gd example being ur ammnia-urea plant at Kapuni. This has implicatins fr any pathway assessment: Mdelling techniques and internatinal studies f the assessment f the impacts f climate plicy tend t assume a % reductin in utput in respnse t an increase in carbn price, as might be expected with a multitude f prductin facilities; In New Zealand s case, with few/single facilities facing internatinal cmpetitin which are subject t less stringent (r n) climate change plicies, the impact may be mre abrupt stay pen r clse. It is therefre recmmended that a mre fcused New Zealand activity specific evaluatin apprach is required fr such assets. 2 Octber

6 It is understd that the fcus f the Cmmissin s inquiry is n dmestic emissin reductin hwever where this is likely t result in emissins leakage / increased glbal emissins, this shuld be clearly highlighted and evaluated. The rle f uncertainty in climate plicy shuld be reviewed as this can limit the pprtunity fr carbn pricing t supprt an investment business case if plicy changes will the business case be undermined? The assessment wrk shuld be sectr / subsectr based and shuld identify the respnsiveness t emissins pricing: Price elasticity f each sectr where inelastic alternate plicies may be required; and Asset life and value fr lng lived assets such as industry (but als frestry), the speed f respnse is slwer and need fr plicy certainty t enable investment is increased. The risks f premature asset clsure and/r inhibited investment decisins shuld be evaluated. Q3 T what extent is it technically and ecnmically feasible t reliably measure bilgical emissins at a farm level? At a science and cntrlled study scale emissins can be measured hwever at a practical farm scale level the technlgy des nt exist t make a reliable measurement. As far as we are aware the nly feasible ptin is t mdel emissins at the farm level. The tl Overseer exists which can calculate greenhuse gas lss estimatins and is currently used fr n farm nutrient budgeting calculatins - this wuld be the mst feasible estimating tl. As an alternative cruder lk-up tables culd be built but wuld prvide a less accurate farm specific estimatin. Bth tls wuld have varying degrees f inherent errr but the estimate f relative lss between farms wuld be strnger than the abslute lss estimate. Q4 What are the main pprtunities and barriers t reducing emissins in agriculture? In respect f agricultural emissins, a mre integrated apprach where water quality and greenhuse gas emissins imprvement pprtunities are evaluated and researched in cmbinatin is recmmended. An example is the cnsiderable scpe t mitigate emissins thrugh increased sil carbn; dry sils typically have lw carbn cntent but with irrigatin carbn accumulates in the sil. An as yet unquantified trade ff therefre exists between water allcatin / charging and carbn sequestratin. The NZ ETS is ptentially a barrier t emissin reductins as it des nt send the crrect signals. This is true even at the current mandatry reprting requirement fr agriculture. 2 Octber

7 Examples include: The regulated emissins factr (EmF) fr synthetic fertilisers nt being updated t reflect the current factr used in internatinal reprting (regulatins EmF is 5.72 tco2e / t nitrgen, whereas the NZ inventry EmF is 3.20 tco2e / t nitrgen). This may lead t inapprpriate allcatin f resurces. There is n mechanism t recgnise the benefits f: nitrificatin inhibitrs (DCD); riparian planting; r bichar. The abve pints are examples f the majr impediments t reducing agricultural emissins, primarily arising frm the regulatry uncertainty fr carbn pricing and the plicy treatment f agriculture: Currently t develp a new prduct r service that can result in reduced emissins there is n ability t capture the value frm the emissin reductins except indirectly where there is a prductivity benefit that is captured by the farmer. As a cnsequence there is a majr deficiency in the ability t justify the investment in develping mitigatin technlgies (as a nn-industry gd party) because the business case lacks a direct revenue line frm that benefit. The pprtunity therefre is t prvide a mechanism that enables businesses t create value with new r imprved mitigatin technlgies within the cntext f a sectr which culd still remain trade expsed and therefre insulated frm a direct carbn price. The mechanism wuld need t have a lng term cmpnent as mst relevant research wuld be multi-year in nature. Q5 What are the issues fr gvernment t cnsider in encuraging alternative lwemissins land uses? Our respnse t Q4 highlights that existing plicy mechanisms (primarily the NZ ETS) are t narrw fcused and inflexible t prvide a sund fundatin fr mitigatin uptake. Q6 What are the main barriers t sequestering carbn in frests in New Zealand? and Ballance suggests that the Cmmissin shuld be cautius abut fcusing t much n the carbn price when evaluating barriers t sequestering carbn in frests. With the current NZ ETS settings, an increase in carbn price t supprt frestry risks rewarding incumbents wh have already pted in t the ETS and may increase the reward abve the marginal C-price signal that is required fr affrestatin, with resultant adverse ecnmic impact n ther ETS sectrs and husehld that may nt be psitined t respnd t a higher Carbn price. 2 Octber

8 Instead a wider assessment f the barriers t affrestatin shuld be made. The Cmmissin shuld als be pen minded as t whether a mre direct frestry investment plicy may be mre effective than the NZ ETS. Q7 What plicies, including adjustments t the New Zealand Emissins Trading Scheme, will encurage mre sequestering f carbn in frests? Ballance supprts the adptin f frestry accunting rules fr Harvested Wd Prducts which better reflect harvesting emissins than the current instant xidatin rule. Please als refer t ur respnse t Q6. Q11 What are the main pprtunities and barriers t reducing emissins frm the use f fssil fuels t generate energy in manufacturing? Ballance suggests the scpe fr emissin reductins in this area (ther than thrugh clsure) may be relatively small. Ballance s manufacturing sites already have in place the energy efficiency technlgies that are quted in the Issues paper. Opprtunities and challenges fr reducing emissins Better energy efficiency (at the same time raising prductivity) and a shift away frm fssil fuels are the main ptins fr reducing emissins frm energy used in industry. Manufacturers culd imprve energy efficiency thrugh emplying technlgies such as: integrated cntrl systems, using sensrs t adapt prcess cnditins; sub-metering (mnitring energy used by specific equipment r parts f a plant); r better flue-gas mnitring fr bilers and dryers. Yet the benefits f lwer emissins will nt materialise withut substantial further innvatin and cmmercialisatin effrt (ICF Internatinal, 2015). Surce: Issues Paper p26 We recmmend that the Cmmissin caries ut an assessment f manufacturers t verify the level f technlgy uptake: Fr Ballance the lw hanging fruit was captured a lng time ag, with effrts nw chasing single percentile imprvements e.g. as cmputing pwer in cntrl systems, catalysts and equipment imprves. Smaller manufacturers may have sme scpe but verall we suggest there is a risk f ver estimating the ptential savings unless prper data is cllated. Regarding renewable fuels replacing fssil fuels fr Ballance s largest site, Kapuni, this is nt technically feasible. The ammnia urea plant uses ~7PJ f natural gas per annum, bth as a fuel and as a feedstck in the ammnia urea prcess. Further details are prvided in Attachment 1. 2 Octber

9 Q20 Acknwledging the current review, what changes t the New Zealand Emissins Trading Scheme are needed if it is t play an imprtant part f New Zealand s transitin t a lw-emissins future? Ballance supprts the utcmes f the 2015/16 NZ ETS review as released t date. Lking ahead the predictability f plicy settings and criteria is vital: The Stage II Outcmes f ETS Review (released in July 2017) are a gd step frward in clear signalling f future plicy decisin t be taken. The criteria fr nging eligibility fr allcatin t trade expsed industry is critical t allw future investment in assets and t avid premature lss f ecnmic cntributin: While planed capital imprvement expenditure can smetime be deferred, in sme cases critical maintenance capital cannt: An example is where a critical piece f equipment needs replacement yet plicy uncertainty undermines the investment case leading t premature clsure f the whle asset. As identified in ur respnse t Q1, it is imprtant that the Cmmissin evaluates the likely effectiveness f the NZ ETS acrss each sectr. Cntinually pushing the carbn price up thrugh a dmestic NZ ETS may yield emissin reductins thrugh premature clsure f plant and increase cst t the verall ecnmy when a sectr fcused plicy may be mre effective. Q21 What type f market-based instruments wuld best help New Zealand transitin t a lw-emissins ecnmy? Ballance supprts the retentin f the NZ ETS as the primary market based instrument. The scheme is in place and maturing; evlutin nt revlutin is nw required. Q22 What type f supprt fr innvatin and technlgy wuld best help New Zealand transitin t a lw-emissins ecnmy? Ballance believes a mechanism t allcate r prvide the ability t acquire carbn credits frm new technlgies is required. The develpment f a Primary Grwth Partnership equivalent fund, similar t that run by MPI, where private sectr investment is matched by Gvernment via emissin credit guarantees r hard cash c-funding is ne ptin. This wuld reflect the large public benefit frm any emissin reductins and the risk the private sectr wuld have t take t develp innvative practices. T ensure the taxpayer gets the best value fr mney amngst the ideas submitted, the fund shuld be cntestable. This apprach may als be utilised t reduce the uncertainty which inhibits investment in majr manufacturing plant upgrades and new plant. 2 Octber

10 Q26 What are the main uncertainties affecting New Zealand businesses and husehlds in cnsidering investments relevant t a lw-emissins future? What plicies and institutins wuld prvide greater cnfidence fr investrs? Q27 What appraches, such as regulatry framewrks r plicy settings, wuld help embed wide supprt amng New Zealanders fr effective reductin f dmestic greenhuse gas emissins? Q28 Is New Zealand s current statutry framewrk t deal with climate change adequate? What ther types f legislatin might be needed t effectively transitin twards a lw-emissins ecnmy? Q29 Des New Zealand need an independent bdy t versee New Zealand s dmestic and internatinal climate change cmmitments? What verseas examples ffer useful mdels fr New Zealand t cnsider? In respnse t Q26-Q29 cmbined: The majr uncertainty facing Ballance in cnsidering investments relevant t a lw-emissins future is the nging plitical uncertainty regarding the pace f change required and the plicy instruments t be applied. Althugh plitical cnsensus n the need t take actin has matured, the pre-electin plicy plitical party annuncements highlighted significant diversity f views n: Ambitin (2050 targets); The rle f direct actin (affrestatin); and The market based measure (tax r trading) and sectral cverage (agriculture in r ut). The nging absence f plitical cnsensus means that putting in place an independent bdy nw wuld be t sn as its appintments and terms f reference will in turn be viewed t be pliticised. There is als the risk that an independent bdy such as a Climate Cmmissin may enable pliticians t disassciate themselves frm the difficult decisins t be made, ptentially negating the rle f parliament s checks and balances. One aspiratin fr the Prductivity Cmmissin s wrk is that it prvides a sund factual basis upn which a plitical cnsensus can emerge. Q30 Hw can adaptability best be incrprated int the system supprting New Zealand s lw-emissins transitin? It is clear that plicy settings (including thse f the NZ ETS) will need t adapt ver time. The Mtu mdel utlined in Bx 12 f the Issues Paper is a valid ptin hwever we cautin against the reliance n an independent Cmmittee fr the reasns utlined in ur respnse t Q26-Q29 abve. 2 Octber

11 Q31 What types f analysis and underlying data wuld add the greatest value t this inquiry? The list f gaps identified by the Cmmissin (as shwn belw) is wrrying: Gaps include data and analysis n: the marginal abatement csts f different ways f reducing emissins in New Zealand (at a natinal and sectral level); demand and supply elasticities that estimate the extent t which husehlds and firms make emissin chices in respnse t carbn prices; emissins at the level f individual firms, farms and husehlds; c-benefits arising frm different abatement activities and the size f thse benefits; and the values and nrms that are relevant t understanding whether specific emissinsrelated plicies are likely t achieve acceptance. Surce Issues Paper p56 All are substantive and need t be addressed with many f them being cmmn t pints raised in this submissin. Ballance suggests there is a significant risk f extraplating emissin reductin ptentials frm internatinal studies in the absence f specific recgnitin f New Zealand s unique gegraphy and energy / emissins mix. Q32 What shuld be the mix, and relative imprtance f, different plicy appraches (such as emissins pricing, R&D supprt, r direct regulatin) in rder t transitin t a lw-emissins ecnmy? As highlighted in ur respnse t Q4, Ballance believes that R&D supprt mechanisms as well as emissins pricing will be imprtant in rder t transitin t a lw-emissins ecnmy. Fr thse activities facing a carbn price where emissin abatement slutins d nt yet exist, r where technlgy is nt yet recgnised in emissins calculatins, firms face increased csts yet have n ability t respnd. The result is reduced cash-flw which makes it even harder t fund R&D t identify emissins abatement slutins. R&D supprt mechanisms can help alleviate this dilemma. Q33 What are the main c-benefits f plicies t supprt a lw-emissins transitin in New Zealand? Hw shuld they be valued and incrprated int decisin making? Ballance has already highlighted the interactin between water and greenhuse gas emissins in ur respnse t Q4. A less bvius c-benefit perhaps is the critical mass f engineering and technlgy skills that a manufacturing site such as the Kapuni ammnia urea plant supprts in the regins. Althugh such industry sites may be perceived by sme as ld and nt part f a green ecnmy, the reality is that the knwledge, cmputer cntrl systems and technlgy applied is wrld leading. 2 Octber

12 Implementatin f New Zealand s emissins abatement pathway will need increasing amunts f these engineering and technlgy skills. In the specific case f ammnia, this is recgnised as a ptential cmpnent in a hydrgen ecnmy, where ammnia may be cnsidered as a ptential hydrgen carrier fr hydrgen delivery and (typically) fr ff-bard strage, such as at refuelling statins and fr statinary pwer applicatins. The Kapuni site ffers New Zealand this capability. Q34 Wh are the mst imprtant players in driving frward New Zealand s transitin t a lw-emissins ecnmy? Gvernment, business and the wider sciety all have imprtant rles in driving the transitin frward. Ballance cautins against city / reginal actins taking a legislative apprach t greenhuse gas emissins as these shuld be set at a natinal level in respnse t internatinal agreements. Q35 What measures shuld exist (and at what scale and duratin) t supprt businesses and husehlds wh have limited ability t avid serius lsses as a result f New Zealand s transitin t a lw-emissins ecnmy? Fr trade expsed industry: Industrial allcatin remains the mst apprpriate plicy measure t avid carbn leakage and negate premature clsure f manufacturing, until such time as a (mre) level playing field is achieved thrugh ther natins placing a price n carbn. T enable nging investment, the criteria fr withdrawal / phase ut f industrial allcatin shuld be clearly defined. This needs t be assessed n an activity by activity basis and nt be a blanket all EITE activities pliticised decisin. Fr each activity (urea prductin), the assessment f trade cmpetitr jurisdictins (Arab Gulf States, Malaysia,..) shuld take int accunt: The level f carbn-pricing, thrugh trading r a carbn tax The level f allcatin/subsidy Other supprt mechanisms including nn-tariff barriers Phase ut f allcatin shuld nly cmmence when a material prprtin f cmpetitr trade incrprates an auditable and internatinally acceptable carbn price in-line with the New Zealand. Ballance recgnises that ther sectrs, including lw incme husehlds and Mari will als need supprt and that a suite f transitin supprt plicies may be required. 2 Octber

13 Q36 What are the essential cmpnents f an effective emissins-mitigatin strategy fr New Zealand that will als be ecnmically and plitically sustainable? Ballance prpses that an effective emissins-mitigatin strategy must be flexible and retain ptinality. The wrld, its plitics and technlgy is rapidly changing s we need t ensure that New Zealand des nt head dwn single paths that may be regretted thrugh unnecessary lss f ecnmic activity and jbs and/r dead-end technlgy selectin. The strategy shuld give lng term signals n plicy directin and be prepared t set ut clear bundaries fr future emissin surce develpment. The strategy shuld avid picking winners - instead let sund ecnmics determine utcmes, but it shuld be prepared t remve barriers t uptake and /r initiate critical enabling infrastructure The strategy shuld be paced s as nt t take t early actin which may lead t a lss f critical capacity ahead f ther natins, and impse a higher cst f uptake f technlgy prir t it becming truly cst cmpetitive. Q37 Shuld New Zealand adpt the tw baskets apprach? If s, hw shuld it influence New Zealand s emissins reductins plicies and lng-term visin fr the future? Ballance is aware f the tw baskets apprach and supprts nging wrk t better understand the differing impacts n lng term warming that shrt-lived gases, such as methane, may have. Shuld the internatinal science cmmunity reach cnsensus n the tw baskets apprach and shuld it be adpted in internatinal agreement greenhuse gas accunting methdlgies, then (and nly then) it wuld make sense t recgnise it in dmestic plicy. Until such a time Ballance wuld favur a single basket apprach: As farm systems wrk in a single hlistic system, islating ne gas/emissin frm anther culd result in unexpected r perverse utcmes e.g. differential treatment f nitrgen versus methane culd result in a reductin in N fertiliser use but the benefit culd be displaced by an increase in imprted feed having n net emissins benefit. Equally a farmer/grwer needs t weigh up emissin reductins and water quality utcmes and this needs t be dne in an integrated hlistic way especially given the financial impact f water quality r emissins culd dminate the ther and prmte negative utcmes f the ther if they are treated in islatin. In the absence f internatinal acceptance, dmestic implementatin e.g. thrugh the NZ ETS risks creating a liability fr New Zealand where surrender f units fr dmestic methane emissins are based n a lwer warming ptential than that applied in ur internatinal agreement bligatins. 2 Octber

14 Q38 Hw shuld the issue f emissins leakage influence New Zealand s strategy in transitining t a lw-emissins ecnmy? Ballance strngly believes that it wuld be ethically inapprpriate fr New Zealand t simply exprt its emissins (and in many cases increase glbal emissins) by shutting dwn efficient dmestic prductin. It wuld als be ecnmically irratinal if in the absence f supprt mechanisms, dmestic prductin becmes uncmpetitive when facing internatinal firms with n r lw effective carbn prices, leading t premature clsure. Q39 What d yu see as the main benefits and pprtunities t New Zealand frm a transitin t a lw-emissins ecnmy? Ballance suggests the main pprtunities are thrugh: increased ecnmic resilience against higher imprted fssil fuel prices; maintaining New Zealand s internatinal reputatin; increased cmpetitiveness f New Zealand prduced gds, utilising ur largely renewable electricity generatin t prduce lwer emissins gds than thse manufactured in cuntries mre heavily reliant n fssil fuels. aviding stranded asset investments thrugh clear plicy signals; and If glbal actin eventuates, avidance f sme f the adaptatin csts may result. We nte that the Issues Paper (p63) highlights that ecnmic grwth frm carbn emissins has ccurred in ther majr ecnmies. We cautin against a simplistic cmparisn with New Zealand as in sme f the example cases quted this has been enabled thrugh a switch frm cal t gas and exprt f manufacturing (carbn leakage). 2 Octber

15 Attachment 1 Kapuni Ammnia Urea Plant Details Ballance wns and perates New Zealand s nly ammnia-urea plant lcated n a 32.4 hectare site at Kapuni in Suth Taranaki. Using sme 7 petajules (PJ) f natural gas, the plant prduces 150,000 tnnes f ammnia per year, ver 99% f which is cnverted t 265,000 tnnes a year f premium grade granular urea. The high quality granular urea prduct is used as a nitrgen-rich fertiliser in the agricultural, hrticultural and frestry sectrs, and as a cmpnent in the manufacture f ther prducts (primarily resins). The Kapuni plant prductin meets apprximately ne third f New Zealand s demand fr urea. Remaining demand is met thrugh imprts surced primarily frm the Middle East, Far East and China. Ballance is therefre in direct cmpetitin against cuntries with less stringent internatinal climate change bligatins. The cmpany makes a significant ecnmic cntributin t the lcal ecnmy and emplys 130 permanent staff and 17 full time cntractrs. The Kapuni Ammnia-Urea Plant 1) The lcatin and scale f Kapuni site is shw belw (Figure 1). Figure 1 Kapuni Ammnia-Urea Plant 2) The plant, which cmmenced peratin in 1983, was built t make use f the Gvernment s take r pay gas cntract arrangements at the nearby gas fields. 3) The plant was designed frm the utset as a single site integrated ammnia-urea plant, ammnia being an intermediate prduct in the cnversin f natural gas t urea. 4) The plant was ne f a series f Think Big prjects instigated by the Muldn led Natinal Gvernment. 1 It was envisaged that the plant wuld help New Zealand s 1 Other Think Big prjects included the Methanl plant at Waitara, the Synthetic-petrl plant at Mtunui, Expansin f the Marsden Pint Oil Refinery, Expansin f the New Zealand Steel plant at Glenbrk, Electrificatin f the Main Trunk Railway between Te Rapa and Palmerstn Nrth, A third reductin line at the Tiwai Pint aluminium smelter, The Clyde Dam n the Clutha River. 2 Octber

16 balance f payments by exprting urea, hwever New Zealand s current demand f 850,000 tnnes nw exceeds plant prductin resulting in all sales being dmestic. 5) The plant was revamped in 1996 t increase prductin and reduce energy use thrugh clser heat integratin f the ammnia and urea sectins f the plant. 6) The prcess is described in detail in Attachment 1 and is summarised in Figures 2-3 belw, which shw the primary chemical reactins and the lcatin in the plant f the activities. Figure 2 Ammnia Prductin Step CH 4 + 2H 2 O 4H 2 + CO 2 gas + steam hydrgen + carbn dixide N 2 + 3H 2 2 NH 3 nitrgen + hydrgen ammnia Ntes (typical prductin statistics shwn): Natural gas feedstck is predminantly specificatin gas (7PJ). Ammnia prductin is 150,000 tnnes per annum. There is a small intermediate strage capacity f 450 tnnes ammnia (1 days prductin if full). This is primarily t allw sequential (ammnia then urea) start up f the plant and t prvide a buffer fr any minr upsets. Carbn dixide prductin is 195,000 tnnes per annum. There is n intermediate strage f carbn dixide. 2 Octber

17 Figure 3 Urea Prductin Step 2 NH 3 + CO 2 NH 2 COONH 4 ammnia + carbn dixide ammnium carbamate NH 2 COONH 4 H 2 O + NH 2 CONH 2 ammnium carbamate water + urea Ntes: All f the ammnia and carbn dixide frm the ammnia prductin step is cnverted t 265,000 tnnes f urea per annum. The urea is prduced in granular frm allwing easy transprtatin with n hazardus chemical shipping requirements. The urea is shipped in bulk and packaged frm by rad r by rail. Apprximately 5 millin litres f GClear urea slutin is prduced per annum GClear is an exhaust system additive and scrubbing agent that reduces nitrgen xide emissins frm diesel engines, enabling truck peratrs t run lw-emissin and efficient vehicle fleets. 7) As an integrated ammnia-urea plant, there is cmmn infrastructure which yield energy efficiency gains and cst savings: Cgen (Electricity and Steam) Steam mains + heat integratin Demineralised water fr bilers Clarified water + cling water system Cntrl Rm & Services Effluent Treatment Utility air supply 2 Octber