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State-owned miner Solid Energy says the "energy potential" of its lignite deposits in Southland is clear, but there are still open questions over the carbon footprint of any projects to develop them.
The company told MPs today that these yet-to-be-resolved issues will be an important part of any evaluation of the projects, but it did not accept that they were automatically not viable because of the carbon costs that coal could incur.
Solid Energy chief executive Don Elder told the commerce select committee that for a business to be sustainable, it had to not only be economically viable, but also be supported by the public in matters such as health and safety, environment, and reputation.
The company has said that it will soon lodge resource consent applications with Gore District Council and Environment Southland to build and operate a demonstration briquetting plant at the former Mataura mine site in Southland, and it is also looking at turning its lignite into diesel fuel, and nitrogen-based urea fertiliser.
Dr Elder said that if all those projects were started up in some scale, then the gross greenhouse gas emissions from the coal was likely to be equivalent to 10 million to 20 million tonnes of carbon dioxide a year.
But the company was planning the economics of the project to account for the costs of those emissions, without free allocations of carbon credits from the taxpayer.
It would be possible and feasible to use approaches such as mixing synthetic diesel with biofuels, carbon capture and storage, and planting trees, to reduce the net emissions, or the company could pay someone elsewhere in the world to do this for it.
The marginal supply of fertiliser and diesel elsewhere in the world would also be from coal, and it might be cheaper to make these things in New Zealand than to import them.
New Zealand has 10 to 15 billion tonnes of lignite resources, mostly located in Southland.
Dr Elder discounted criticism of the proposed project from the Parliamentary Commissioner for the Environment Jan Wright -- who has been following the lignite-to-fuel issue for more than 20 years -- who said that using lignite would cause large amounts of greenhouse gas emissions, particularly making diesel from lignite.
Dr Wright has recommended that Climate Change Issues Minister Nick Smith change the Governments emissions trading scheme (ETS) so that new industries which use lignite on a large scale are specifically excluded from receiving free carbon credits.
But Dr Elder said Dr Wright did not have the information to address the economics of lignite.
"She is quite correct -- there are potentially significant negative national issues," he said. "We believe they can be addressed and managed very well" .
There were also huge positive issues which a broad national discussion could cover.
Dr Elder said outside the select committee that the company was looking at a wide range of options for handling carbon emissions, including the possibility of eventually piping carbon out to sea and pumping it into sea-floor oil or gas well, after the Great South Basin has been developed.
He said an earlier idea, building a stainless steel pipeline from Southland to carry carbon north to be injected into an old Maui gas well, was less likely.