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Historic updates of the Kyoto Protocol financial information

Projected net position estimate changes since 2002

April 2011 Net position projection

In April 2011, the net position surplus increased by 10.5 million units, from 11.4 million units in 2010. The largest change was to projected emissions from agriculture.

Emissions from the agricultural sector were projected to be 7.5  million tonnes carbon dioxide equivalent lower than projected in 2010 (a drop of 4.2 per cent). This is because the methodology used to calculate agricultural emissions for the national greenhouse gas inventory changed. An improved methodology based from the latest science research shows emissions from New Zealand livestock excreta is lower than previously estimated.

Net removals for the most likely scenario were projected to be 82.8 million tonnes, about 2.9 million tonnes higher than the 2010 most likely scenario projection of 79.9 million tonnes (a 3.6 per cent increase).  This increase was primarily due to new estimates of deforestation from mapping of land-use change by the Land Use and Carbon Analysis System (LUCAS) completed for 2008 and 2009. The LUCAS mapping estimates showed less deforestation of post-1989 forest, pre-1990 planted forest, and natural forest area than was previously assumed. The reduction in the estimated deforestation has resulted in emissions decreasing by 2.6 million tonnes.

Projected waste emissions increased by 1.7 million tonnes from projections made in 2010. The increase in projected emissions was due to methodology improvements to the estimation of how much landfill gas is recovered at waste disposal sites. These improved methods came from a better understanding of the management and design of landfills with operational methane recovery systems and the application of nationally consistent assumptions on the composition of solid waste.

There were also some improvements in the methods to calculate emissions from waste water, inclusion of sludge disposal at wastewater treatment plants and the population serviced by each plant. Further information on waste emissions is provided in the New Zealand Greenhouse Gas Inventory 1990–2009.

The Ministry of Economic Development’s estimate of energy emissions for the period 2008-2012 was 2.8 million tonnes lower than projected in 2010 as the effects of the recession were greater than expected.

April 2010 net position projection

In April 2010, the projected net position surplus increased from 9.6 million tonnes (as at April 2009) to a surplus of 11.4 million tonnes, an increase of 1.8 million tonnes. The two largest contributions to this projected increase were lower expected emissions from agriculture, and a reduction in projected net removals from forests.

Emissions from the agricultural sector are projected to be 6.4 million tonnes lower than projected in 2009.  Projected agricultural emissions for the first commitment period had decreased in the 2009 revision by 11.4 million tonnes largely due to the 2007/2008 nation-wide drought, however the extent of the drought was more severe than expected and recovery of livestock numbers from the drought has been slower than expected.  The effect of the 2007/2008 drought has therefore contributed to reducing projected emissions by 25.5 million tonnes compared to the projected result in early 2007.  The extent of the drought has been greater and the recovery from the drought has been slower than expected in 2008 and 2009 projections.

This fall in emissions has been largely offset by a fall in net removals from forestry of 5.1 million tonnes. Land use mapping data from the Land Use and Carbon Analysis System (LUCAS) has shown that the area of eligible Kyoto forests is smaller than previously estimated using survey based techniques. This mapping also shows some deforestation of natural forests that had not previously been included in the net position.

April 2009 net position projection

In April 2009, the net position changed from a deficit of 21.7 million tonnes to a surplus of 9.6 million tonnes, a change of 31.3 million tonnes. The three largest contributors to this change were lower projected emissions from agriculture, lower projected deforestation emissions, and higher projected net removals from forests.

Projected agriculture emissions over 2008 – 2012 are 14.4 million tonnes lower than previously estimated in 2008. Agriculture emissions projections are lower largely due to the effect of the 2007/2008 nation-wide drought.

Net removals by post-1989 forests are projected to be 17.8 million tonnes higher from the previous projection. The two key reasons for the change in removals are:

• new information on post-1989 planted forests indicates that these forests are removing more carbon dioxide per hectare than assumed previously (8.2 million tonnes), and
• new information shows that intended deforestation emissions are lower than previously forecast (9.6 million tonnes).

April 2008 net position projection

In April 2008, the net position changed from a deficit of 45.5 million tonnes to a deficit of 21.7 million tonnes, a change of 23.8 million tonnes.

There are four substantial changes from the net position reported in September 2007, these are summarised below and described in more detail in the appendices to the report.

• Emissions in 2008 from the transport sector were projected to be 8.8 million tonnes lower than projected in 2007.  Emissions are projected to be lower because actual fuel use data for 2007 is lower than projected in 2007, and higher fuel prices are assumed for the first commitment period. During 2008  fuel prices were peaking around NZ$2.05 a litre for regular unleaded petrol (www.med.govt.nz/templates/MultipageDocumentTOC____21653.aspx) and at the time analysts expected crude oil price and fuel to remain high for the foreseeable future. Oil prices fell later in 2008 as the effects of the global recession reduced demand for oil.
• New Zealand’s emissions from agriculture are projected to be 4.7 million tonnes lower than projected in 2007 due to the effects of the drought during early 2008 and a continuing decline in sheep numbers. Sheep numbers projected for 2010 are 1.7 million sheep lower than the 2007 projection (Appendix A: MAF (2008a) www.mfe.govt.nz/publications/climate/net-position-report-projected-balance-emissions-may08/html/page8.html).
• Estimates of deforestation during the first commitment period were up to 41 million tonnes in the absence of any policy to reduce deforestation. The introduction of the emissions trading scheme reduced deforestation from 41 million tonnes to 16.9 million tonnes. However, the Crown’s liabilities (at that time) were capped at 21 million tonnes therefore the net position for calculation the Kyoto Protocol financial position reduced from 21 million tonnes to 16.9 million tonnes, a reduction to the net position of 4.1 million tonnes.
• An increase of 5.1 million tonnes in the estimate of removals due to a change in methodology as recommended by an international review of the 2007 projections (AEA Technology, 2007 www.mfe.govt.nz/publications/climate/review-net-position-report-nov07/index.html).  The method now combines all factors affecting projected removals in a single model rather than treating each factor separately (Appendix C: MAF (2008 b) www.mfe.govt.nz/publications/climate/net-position-report-projected-balance-emissions-may08/html/page10.html).

June 2007 net position projection

In June 2007 the net position changed from a deficit of 41.2 million tonnes to a deficit of 45.5 million tonnes, a change of 4.3 million tonnes.

There were four main changes to the projected net position deficit:

• New Zealand’s assigned amount has increased (1.9 million tonnes) due to improvements in New Zealand’s Greenhouse Gas Inventory. Increasing the assigned amount lowers the net position deficit.

• New Zealand’s agriculture greenhouse gas emissions are now projected to be 4.3 million tonnes carbon dioxide equivalent higher than projected in 2006. The increase is mainly attributable to projected increases in dairy cow numbers as a consequence of higher world commodity prices for dairy products. The reported increase in projected emissions from agriculture preceded the nation-wide drought that occurred later in 2007. 

• New Zealand’s emissions from energy are now projected to be 1.5 million tonnes carbon dioxide equivalent higher than projected in 2006 due to the expected higher level of dairy processing.

• New Zealand’s transport emissions are projected to be 1.3 million tonnes carbon dioxide equivalent higher as a result of integrating the more comprehensive vehicle fleet emissions model to project transport emissions.

May 2006 net position projection

In May 2006 the net position changed from a deficit of 64.0 million tonnes to a deficit of 41.2 million tonnes, a decrease of 22.8 million tonnes in the reduction in the net position is largely due to the modelled impacts of higher energy prices, and refinements to the methodology for projecting agriculture emissions.

Projected emissions from energy use have decreased by 14.5 million tonnes due to modelled energy prices (such as oil) being considerably higher than previously forecast and consequent lower projected growth in demand for energy from heavy industry. There are three main components to the reduction in energy emissions:

• Reduced electricity demand forecast and upgraded assumptions of coal and gas fuelled electricity generation, leading to reduced coal consumption and a reduction in emissions of 10.4 million tonnes for first commitment period (2008-2012).
• Increases in expected energy costs. The projected international oil price has increased from US$35 per barrel (in 2012) to US$60 per barrel.  This increase leads to an approximate 2.7 million tonnes reduction in projected emissions from the transport sector.
• The heavy industry sector has been more explicitly researched and modelled, resulting in an approximate 1.5 million tonnes reduction in emissions projected for the energy sector.

Projected agriculture emissions are lower by 3.2 million tonnes compared to projected emissions in December 2005.  The reduction is largely due to model refinements for nitrogen fertiliser application projections and an updated emissions factor for calculating emissions from nitrogen fertiliser.  The update is in accordance with international good practice for inventory compilation. 

December 2005 net position projection

In December 2005 the value of the deficit was increased from 36.2 million tonnes (May 2005) to 64.0 million as a result of the decision not to proceed with the proposed carbon tax (13.1 million tonnes), and new information which showed expected deforestation would be 14.7 million tonnes higher than previously estimated.

May 2005 net position projection

The 2005 net position report was the first comprehensive evaluation of the projected balance of emissions tonnes’ during the first commitment period. The net position changed from a surplus of 32.6 million tonnes to a deficit of 36.2 million tonnes, a projected increase in net emissions of 68.8 million tonnes. The decrease prompted a review of the net position methodology and underlying assumptions. The review was conducted by UK based consulting firm with specialist expertise in this area.

Some of the key reasons for the change in 2005 include:

• Lower estimates of forestry removals, up to 16 per cent (equivalent to 14.7 million tonnes) of nation-wide post 1989 forests were planted on scrubland that met the definition of a forest under article 3.3 of the Kyoto Protocol. Therefore the new forest did not meet the definition of afforestation (new forest planting) and was not included as part of projected removals;

• A loss of 2.2 million tonnes is included for a loss of soil carbon converting grassland to pasture. This is based on research by Landcare Research and Forest Research scientists. Earlier estimates assumed no loss of soil carbon.
• A projected estimate for Kyoto scrub was not included in the May 2005 estimate. Kyoto Scrub that meets New Zealand's proposed definition of forest under the Kyoto Protocol requires New Zealand to state the minimum area, length (and thus width) of land areas categorised as forest land. The previous estimate was 3.8 million tonnes.

• Emissions from energy and industrial processes were projected to be 38.0 million tonnes higher for the first commitment period than had been projected in 2004. The increase was caused by changes in the modelled emissions and policy measures and changes in the reductions attributed to non-modelled policy measures. Changes in modelled emissions include updated information from:
  • the Maui gas field re-evaluation showing an increase in the long-term price of gas and consequently more coal use is expected to be used in electricity generation during the first commitment period;
  • higher expected use of diesel as diesel demand in transport increases;
  • an increase in fugitive and industrial processes emissions;
  • Less than previously expected emissions reductions from the carbon tax and Projects to Reduce Emissions Programme due to new modelling improvements;
  • There were also changes to expected emissions reductions from non-modelled policy measures such as the National Energy; and
  • Efficiency Conservation Scheme (NEECS), local Government initiatives and funding for small to medium business opportunities.

Notes:
Million tonnes = million tonnes of carbon dioxide equivalent gases or one million Kyoto Protocol emissions units.

Carbon price changes since 2005

May 2005

In May 2005 Treasury used a weighted average of the value of forward trades in Kyoto Protocol emissions units ($US6/tonne) sourced from the World Bank Report 'State and Trends of the Carbon Market 2005'. This methodology and price was confirmed as appropriate by the Allen Consulting Group (see Treasury publications) and met the accounting standards required by Audit NZ.

June 2006

In 2006 Treasury engaged Geoff Sinclair, a UK-based economic consultant, to provide an updated figure for the carbon price. The figure derived was $US9.65/tonne carbon dioxide. This was peer-reviewed by the Allen Consulting Group. The Sinclair report and the Allen Consulting Group peer review of the Sinclair report are available on the Treasury publications website.

June 2007

The Treasury closely followed Geoff Sinclair's methodology for the 2007 update of the carbon price. The price estimate based on current market conditions and practices as at 30 June 2007 was US$11.90. The methodology was reviewed by the Allen Consulting Group and was considered to be robust. The Allen Consulting Group report is available on the Treasury publications website.

Due to increased demand for carbon price information, an interim update was produced to reflect current market conditions and practices as at November 2007. The figure derived was €11.13. No report has been published below, as this update uses the same methodology and data sources as the 30 June 2007 report.

June 2008

Treasury updated the price estimate to €12.50 based on current market conditions and practices as at 30 June 2008. This carbon price update was peer reviewed by the Allen Consulting Group and was considered to be robust. The Allen Consulting Group report may be found on the Treasury publications website.

December 2008

Treasury carried out an interim update to reflect market conditions as at 31 December 2008. The price of €10 was calculated by taking the mid-point price of the trades in primary Certified Emissions Reduction units (consistent with the pricing methodology) as reported by Point Carbon (www.pointcarbon.com) for December 2008.

June 2009

Treasury reviewed the price estimate based on trades of mid-risk primary Certified Emissions Reduction units as reported by Point Carbon for the end of June 2009. The estimate for June 30 June 2009 remained at €10.

December 2009

Treasury carried out an interim update of the carbon price as at 31 December 2009, and updated the estimated price to €10.75. The price continued to be estimated from the mid-point price of the trades in primary Certified Emissions Reduction units, as reported by Point Carbon.

January 2011

The Ministry for the Environment updated the carbon price as at 19 January 2011, and updated the price to €10.95. The price continued to be estimated from the mid-point price of the trades in primary Certified Emissions Reduction units, as reported by Point Carbon.

October 2011

In 2011 the Ministry for the Environment changed the methodology used to estimate the carbon price. The carbon price used is based on a report dated 21 July 2011 prepared by PointCarbon on the AAU market and a recommendation of fair value of AAUs as at 30 June 2011, of €7.63.

February 2012

In December 2011 the Ministry for the Environment contracted PointCarbon to reassess the carbon price. The carbon price of €5.03 is based on a report dated 19 December 2011 on the AAU market and a recommendation by PointCarbon of fair value of AAUs as at 30 November 2011.

Last updated: 18 May 2012