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New Zealand’s net position under the Kyoto Protocol

The net position is a forecast of New Zealand's greenhouse gas emissions over the first commitment period of the Kyoto Protocol. It is reported as a surplus if New Zealand's net emissions are projected to be below our commitment under the Kyoto Protocol and as a deficit if emissions are projected to be above the commitment. The number, in millions of units, refers to the number of Kyoto units that New Zealand will have to spare (surplus), or need to purchase (deficit) to meet our obligations under the Kyoto Protocol.

The latest projection of New Zealand's net position under the Kyoto Protocol is a surplus of 23.1 million units. New Zealand's Kyoto Protocol Financial Position is NZ$187 million. This uses the exchange rate as at April 2012 and an international carbon price of Euro 5.03 per tonne.

The Ministry updates the net position annually on 15 April every year. There will, however, be monthly changes to the net position due to transfers to and from New Zealand's assigned amount from international trading in emissions units.


Financial Statements Period Ended Net position in million units Carbon Price in Euro Exchange Rate NZ$ buys Euros Carbon Price in NZ$ Value of the Net Asset/(Liability) in NZ$m
  A X Y Z=X/Y A × Z
April 2012 23.1 5.03 0.62080 8.10 187
March 2012 23.1 5.03 0.61305 8.20 189
February 2012 21.5 5.03 0.62475 8.05 173
January 2012 21.6 5.03 0.62445 8.06 174
December 2011 21.6 5.03 0.59555 8.45 183
November 2011 21.7 5.03 0.57330 8.77 190

Note: Transfers of units from the Government account are now set out in Table 2.

The net position


How is the net position calculated?

The net position is calculated as the difference between the emission units New Zealand will have available (assigned amount units, forecast forestry removal units, and other Kyoto units) and forecast total emissions over 2008–2012. Because New Zealand’s Assigned Amount Units (AAUs) are fixed, a small forecast change in either total emissions or in forestry removals, can have a large effect on the size of the net position.


Figure 1 sets out this equation graphically.


Figure 1. The net position for 2008–2012

Figure 1. The net position for 2008 – 2012

Read a description of this figure

Figure 1 graphically represents the compliance equation for the Kyoto Protocol. To comply with the Kyoto Protocol New Zealand must surrender units equal to its emissions over 2008–2012. Kyoto units include Assigned Amount Units, Removal units from article 3.3 forests and Kyoto flexibility units generated or purchased by New Zealand. Units transferred to private accounts cannot be used by the government and are deducted when calculating the net position.


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What is New Zealand’s commitment under the Kyoto Protocol?

New Zealand’s commitment under the Kyoto Protocol is to return emissions to 1990 levels on average over the commitment period (2008–2012) or otherwise take responsibility for the excess.

The Kyoto protocol works like an international emissions trading scheme. New Zealand received emission units (assigned amount units – AAUs) equal to our target level, and we must surrender units equal to our total emissions over the period. If our emissions are below our target we will have a surplus of emission units to sell. Conversely, if our emissions are over the target, we will have to buy emission units to cover the deficit.

 

What are the projections of emissions for each sector?

The following table shows a breakdown of emissions for each sector. Emissions for 2008–2010 are taken from the National Greenhouse Gas inventory. Emissions for 2011 and 2012 are projected. For further information see the reports on each sector, accessible via the links at the right-hand side of this page.

Table 1: Projections of emissions and removals by sector and by year for 2008–2012
 
Emissions (millions of tonnes of CO2 equivalent)
 
2008
2009
2010
2011
2012
Total
Energy
34.4
31.6
31.1
30.9
33.8
161.8
Industrial processes and Solvents
4.3
4.4
4.8
4.8
4.9
23.2
Agriculture
33.4
33.5
33.7
34.6
35.3
170.5
Waste
2.1
2.0
2.0
2.0
2.0
10.0
Forestry
–16.7
–17.0
–17.5
–16.9
–17.7
–85.8
Gross removals
-18.2
–18.3
–18.4
–18.5
–18.7
–92.2
Deforestation
1.5
1.3
1.0
1.6
1.0
 6.4
Total
57.5
54.5
54.2
55.2
58.3
279.8

Note: Forestry figures in this table refer to net emissions and removals under Article 3.3 of the Kyoto Protocol. Positive numbers refer to emissions of greenhouse gases, and negative numbers refer to removals/sequestration of greenhouse gases. Note that all numbers have been rounded to one decimal place.


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Why has the net position changed since the last update in 2011?

The net position surplus has increased by 1.2 million units, from 21.9 million units in April 2011. The change in the net position from 2011 to 2012 is smaller than in previous years, because while projected total emissions rose, they were balanced by a projected rise in removals from forestry. The largest changes in the forecast are from removals from forestry, and emissions from the industrial processes and agriculture sectors.

Afforestation, reforestation and deforestation

Removals from afforestation, reforestation and deforestation under the Kyoto Protocol are now projected to be 85.8 Mt CO2-e over 2008–2012. This is 3.0 Mt CO2-e higher than projected last year. This increase is primarily due to improvements to our estimates of the rates at which forests sequester carbon. The improvements incorporate the latest scientific knowledge on decay rates, species-specific growth trajectories and biomass adjustments that have been developed as part of research funded under the Land Use and Carbon Analysis System.

Industrial processes

Emissions from the industrial processes sector are now projected to be 1.1 Mt CO2-e higher over 2008–2012 than projected last year (an increase of 4.9%). This increase is due to higher than projected emissions of hydrofluorocarbons (HFCs). HFC emissions have increased because of their use as a substitute for chlorofluorocarbons phased out under the Montreal Protocol.

Agriculture

Emissions from the agriculture sector are now projected to be 0.4 Mt CO2-e higher over 2008–2012 than projected last year (an increase of 0.2%). This increase is due to improvements to the methodology used to calculate agricultural emissions for the national greenhouse gas inventory and updated forecasts of agricultural activity for 2011 and 2012. Compared to last year’s projections, the methodological improvements and the updated forecasts of activity data have led to:

  • an increase in projected direct emissions from sheep and beef cattle
  • a decrease in projected emissions from dairy cattle, deer, poultry, pigs, and indirect emissions from fertiliser application.

The following table sets out the detailed changes in the net position since 2011. More detail on the reasons for these changes can be found in the sector reports linked to at the right-hand side of this page.


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Table 2. Breakdown of the changes to the net position estimate between April 2011 and April 2012 (million tonnes/units)
 
Apr-12
Change 11-12
Apr-11
Emissions
Energy
161.8
0.2
161.6
Industrial processes
23.1
1.1
22.0
Solvent and other product use
0.2
0.0
0.1
Agriculture
170.5
0.4
170.1
Waste
10.0
0.2
9.9
Projected gross emissions
365.6
1.9
363.7
Removals
Removals via forests (article 3.3)
92.2
2.9
89.3
Deforestation emissions
6.4
-0.2
6.6
Projected net removals via forests
85.8
3.0
82.8
Projected net emissions
279.8
-1.1
280.9
Current and projected assigned amount balance
 
Apr-12
Apr-11
Initial Assigned Amount Units
309.6
309.6
Purchases
0.1
0.0
0.0
Net transfers of Assigned amount units PRE
2.8
0.9
1.9
NZUs converted to AAUs
1.2
0.0
1.2
Permanent Forestry Sinks Initiative
0.5
0.2
0.3
Current assigned amount balance
305.1
-1.1
306.1
Projected unit transfer adjustments
Kyoto Protocol Units projected to remaining PRE projects
2.2
-1.2
3.4
Projected assigned amount balance
302.9
0.1
302.7
New Zealand's projected net position
23.1
1.2
21.9

 (1) The current and projected assigned amount balance is adjusted monthly for transfers of emission units.

Note: that all numbers have been rounded to one decimal place so some values may not add due to rounding.

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How are future emissions projected?

The net position includes data from the New Zealand Greenhouse Gas Inventory up to the latest inventory year, and includes projections of emissions for the remaining years to 2012. Each year, an additional year of projected data is replaced with inventory data.

The net position is compiled using projections of emissions produced by different agencies:

  • Agricultural emissions are projected by the Ministry of Primary Industries. 
  • Projections of energy emissions (including transport) and industrial process CO2 emissions are provided by the Ministry of Economic Development.
  • Emissions of synthetic gases (hydrofluorocarbons, perfluorocarbons, and sulphur hexafluoride) from industrial processes are projected by the Ministry for the Environment.
  • Removals from eligible forests are estimated by the Ministry for the Environment using the Land Use and Carbon Analysis System (LUCAS).
  • Emissions from the waste sector are projected by the Ministry for the Environment.

The Ministry for the Environment leads the net position update across government to ensure internal consistency of projections, to project manage the update and to report the Kyoto Financial Position.

The models and methodologies used to project emissions are set out or referenced in the emissions reports for each sector. Links to these reports are at the right-hand side of this page.


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What is the Kyoto Financial Position? How is it different to the net position?

The Kyoto Financial Position is the asset or liability that sits on the Government’s financial accounts as a result of the Kyoto Protocol. It is calculated by taking the net position (measured in Kyoto units), and converting it into dollars using the current trading price for emissions units and the current exchange rate. This asset or liability must be reported in the Government’s financial accounts. It also takes account of Kyoto units (Assigned Amount Units or AAUs) that have been transferred out of the Government account.

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What is the level of uncertainty in total emissions?

Total emissions are projected to be 365.6 million tonnes over 2008–2012. The models used to project emissions indicate that total emissions (excluding Land Use, Land-Use Change and Forestry) could be as low as 359.3 million tonnes (–1.7%), or as high as 372.1 million tonnes (+1.8%).

The uncertainty does not include possible changes in emissions due to new scientific developments or revised methodologies for measuring emissions. Research is ongoing to improve these methodologies. Methodological improvements are used to recalculate emissions from all years since 1990 and can therefore bring about a step change in our estimate of total emissions.

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What is the level of uncertainty in forestry removals?

Removals from forestry are projected to be 85.8 million tonnes over 2008–2012. Removals could be as high as 102.0 million tonnes (+18.8%) or as low as 58.5 million tonnes (–31.8%). The three main sources of uncertainty in net removals are:

  • changes in total deforestation
  • refinements to the removals rate for forests
  • refinements to the mapped forest area
  • changes in total deforestation.

Changes to the rate of afforestation have a very small effect on removals from forestry, as trees planted today will absorb a very small amount of carbon dioxide before the end of the commitment period in 2012. Refinements to the mapped area and sequestration rates have historically changed the best estimate of removals by under 10 per cent.

The largest source of uncertainty is in the amount of deforestation that will occur over 2008–2012. One of the reasons deforestation is so uncertain is that landowners who clear forest on their land have four years to replant it before the land is deemed to be deforested (unless decided earlier by the landowner).
If land is replanted, it is deemed to have been harvested and does not need to be accounted for as deforestation under the Kyoto Protocol. If land is not replanted it is deemed to be deforested and this incurs a liability for the Government under the Kyoto Protocol.

The rate of deforestation depends on the relative value of different land uses. Historically, large changes in deforestation intentions have been driven by uncertainty in government policy. With the New Zealand Emissions Trading Scheme (NZ ETS) in operation, it is anticipated that deforestation will be less volatile.
The latest survey of deforestation intentions can be found on the Ministry of Primary Industries’ website.


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Why do the net position numbers change over time?

The projection of the net position changes for several reasons. It will change as:

  • economic or climatic conditions change significantly (eg, a recession or a drought)
  • actual inventory data replaces projections of emissions
  • new scientific data improves our ability to estimate emissions
  • models are refined to be more accurate
  • new policies are enacted or technologies developed that affect emissions.

The balance of units may also change over time as AAUs leave the government account, for example, when foresters exchange NZUs for AAUs under the emissions trading scheme.


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How is the Crown’s position under the ETS different from the net position?

The net position is a forecast of how far New Zealand will be over or under its Kyoto target. The Crown’s position under the NZ ETS will be different depending on how many units the Government will receive, and allocate, under the NZ ETS. This will depend on the dates sectors enter the scheme, and the timing for allocation of emission units.

The NZ ETS changes the Government’s expected flows of emission units. The net position might be in surplus, but the Government’s position could be in deficit if it allocates more units to NZ ETS participants than it receives.


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What is the carbon price?

The estimate of the carbon price is €5.03 per tonne CO2-e. The Ministry of the Environment has been responsible for estimating the carbon price since June 2010. Previously, the Treasury was responsible for estimating the trading price of carbon. Earlier updates of the carbon price may be found at 'Historic updates of the Kyoto protocol financial information'.


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How is the price of carbon estimated?

The Ministry for the Environment is responsible for ensuring that the methodology used to value the Kyoto asset or liability is appropriate given current trading conditions and rules. The current trading price of carbon is estimated by PointCarbon for the Ministry for the Environment.

The current price used (€5.03) is based on a report dated 19 December 2011 prepared by PointCarbon on the AAU market and their recommendation of fair value for AAUs.

Prior to October 2011, the price of carbon was estimated from trades in registered primary Certified Emissions Reduction units as reported by Point Carbon. The midpoint between the average bid and offer price was taken as the estimated value.

Prior to  June 2010, the Treasury was responsible for estimating the trading price of carbon. Earlier updates of the carbon price may be found at 'Historic updates of the Kyoto protocol financial information'.


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Last updated: 18 May 2012