Net Position Report 2009

• Executive Summary
• 1 New Zealand’s Emissions Profile 1990–2007
• 2 Kyoto Protocol Compliance Equation
• 3 Projections of Emissions and Removals
• 4 Projections Uncertainty
• 5 Reconciliation Against Previous Projections
• References
• Appendix A: Agriculture Emission Projections provided by the Ministry of Agriculture and Forestry
• Appendix B: Projected Balance of Emissions for the Energy, Transport and Industrial Processes Sectors for the Kyoto Commitment Period, 2008–2012
• Appendix C: Land Use, Land-use Change and Forestry Sector provided by the Ministry of Agriculture and Forestry
• Appendix D: Projected Waste Sector Emissions for the First Commitment Period of the Kyoto Protocol

Appendix B: Projected Balance of Emissions for the Energy, Transport and Industrial Processes Sectors for the Kyoto Commitment Period, 2008–2012

Short report to Ministry for the Environment, 7 April 2009, prepared by Energy Information and Modelling Group, Ministry of Economic Development.

1 Executive summary

The Ministry of Economic Development provides projections of emissions from the energy sector and industrial processes. These projections are based on the energy models maintained and updated by the Energy Information and Modelling Group. This modelling includes coordination with the models of the Electricity Commission and the Ministry of Transport and uses inputs from other government agencies including Treasury and the Ministry of Agriculture and Forestry.

In model fitting, every effort is made to use preliminary 2008 figures where available. However, in some cases energy data and vehicle fleet information for all of 2008 was not available.

This document centres on the most likely scenario projection. Both high emission and low emission scenarios are also modelled to allow an estimate of the range of possible outcomes.

Since the 2008 report, significant effort has been undertaken to align methodologies used to forecast emissions with those used in the National Inventory calculations, allowing greater compatibility between the figures especially at the sub-sector level. In addition, we have reconsidered our modelling approach around the treatment of energy efficiency and its expected impact on electricity demand.

The 2009 projection of total CO₂ equivalent (CO₂-e) emissions from the energy sector and industrial processes for the first commitment period is 185,620. This is 3 kt CO₂-e lower than the 2008 projection.

Of this total, energy and transport sectors account for 164,913 kt of CO₂ equivalent (CO₂-e) over the first commitment period. This compares to a 2008 projection of 163,651 kt – an increase of 1,262 kt CO₂-e. Industrial processes emissions are projected to be 20,707 kt CO₂-e for CP1. This compares with a 2008 projection of 21,972 kt CO₂-e – a decrease of 1,265 kt CO₂-e.

Significant changes from the 2008 projection are:

• additional net 600 kt CO₂-e from stationary energy including:

  • additional net 150 kt CO₂-e emissions from increased projected electricity demand resulting from model changes including that as to the treatment of future likely energy efficiency improvements
  • additional net 250 kt CO₂-e emissions from the industrial and commercial sector. This results from a re-allocation of 700 kt CO₂-e from industrial processes relating to the treatment of urea production¹ less a projected reduced energy demand and emissions of 450 kt CO₂-e
  • additional 200 kt CO₂-e increase in fugitive emissions from geothermal electricity generation and from Kapuni gas treatment plant
• a net increase in emissions of 660 kt CO₂-e from transport comprising:
  • additional 1,100 kt CO₂-e resulting from the repeal of the biofuel sales obligation
  • reduction of 440 kt CO₂-e from reduced demand
• a reduction of 1,265 kt CO₂-e in reported emissions from industrial processes comprising a
  • reduction of 700 kt CO₂-e re-allocated to industrial energy emissions
  • further reduction of 565 kt CO₂-e in emissions resulting from projected reduction in industrial processing.

The dry year in 2008 increased electricity emissions by between 0.6 and 1 million tonnes in that year. However, an allowance for a dry-year event had been incorporated into the projections made in 2008.

Text description for figure Emissions from Energy Sector

2 Introduction

As a signatory of the Kyoto Protocol, New Zealand has accepted as a target that, for the period 2008 to 2012 (the first commitment period) it will reduce its greenhouse gas emissions to the level they were in 1990, or take responsibility for excess emissions.

To monitor progress towards this goal, the Ministry of Economic Development (MED) projects greenhouse gas emissions that can be expected from the national energy system (including transport) and those from industrial processes.

The emission projections are calculated and reported under the framework provided by the United Nations Framework Convention on Climate Change (UNFCCC) and its advisors, the Intergovernmental Panel on Climate Change (IPCC).² The energy system is defined to comprise the exploration and exploitation of primary energy sources, the conversion of primary energy sources into more useable energy forms in refineries and power plants, the transmission and distribution of fuels, and the use of fuels in stationary and mobile applications. Emissions arise from these activities by combustion and as fugitive emissions, or escape without combustion.

Before presenting the updated emission projection this document first presents a brief history of these emissions from 1990 to 2007 and then discusses the policy and economic environment and the relative influences these can be expected to have on the emissions to 2012.

2.1 Historical greenhouse gas emissions

Figure 1.1 below shows the reported emissions from energy for 1990 to 2007 as reported in MED’s publication “The New Zealand Energy Greenhouse Gas Emissions 1990–2007”.

Figure 1.1: Energy Emissions by Sector (kT CO₂-e)

Text description for figure 1.1

The graph shows total emissions growing 38.7 per cent between 1990 and 2007, with most of this growth occurring in transport and electricity generation. Transport now accounts for 46 per cent of energy emissions and, since 1990, these have grown at an average rate of over 3 per cent a year in line with population and economic growth, high growth in the heavy vehicle fleet and with the general trend to larger, light vehicles. This growth rate has, however, slowed appreciably from 2004 in a period of generally higher petrol and diesel prices.

Electricity emissions have also grown and have shown increased variability as the Huntly power station has switched between gas and coal and is run harder in dry winters. The drop in 2007 reversed in 2008 as Huntly ran hard on coal for much of the previous winter.

Manufacturing emissions and other sectors are relatively stable and reflect the dominance of a small number of large industrial plants. These emissions had declined since 2002 as a result of Methanex scaling back methanol production. However, in October 2008, Methanex restarted production at its Motunui plant and the expected increase in emissions has been included in emission projections in both 2008 and 2009.

Industrial processes contribute around five per cent of New Zealand’s total greenhouse gas emissions. There are six major industrial processes that are represented in this sector with approximately half of the industrial processes sector emissions from the metals industry.

2.2 Current policy settings

In making this projection, the models generally assume future investment in energy supply in line with that observed in the historical period, with investment decisions dictated by economics including the constraints required by technical and risk considerations. These investments include those associated with new electricity plant, choice of fuel for industrial applications and vehicle fleet evolution. The latter is an example where straight economic decisions are complicated by the trends and fashion in vehicle choice.

Layered above these influences are the stimulus and requirements of government and international energy policy. The new government has signalled a review of both the New Zealand Energy Strategy 2007 and the Climate Change Response (Emissions Trading) Amendment Act 2008. As these reviews have yet to occur, the 2009 projections only include in their modelling the changes in policy setting that the new government have already enacted in the period up to March 2009. These are:

• the repeal of the Biofuel Bill 2008

• the repeal of the Electricity (Renewables Preference) Amendment Act 2008.

In MED modelling, the first of these measures is found to have a direct effect on the emissions, with an additional 1.1 million tonnes of CO₂-e now expected in the first commitment period.

2.3 Current economic situation

The net position 2009 projection has been made in a period of worldwide economic turmoil. New Zealand is already in a technical recession, with negative GDP growth being measured in both the July and September quarters 2008. Other countries are similarly in recession including Australia, Japan, USA, United Kingdom and Germany. The experts seem to only agree that the outlook is extremely uncertain.

The current economic situation and its effect on emissions have been modelled to the extent possible. The energy models used are based on calendar-year data although, in some cases, 2008 fourth quarter and final energy demand data was not yet available.

In modelling these projections, MED draws on the agreed New Zealand Government sources for relevant input projections of GDP, exchange rate and international oil price³. The first two are sourced from the latest Treasury updates. Treasury provided economic and fiscal forecasts in December 2008⁴, however, the economic situation has weakened since then and in February the Treasury advised:

“The economy is expected to continue weakening in 2009 with a further fall in real GDP predicted for the March quarter. As a result, growth appears to be developing in line with the December Update downside scenario, at least in the near term, with recent international developments pointing to further downside risk.”⁵

Based on this advice, net position 2009 has used the December update “downside scenario” for inputs on near term GDP and exchange rate. This scenario has GDP growth of 0.4 per cent in 2008 dropping to –0.4 per cent in 2009 but then rebounding to 1.2 per cent in 2010 and 4.4 per cent in 2011. It is worth noting that this projection of economic conditions is for similar levels to those experienced in the 1990–1993 period when greenhouse emissions increased by 6 per cent (although some of these emissions were the result of the dry winter that triggered the 1992 electricity crisis).

It is also worth noting that GDP is not the only key driver in the energy models which determine the level of projected greenhouse emissions. In transport, travel by the light fleet has been found to be driven as much by population growth and fuel price. In the electricity sector, movements in demand may not necessarily drive equivalent movements in emissions which depend more on the mix of fuels sourced in production. In a dry autumn/winter, such as in 2008, scarce hydrological conditions will require that fossil fuel-sourced generation will be run harder with an ensuing higher level of greenhouse gas emissions.

The energy models used to form the projection are built up on a sector basis with the relationship between energy demand and economic growth fitted for each sector. Sectors such as transport and residential have historically been found to have low demand elasticity and as a result no dramatic demand reduction is foreseen. Overall, the impact on emissions from energy and industrial processes as a result of the current economic situation is estimated to be a decrease of around 1.5 mt CO₂-e.

3 Model enhancements

Along with updating historical demand data and the inclusion of preliminary 2008 demand figures significant enhancements have been made to the energy model since the 2008 net position forecasts. These include:

• aligning emission calculation methodologies with those used in the National Inventory especially for transport, cogeneration and industrial processes

• revising electricity demand forecasts to better reflect historical annual growth rates by changing the approach taken to model efficiency gains

• realigning heavy industry demand sub-models to produce internal consistency between models

• updating assumptions and production forecast for heavy industries based on work by Covec and Hale and Twomey

• splitting other industrial and commercial models into commercial and light industry models, where the light industry model has two sub-parts – primary industries and other light industry

• redeveloping biofuels model (although this is not used in 2009 net position modelling).

The implications of the Liquid Fuels Project undertaken late in 2008 have not been included in this work as work is still underway in implementing the project’s recommendations. It is, however, anticipated that total emissions will not change – only the allocation of emissions at the sub-sector level. A quick calculation suggests that ~800kt of emissions (pa) would be transferred from transport emissions to predominantly primary industry emissions. This reflects the fact there is currently an over-reporting of diesel use for transport and an under-reporting for use in areas such as agriculture.

4 2009 emissions projections

4.1 Summary by sector

Total emissions from the energy and transport sectors are now projected to be 164,913 kt of CO₂ equivalent (CO₂-e) for the first commitment period. This compares to a 2008 projection of 163,651 kt, an increase of 1,263 kt CO₂-e.

Industrial processes emissions are projected to be 20,707 kt CO₂-e for CP1. This compares with a 2008 projection of 21,972 kt CO₂-e, a decrease of 1,263 kt CO₂-e.

Year	Emissions (kt CO2-e)
	Stationary energy	Transport	Sub-total	Industrial processes	Total
2008	19,666	14,299	33,966	4,007	37,972
2009	17,683	14,331	32,014	3,973	35,987
2010	18,556	14,169	32,725	4,213	36,939
2011	18,825	14,408	33,233	4,254	37,488
2012	18,244	14,731	32,975	4,259	37,235
Total CP1	92,975	71,938	164,913	20,707	185,620

 

Significant changes from 2008 are:

• additional net 600 kt CO₂-e from stationary energy including

  • additional net 150 kt CO₂-e emissions from increased projected electricity demand resulting from model changes including that as to the treatment of future likely energy efficiency improvements
  • additional net 250 kt CO₂-e emissions from the industrial and commercial sector. This results from a re-allocation of 700 kt CO₂-e from industrial processes relating to the treatment of urea production⁶ less a projected reduced energy demand and emissions of 450 kt CO₂-e
  • additional 200 kt CO₂-e increase in fugitive emissions from geothermal electricity generation and from Kapuni gas treatment plant

• a net increase in emissions of 660 kt CO₂-e from transport comprising:

  • additional 1,100 kt CO₂-e resulting from the repeal of the biofuel sales obligation
  • reduction of 440 kt CO₂-e from reduced demand

• a reduction of 1,265 kt CO₂-e in reported emissions from industrial processes comprising a

  • reduction of 700 kt CO₂-e re-allocated to industrial energy emissions
  • further reduction of 565 kt CO₂-e in emissions resulting from projected reduction in industrial processing.

The dry year in 2008 increased electricity emissions by between 0.6 and 1 million tonnes, although an allowance for a dry-year event had been incorporated into the previous projections.

Changes in emissions between the 2008 and 2009 projections by sector (stationary energy, transport and industrial processes) are presented in the figure below. Note that some 700 kt CO₂-e of emissions have been reallocated from industrial processes to stationary energy as part of the methodology realignment.

Text description for changes in emissions (by sector) 09 vs 08

Changes in emissions by fuel type between 2008 and 2009 projections show a more complicated story than changes by sector.

Coal emissions increase due to projected increased electricity generation at Huntly. Gas demand has decreased from both electricity generation and other sectors due to its projected price path and relativity. However, the total emissions from gas rise significantly as we now reflect petroleum refining emissions as gas emissions (previously attributed to oil) as per the National Inventory methodology. Thus, there is a corresponding drop in emissions from oil. Fugitive emissions increase due to increased geothermal electricity generation and an increase in the expected fugitive emissions from the Kapuni gas treatment plant.

Text description for changes in emissions (by fuel) Net Postion 09 vs 08

4.2 Emissions – transport (2009 versus 2008)

Projected transport emissions are close to those made last year being just 440 kt CO₂-e higher over the commitment period. This figure reflects the additional emissions with the repeal of the biofuel obligation but with lower emissions and demand expected from the lower GDP projection. The projections made in 2008 successfully predicted the small but unusual downturn in demand for petroleum products in 2008.

The higher emissions projected in the latter years from 2011 result from the projection now not including any biofuels and some effect from lower oil prices projected to 2020.

Text description for Emissions from transport

 

4.3 Emissions by sub-sector – stationary energy

Text description for Emissions from energy

4.4 Emissions by sub-sector – electricity

Text description for Emissions from energy

4.5 Electricity demand

Since making the 2008 projections, the method used to project the likely effect of energy efficiency gains has been revised. In 2008, the specific effects of expected energy efficiency measures were modelled in a bottom-up manner and subtracted from overall demand growth. While this approach may model the individual expected efficiency measures it risks double-counting the impact of such measures as historical data already includes the net effects of both increasing demand for electrical services and energy efficiency improvements. It is a difficult process to separate out these two effects and to project the future demand for new services.

Thus, a simpler approach to projecting future demand growth has been used which is based on fitting models to historical demand by sector. The models produce overall projected annual electricity demand growth of 1.5 per cent to 2020. Average annual demand growth between 1990 and 2008 was 1.9 per cent. The projected rate of increase is lower than the historical figure as heavy industry energy demand growth is expected to be somewhat less in the future compared with the historical average.

At a sub-sector level, electricity demand growth (2008 to 2020) is projected as follows:

• residential: 1.3 per cent pa (driven primarily by projected growth in the number of households)

• commercial: 2.2 per cent pa (driven primarily by GDP and price forecasts)

• light industry: 1.6 per cent pa (driven primarily by GDP and price forecasts)

• heavy industry: 0.8 per cent pa (driven by production forecasts).

Text description for Electricity demand

4.6 Electricity generation

To meet electricity demand, generation was modelled using “GEM”. Some key messages from the modelling are:

• gas prices are projected to rise and from 2011 coal becomes more economic to dispatch than gas. A switching of gas to coal generation results in only a slight increase in emissions since new renewable build keeps total thermal generation relatively constant

• rising gas prices also results in new coal plant being built (and no new gas plant), however, we do constrain the modelled quantity and timing of new coal build. Unconstrained, the model will initiate new coal generation being built almost immediately

• we assume that the four Huntly units move to a dry-year reserve role in a staggered fashion – in 2015, 2017, 2019 and 2020. This means that despite new coal being built in 2017 and 2020, overall coal generation does not increase substantially

• the “lumpy” nature of new investment results in some peaks and troughs in annual emission projections. For example, new hydro and wind in 2019 results in a dip in emissions for that year, and the following year, emissions revert to previous levels as thermal generation increases to meet demand growth.

4.7 Petrol and diesel demand

Petrol and diesel demand are modelled through a combination of VFEM forecasts for transport demand and SADEM forecasts for all other petrol and diesel demand (ie, industry, commercial and residential demand including agriculture).

In terms of energy content, diesel demand is projected to over-take petrol demand in the current year. In terms of litres, diesel is not projected to over-take petrol until approximately 2014.

Text description for Petrol and Diesel demand forecast - Total

At the sub-sector level (transport versus other), the revisions to the model methodologies have made a significant improvement to the projections for diesel demand. Historically, SADEM had employed a different definition of transport to that used for National Inventory reporting. This the definition of transport had included mobile combustion that occurs off public road (ie, tractors, trucks, motorbikes etc.). The updated method now allocates all known diesel (and resulting emissions) delivered to off-road users (ie, agriculture, construction, forestry etc) as being in other sectors, regardless of whether it is used in mobile or stationary applications. This approach now correctly follows the UNFCCC guidelines.

The effect of this is readily apparent in the figure below with diesel demand for transport in the 2009 projection being lower than that projected in 2008.

5 Uncertainty – high and low emission projections

Uncertainty is modelled by comparing the most likely projection with high and low emissions scenarios. Scenarios are developed by varying a range of model input parameters – in particular, the high emissions scenario assumes higher growth in GDP and population, lower oil prices and drier hydrology assumptions (ie, includes three drier years). The historical movements in these inputs have been analysed and the projected path for each has been raised to levels thought close to their potential maximums. This all leads to higher energy and emission projections.

Similarly, the low emissions scenario assumes lower GDP and population, higher oil prices and normal hydrology. In addition, the assumed emissions price is varied between scenarios –$50 /tonne in the low scenario and $15 /tonne CO₂-e in the high emissions scenario.

These two scenarios model the variation that may result from the changes in the parameters specified. They do not model the effects of changes not described by the parameters which might well see the emission path move to a greater degree. The risks would now appear to be on the down side to lower emissions as, while major emitters may shut down in a short timeframe (eg, Methanex has previously ceased operation at Motunui), it takes a longer period of some years to plan and build additional major emitting plant. These now may not be possible much before the end of 2012.

The tables below shows the range of emissions projected in CP1 for the three scenarios.

	Low case		Mid case	High case
	% change		kt CO2-e		% change
Stationary energy	-5.6%	87,733	92,975	99,586	7.1%
Transport	-2.2%	70,388	71,938	73,618	2.3%
Sub-total	-4.1%	158,121	164,913	173,205	5.0%
Industrial processes	-3.4%	20,006	20,707	21,454	3.6%
Total	-4.0%	178,126	185,620	194,659	4.9%

	Low case		Mid case	High case
	% change	kt CO2-e			% change
Residential	-0.5%	2,579	2,592	2,602	0.4%
Commercial	-1.7%	4,572	4,651	4,716	1.4%
Primary industry	-2.1%	5,306	5,422	5,550	2.4%
Light industry	-1.4%	11,008	11,166	11,331	1.5%
Heavy industry	-4.0%	19,323	20,137	20,698	2.8%
Electricity generation	-11.1%	29,097	32,746	37,750	15.3%
Other transformation	-3.4%	5,733	5,932	6,189	4.3%
Fugitive	-2.1%	10,115	10,330	10,749	4.1%
Transport	-2.2%	70,388	71,938	73,618	2.3%
Sub-total	-4.1%	158,121	164,913	173,205	5.0%
Industrial processes	-3.4%	20,006	20,707	21,454	3.6%
Total	-4.0%	178,126	185,620	194,659	4.9%

 

The variation between the high and low scenarios and the most likely projection has reduced from those quoted in 2008. This reflects increased confidence across a range of assumptions leading to more similarity across the three scenarios. These include:

• 2008 figures are now (largely) historical so variation is only across the remaining four years

• high hydro storage levels in mid-March. Variation in hydrology has the ability to cause the greatest within-year swing in emission levels

• no biofuels are assumed in all scenarios

• Methanex running its Motunui Methanol plant throughout CP1 is assumed in all scenarios

• there is less scope for new electricity generation plant varying between scenarios with plans for new plants already committed to 2010 at least.

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