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Projected Balance of Emissions Units During the First Commitment Period of the Kyoto Protocol

1 Executive Summary

2 Introduction

3 Net Position Compliance Equation

4 Projected Emissions over the First Commitment Period of the Kyoto Protocol

5 Sectoral Emissions

6 References

Annex A: Agriculture Emissions Projections provided by Ministry of Agriculture and Forestry

Annex B: Energy and Industrial Processes Emissions Projections provided by Ministry of Economic Development

Annex C: Land Use, Land-use Change and Forestry Sector provided by the Ministry of Agriculture and Forestry

Annex D: Waste Emissions Projections provided by Ministry for the Environment

Annex A: Agriculture Emissions Projections provided by Ministry of Agriculture and Forestry

Disclaimer: This report contains forecast projections of greenhouse gas emissions by the agriculture sector. These projections need to be used with an understanding of the uncertainties that exist. This uncertainty is due to the complexity of forecasting biological systems which are inherently variable and are affected by climate and changing economic conditions. While every effort has been made to provide the best projections as at June 2007, future changes in projections are inevitable to reflect changes in economic conditions, international commodity prices and exchange rates.

Table A1: Summary of 2007 annual emission projection scenarios for 2010

Figures based on 2005 National Greenhouse Gas Inventory methodology.

* Million tonnes carbon dioxide equivalents.

* Figures may not add due to rounding.

Summary

Total emissions from the agriculture sector are projected to range from 180.00 Mt CO₂-e to 228.30 Mt CO₂-e over the first Commitment Period (2008–2012) of the Kyoto Protocol, with a most likely value of 203.10 Mt CO₂-e. Average annual emissions over the first commitment period are projected to range from 37.45 Mt CO₂-e to 45.66 Mt CO₂-e with a most likely value of 40.62 Mt CO₂-e.

The most likely value for annual emissions at 2010 is 0.86 Mt CO₂-e higher than was projected in 2006 and 4.30 million tonnes higher over the Commitment Period. The difference between the lower and higher scenarios is now 9.66 Mt CO₂-e compared to 8.40 Mt CO₂-e in the 2006 forecast estimates.

The increase in emissions compared to the 2006 projections is mainly attributable to the higher forecast of dairy cow numbers as a consequence of current high world commodity prices for dairy products. The projected impact of the improved dairy payout announced in May 2007 has been taken into account in these projections.

These projections are forecasts of future agriculture greenhouse gas emissions. Forecasts are greatly influenced by prevailing conditions. As such these projections need to be assessed within the uncertainties of biological systems affected by climate and changing economic conditions, including changing international commodity prices and the New Zealand dollar exchange rate. Every effort has been made to provide the best projections of future emissions as at June 2007 however, future changes in projected emissions are inevitable to allow for future changes in economic conditions and other factors.

Introduction

These projections are based on the methodologies used in the National Greenhouse Gas Inventory submitted to the United Nations Framework Convention on Climate Change (UNFCCC) annually and on econometric and physical models developed by the Ministry of Agriculture and Forestry (MAF). The inventory methodology conforms to the Good Practice Guidance methodologies developed by the Intergovernmental Panel on Climate Change and adopted by the UNFCCC.

Projections are driven by future estimates of:

• animal numbers by species: dairy cattle, beef cattle, sheep and deer in 2010 using the the Ministry of Agriculture and Forestry Pastoral Supply Response Model (PSRM)

• ruminant methane emissions per animal based on changes in past emissions per animal between 1990 and 2005

• nitrogen output per animal based on changes in past nitrogen output per animal between 1990 and 2005

• nitrogen fertiliser use based on an econometric model that projects future use from projected animal numbers, fertiliser prices and other variables (output prices, agricultural productivity growth).

Two further scenarios of projected emissions in 2010 have also been produced. These represent emission estimates using the 95 per cent prediction intervals for the upper and lower bounds of methane and nitrous oxide emissions and animal numbers.

The table below provides a summary of the forecasts developed last year (2006) for the net position for agriculture in 2010. The 1990 baseline emissions are slightly different between the two net projection years due to improved methodologies.

Table A2: A summary of 2006 projection scenario emissions for 2010

* Million tonnes carbon dioxide equivalents.

The significant increase in payout to dairy farmers announced by Fonterra in May 2007 necessitated a reanalysis of the projections.

Changes in methodology since last year’s assessment

Changes in estimation methodologies have been implemented to take into account new approaches and information obtained since the last update in May, 2006. Overall these methodological changes led to a reduction of emissions in excess of 1990 levels.

Changes were implemented in two areas:

• The projection of nitrogen fertiliser usage in 2010 was based on an improved methodology developed by the Ministry of Agriculture and Forestry. This resulted in a 6 per cent increase in nitrogen fertiliser use projections.

• Updating of the National Greenhouse Gas (GHG) Inventory methodology in keeping with UNFCCC guidance for maintaining “Good Practice”. Two changes were implemented in the agricultural section of the National Greenhouse Gas Inventory in 2007, in which the 2005 emission levels are reported. These were:

  • The crop residue burning fraction for 2005 was reduced from 50 per cent to 30 per cent based on updated expert advice. This change had a minor impact on emissions output.
  • The commencement of the period over which animal emissions are reported was changed from a July to June year to a January to December year, commencing in January 1989 as three-year averages are used to derive animal populations. This change resulted in an approximate 1 per cent increase in the 1990 emissions levels for agricultural methane and nitrous oxide.

Development of the most likely scenario

Projections of most likely animal population in 2010

The PSRM is used to obtain projected animal numbers. It is also currently used for livestock projections that contribute to the New Zealand Treasury’s twice yearly economic and fiscal updates. PSRM is a system of equations that capture the biological and market behaviours of the New Zealand pastoral sectors (dairy, beef, sheep, and deer). Changes in livestock inventory are derived from exogenous shocks to the model that includes real farm-gate prices and weather.

Baseline scenario

The the Ministry of Agriculture and Forestry livestock forecasts provide farm-gate price forecasts out to 2020. These forecasts take into account the macro-economic assumptions (eg, economic growth, exchange rate, inflation) provided by Treasury’s Budget Economic and Fiscal Update (BEFU) 2007 and the international supply and demand factors which subsequently affect international commodity prices. The significantly higher dairy farm product price, announced by Fonterra in May 2007, was used to derive the model projections.

The weather variable in the PSRM uses the Daily Soil Moisture Deficit (DSMD) series supplied by the National Institute of Water and Atmospheric Research. For the forecast period (2007–2020), DSMD uses the average value over the 1973–2006 period.

The price assumptions are exogenous in PSRM. Information from experts in the forestry sector suggests that land conversion to forestry only marginally impacts on the pastoral sector.

Table A3: Projected most likely animal numbers in 2010

Projections of ruminant methane emissions

Projections of methane emissions per animal in 2010 are derived from linear trends of the methane emissions per animal from 1990 to 2005 and then extrapolated to 2010 (Table A4). The 1990–2005 values are those used in the national greenhouse gas inventory.

These animal emissions have been derived from the model developed by Clark et al (2003) that is used to estimate methane emissions in the national inventory (Figure A1).

The model determines animal feed intakes in monthly time steps for different age classes of each animal species based on the mean national animal performance derived from national statistics relevant to each species. For example, dairy cattle inputs include: animal liveweight, total milk production and milk fat and protein percentages. For each animal species, an empirical relationship has been derived for the amount of enteric methane produced per unit of feed intake. These relationships have been developed in New Zealand for deer, beef and dairy cattle, and sheep, using the sulphur hexafluoride (SF6) technique that enables estimation of methane emissions under practical farming situations. The estimated annual methane emissions per animal take into account changes in animal performance over time.

Table A4: Estimated per animal methane emissions in 1990 and 2005, and projected most likely methane emissions per animal in 2010

Methane from ruminant animal waste

Methane emissions also arise from faecal material deposited on pasture and, in the case of lactating dairy cows, from animal waste management systems. The projected methane emissions factor for each animal species in 2010 is derived from the trend over time from 1990 to 2005 (Table A5).

Table A5: Estimated per animal waste methane emissions in 1990 and 2005, and projected most likely methane emissions from animal waste in 2010

Projections of nitrous oxide emissions

Nitrous oxide emissions are derived from animal nitrogen output and nitrogen fertiliser use. Animal nitrogen output is a function of animal feed intake and nitrogen content of the pasture eaten minus any nitrogen stored in animal product (meat, milk etc). Models developed by Clark et al (2003) for methane emissions also estimate nitrogen output per animal. Projections of nitrogen output per animal in 2010 are derived from linear trends of nitrogen output per animal using data in the national inventory for the period 1990 to 2005 (Table A6). Nitrous oxide emissions are then calculated using the methodology used for the national greenhouse gas inventory.

Table A6: Estimated per animal nitrogen output in 1990 and 2005, and projected most likely nitrogen output per animal in 2010

Projections of nitrogen fertiliser use

A new model has been developed for projecting nitrogen fertiliser usage. The new model better reflects the factors that influence nitrogen fertiliser use on farm (see Austin et al, 2006). Compared with the nitrogen fertiliser model used for the 2006 net projections (which only took into account dairy cow and heifer numbers), the new model takes into account the impacts on nitrogen fertiliser use of changes in the price of nitrogen fertiliser, product output prices, and agricultural productivity growth. This model is incorporated into the PSRM to produce the most likely, high, and low forecasts for nitrogen fertiliser use.

The projected most likely volume of nitrogen fertiliser usage in 2010 is 427,655 tonnes N.

The most likely nitrogen fertiliser use forecast for 2010 is higher than the 2006 net projection nitrogen fertiliser use forecast (403,709 tonnes). This is mainly due to higher dairy prices leading to higher composite output prices and higher dairy cow numbers.

Other animal species and greenhouse gas sources

No projections were derived for the methane and nitrous oxide emissions of minor animal species present in the national inventory ie, horses, goats, pigs, and poultry. This was also the case for nitrous oxide emissions from crop stubble burning, savannah burning and nitrogen fixing crops. These emission sources make up less than 1.5 per cent of agricultural sector emissions in 2005. There was no basis to assume that any of these emission sources would be significantly different from their present levels in 2010. The impact of even large changes in any of these small emission sources on the total national emissions profile would be small, and so 2005 inventory emission values were used for the 2010 projections.

Development of lower and higher scenarios

Two further scenarios were developed: a lower and higher scenario. The higher scenario combined the upper 95 per cent prediction interval values for animal numbers, methane emissions per head, nitrogen output per head and nitrogen fertiliser use. The lower scenario combined the lower 95 per cent prediction interval values for animal numbers, methane emissions per head, nitrogen output per head and nitrogen fertiliser use. These two scenarios give an estimate of the values of the upper and lower bounds of future projected emissions at the 95 per cent confidence level.

Animal numbers

To derive livestock forecasts for different scenarios, exogenous price uncertainty is introduced into the PRSM model. Price uncertainty is introduced into the simulation through specifying the possible movements in commodity prices for the forecast period. Variation of prices (or the standard deviation of the 95 per cent confidence level) during the last 10-year period for each price series was used. This gave estimates for the upper and lower bounds of the stochastic forecasts that could be considered as lower and higher scenarios due to the movement in prices (Table A7).

Table A7: Lower and higher scenarios of animal number projections in 2010

Methane emissions

Lower and higher estimates of methane emissions per animal were obtained from the 95 per cent prediction interval of the linear regression of emissions from 1990 to 2005. This gives an upper and lower bound for projected methane emissions per head in 2010 at the 95 per cent confidence level (Table A8).

Table A8: Lower and higher scenarios of per animal methane projections in 2010

Nitrogen output

Lower and higher estimates of nitrogen output per animal were obtained from the 95 per cent prediction interval of the linear regression of emissions from 1990 to 2005. This provided an upper and lower bound for projected nitrogen output per head in 2010 (Table A9).

Table A9: Lower and higher scenarios of per animal nitrogen output projections in 2010

Nitrogen fertiliser

Lower and higher scenarios for future nitrogen fertiliser use were obtained from the lower and higher projections of dairy animal numbers derived within the PSRM model. These are presented in Table A10 and Figure A2.

Table A10: Lower and higher bounds of projected nitrogen fertiliser use in 2010

Impact of recent changes in dairy payout prices

The significant increase in payout to dairy farmers announced by Fonterra in May 2007 necessitated a reanalysis of the projections using June 2007 prices. Earlier analysis used Treasury Half Yearly Economic and Fiscal Update in December 2006. (HYEFU06).

The outcome resulted in a small change in emissions, but a rebalancing of animal numbers with greater dairy animal numbers and significantly fewer sheep. There were smaller increases in beef and deer numbers (Table A11).

Table A11: Change in projected animal numbers due to increased dairy payout

* Treasury BEFUO7 assumptions and MAF Situation and Outlook for NZ Agriculture and Forestry 2007 price assumptions.

Overall assumptions and limitations of the projections

These projections need to be assessed within the uncertainties of biological systems and economic circumstances of the agricultural industry, which is largely driven by overseas markets. For example, an assumption implicit in the projections is that the rate of increase in productivity per animal over the next five years will not be dissimilar to the rate of increase in animal performance over the past 15 years, and therefore a linear extrapolation of methane emissions per animal is appropriate. It is possible that the rate of increase in animal performance may decline over time. To test this, other non-linear relationships were looked at; however no significant improvement in relationship was gained. However, the current per animal productivity of New Zealand dairy cows is significantly lower than European and American animals, and has a significant way to go before it reaches these productivity levels.

Mitigation technologies that reduce emissions at an individual animal level may emerge over the next five years. These include products such as the nitrification inhibitor dicyandiamide (DCD) that has been shown to reduce nitrous oxide emissions in grazed pastures. None of these mitigation technologies have been factored into the projections as they may not be widely adopted by 2010 and may be counter balanced by greater increases in animal numbers and improvements in animal productivity growth. Industry strategy plans, particularly the dairy industry, are seeking gains of at least 3 per cent per annum in milk production. The favourable commodity price forecasts suggest that these ambitious growth targets are more likely to be met.

In terms of nitrogen fertiliser usage, future changes such as limitations on nitrogen fertiliser use in some catchments, eg, Lake Taupo and Lake Rotorua, the conversion of pastoral land to forestry, the Dairying Clean Streams Accord, regional council initiatives, industry codes of practice and the increasing price of nitrogen fertiliser, are likely to limit another steep upward trend in fertiliser nitrogen usage apparent during the period 1992 to 2003.

On the other hand, the recent increase in commodity product prices, particularly for dairy products, is likely to lead to more nitrogen fertiliser being applied. Nitrogen fertiliser still provides the least-cost means of securing additional dry matter production. Also the clover root weevil, a pest found in New Zealand in 1996, is reducing nitrogen fixation by clover, New Zealand’s main source of nitrogen for pastures. The response of some affected farmers has been to increase the use of nitrogen fertiliser and feed supplements.

References

Austin D, Cao K, Rys G, 2006. Modelling Nitrogen Fertiliser Demand in New Zealand. Paper presented at the New Zealand Agricultural and Resource Economics Society conference, Nelson.

Clark H, Brookes I, Walcroft A, 2003. Enteric Methane Emissions for New Zealand Ruminants 1990–2001 Calculated Using an IPCC Tier Two Approach. Report prepared for the Ministry of Agriculture and Forestry by AgResearch Ltd.

Ministry of Agriculture and Forestry, 2007. Briefing on Methodology for Forecasting Livestock Numbers and Nitrogen Fertiliser Use, 8 pp.

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