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Projected balance of emissions units during the first commitment period of the Kyoto Protocol

Foreword

Acknowledgements

Executive Summary

1 Introduction

2 Projected balance of units over the first commitment period of the Kyoto Protocol

3 Projected emissions over the first commitment period of the Kyoto Protocol

4 Assigned amount units

5 Removal units from sinks

6 Reconciliation with previous projections

Appendix A. Projections of Agricultural Greenhouse Gas Emissions to 2010

7 Bibliography/References

3 Projected emissions over the first commitment period of the Kyoto Protocol

Total emissions over the first commitment period of the Kyoto Protocol are a combination of emissions from the energy and industrial processes sectors, the agriculture sector and the waste sector. Emissions are projected for the mid-point of the first commitment period (2010). This value is multiplied by 5 to obtain total emissions over the first commitment period. The projected emissions include the effect of all policies in the climate change policy package. Three scenarios - a pessimistic, most-likely, and an optimistic scenario are used to assess uncertainty in the projection.

Total emissions of greenhouse gases for the first commitment period are projected to lie between 388.7 Mt CO₂e and 421.1 Mt CO₂e (95% CI), with a mean value of 404.3 Mt CO₂e (Table 2). The total over the first commitment period equates to range in average annual emissions between 77.7 Mt CO₂e and 84.3 Mt CO₂e with a mean value of 80.9 Mt CO₂e (Figure 2).

The mean value for 2010 coincides with a value of 80.7 Mt CO₂e that would be expected from a linear extrapolation of the trend in emissions from 1990-2003.

Table 2. Projected emissions of gases and sources listed in Annex A of the Kyoto Protocol over the first commitment period of the Kyoto Protocol.

3.1 Projected emissions from the Energy and Industrial Processes Sectors

The scenarios presented in this report are an interim update on the Ministry for Economic Development's Energy Outlook 2003 and replace previous projections of CO₂ over the first commitment period of the Protocol. The results are a product of modelling the complex interactions of the New Zealand energy sector. The scenarios are not attempt to project what will actually happen in the energy sector; rather, they provide an indication of a range of possible outcomes under a number of different assumptions.

The interdependence of these and many other factors is a complex issue which is best addressed in a formal, structured manner in order to identify and understand better the interrelationships and dynamics, both within the energy sector and between it and the rest of the economy. This is performed by the Energy and the Environment Group of the Ministry of Economic Development, using its Supply And Demand Energy Model (SADEM).

There are a number of important caveats underlying the analysis. The most significant is that the SADEM model has undergone significant revision and updating since the last Energy Outlook in 2003 and the most recent projections of CO₂ emissions in April 2004. An independent review highlighted areas where significant improvements are required. It is intended that these issues be progressively addressed and the model further revised leading up to New Zealand's 4th National Communication and the next Sustainable Energy Futures Report in mid-2006. The results presented in this report are therefore likely to change as a consequence and should be considered a provisional or interim update on Energy Outlook 2003.

Non-CO₂ emissions from the energy sector are not modelled directly. They are estimated at 5% of the total CO₂ emissions based on the historical relationship between CO₂ and non-CO₂ emissions in the energy and industrial processes sectors.

The projected emissions include the effect of policies in the climate change policy package related to the energy sector. Pessimistic and optimistic emissions projections from the energy and industrial processes sector are based on modelling the effect of plausible high and low values for input variables. The three key underlying variables that were changed to achieve these scenarios were GDP, and oil and coal prices. The values were agreed by the Officials Committee on Sustainable Energy and officials from the MED and MfE, and represent the best knowledge at the time of projection. The most-likely scenario includes the price effect of a carbon tax, and the effect of the projects to reduce emissions on new electricity generation.

Projected emissions from the energy and industrial processes sector during the first commitment period of the Kyoto Protocol are projected to be between 179.7 Mt CO₂e and 217.9 Mt CO₂e with a most-likely value of 194.4 Mt CO₂e. Average annual emissions are projected to lie between 35.9 Mt CO₂e and 43.6 Mt CO₂e (95% CI) with a most-likely value of 38.9 Mt CO₂e over the first commitment period (Figure 3).

3.1.1 The SADEM projections

This section provides a brief overview of the key assumptions used in the SADEM modelling. Detailed information on the SADEM model and projections used in this report can be obtained from the report "Energy Sector CO2 Projections to 2020 (Interim Update)" by the Energy and the Environment Group of the Ministry for Economic Development.

Key baseline assumptions

• GDP growth uses Treasury projections out to 2020. The high/low scenario has a +/- 0.7% variance around the projection.
• Oil prices rising from US$32.50/bbl in 2005 to US$40.00/bbl in 2025. The high/low scenario has a -/+ US$10.00/bbl around the 2025 projection.
• Exchange rate of NZ$1.00 = US$0.67 in 2005, and then a constant of NZ$1.00 = US$0.60 from 2006 out to 2025.
• North Island delivered coal prices at a constant $3.75/GJ. The high/low scenario has a -/+ $0.25/GJ variance around this projection. It is assumed South Island coal demand at prices significantly lower than this is minimal.
• New gas available from discoveries averaging 60PJ pa from 2009 onwards.
• Methanex gas to methanol plant to close by mid-2006.
• No EECA/NEECS targets (i.e. no additional energy efficiency)
• A price of $6.50/GJ for gas for electricity generation in 2007.

Major Demand Sectors

Three major energy demand sectors are modelled; residential, industrial & commercial, and transport (Table 3). Each sector has a number of models underlying it. Approximately two thirds of the total energy is modelled using a sophisticated multi-variate approach. About a fifth of the total energy is modelled based on forecasts directly from the industries concerned. The remaining portion is modelled using simple ordinary least square linear regression (OLS).

Table 3: Demand Sectors and Modelling Techniques

The Carbon tax

The Government has announced that an emissions charge on fossil fuels and industrial process emissions will be introduced in 2007. The charge will approximate the international emissions price and has been set at NZ$15/tonne CO₂.

Projects to reduce emissions

The Projects to Reduce Emissions (PRE) programme is a key part of the Government's climate change policy package. The programme contributes to achieving the outcomes of NEECS including capacity building in renewable energy, and improving energy efficiency, and aims to do this by providing an incentive for projects that reduce emissions below business as usual during the first commitment period of the Kyoto Protocol.

The method used to model the PRE projects installs new generation based on the economics of the different types of generation. PRE units are included as an effective discount on capital costs. This approach means that only 69% of PRE projects are installed (Table 4). This percentage is similar to the April 2004 projection where it was assumed that 60% of PRE projects proceed. The projects modelled include pre-round 1 (already installed) and a proportion of PRE round 1and 2 projects. PRE 3 is not modelled by the SADEM model and consequently any liabilities from PRE3 are not included in the projected balance of units over the first commitment period.

Table 4. Units allocated during the Projects to Reduce Emissions rounds

3.1.2 Abatement additional to SADEM modelling

The abatement from other policies in the climate change policy package that impact mainly on the energy sector but that are not easily included in the SADEM model are deducted from the SADEM model runs separately. These policies include the National Energy Efficiency and Conservation Strategy (NEECS), local Government initiatives and small to medium enterprises (SME) and business opportunities. The combined effect of these policies is projected to produce abatement ranging between 1.6 and 9.7 Mt CO₂e with most-likely value of 5.0 Mt CO₂e over the first commitment period.

National Energy Efficiency and Conservation Strategy

The NEECS is a package of policy measures and targets that aims to improve energy efficiency by 20 per cent and increase renewable energy sources by 30 PJ by 2012. The Energy Efficiency and Conservation Authority (EECA) have derived an estimate of the impact of NEECS during the first commitment period based on bottom up assessment of what are reasonable outcomes that could be achieved under the individual NEECS programmes.

A best estimate of the impact of NEECS is projected to be 3.2 Mt CO₂e during the first commitment period (Table 5). If all individual programmes are successfully and fully implemented up to 13 Mt CO₂e of abatement could be achieved. However, for this analysis, it is considered that a more conservative value is obtained by adding in optimistic values for programmes already implemented. This increases the 2.6 Mt CO₂e for the building code, standards and labeling programme to 5.7 Mt CO₂e. A pessimistic scenario of 1 Mt CO₂e abatement is assumed.

Table 5. NEECS programmes included in the average estimate of additional abatement

Local Government Initiatives

A three year programme, the "Communities for Climate Protection" (CCP-NZ) programme was started in May 2004. It is modelled closely on the Australian "Cities for Climate Protection" programme, which has proven successful in reducing greenhouse gas emissions from councils and communities. As at May, 2005, 15 local authorities have joined the CCP-NZ programme.

The projected abatement is based on the results of CCP Australia. In 2002-2003 year, the programme saved 0.76 Mt CO₂e. In the most recent 3-year period, the programme reduced over 1.2 Mt CO₂e emissions.

CCP-NZ will overlap with some existing polices such as efficiency improvements under NEECS and the New Zealand Waste Strategy. To be conservative it is assumed half of the outcome may be attributable to NEECS and Waste Strategy. The best estimate of abatement from local Government initiatives is 0.3 Mt CO₂e. This is a revision from the previous projection of 0.6 Mt CO₂e, which is retained as the optimistic value. The pessimistic value is assumed to be 0.1 Mt CO₂e.

Small to Medium Enterprises and Business Opportunities

The best estimate of abatement from small to medium enterprises and business opportunities is equal to 1.5 Mt CO₂e. The previous estimate of 3 Mt CO₂e has been retained as the optimistic estimate.

The estimate for this sector is preliminary and is based on a conservative judgement by MfE and EECA that most firms are capable of achieving energy efficiency gains of 5-7 percent through relatively simple measures. If overall efficiency gains of 5 percent were made for fossil fuels and a 7 percent gain for electricity use, and there is a one-to-one relationship between energy savings and emission reductions, then reductions of approximately 300,000 tonnes per year over the first commitment period may be possible. These improvements are not sustainable ad-infinitum.

3.2 Projected emissions from the Agriculture Sector

Projections of emissions from the agricultural sector are based on modelling work by the Ministry of Agriculture and Forestry (MAF) and are calculated from total animal numbers, species balance changes, increasing animal performance (liveweight and productivity) and increasing use of nitrogenous fertilisers. Details of the methodology applied to calculate emissions and the assumptions underpinning the high and low scenarios are included in Appendix A.

Emissions from the agriculture sector are projected to range between 192.4 Mt CO₂e and 210.1 Mt CO₂e over the first commitment period. The most likely value is projected to be 202.0 Mt CO₂e. Average annual emissions over the first commitment period are projected to range between 38.5 and 42.0 Mt CO₂e with a most -likely value of 40.4 Mt CO₂e (figure 4).

The potential of technologies to reduce emissions, particularly in the agriculture sector, has not been estimated. There are new products currently entering the market aimed at reducing nitrous oxide emissions from fertiliser and applications of existing bloat chemicals, but for this report the impacts have not been quantified. There are also some prospective technologies that are currently being researched through the Pastoral Greenhouse Research Consortium, a partnership between industry and Government.

3.3 Projected emissions from the Waste sector

Projected emissions from the waste sector includes emissions from solid waste disposal sites and wastewater treatment plants. The effects of the New Zealand waste strategy and the national environmental standard for landfill gas collection are included in the total emissions from the waste sector.

Emissions from the waste sector over the first commitment period are expected to range between 5.0 Mt CO₂e and 6.0 Mt CO₂e. Projected annual emissions for 2010 are expected to lie between 1.0 Mt CO₂e and 1.2 Mt CO₂e per annum with a most-likely value of 1.1 Mt CO₂e (figure 5). Figure 5 shows that since 1990, there has been a large decrease in emissions due to decreased waste volumes and less organic matter entering landfills. The New Zealand waste strategy (MfE, 2002) and national environmental standard for landfill gas collection and destruction are projected to further decrease emissions from waste.

3.3.1 Waste sector methodology

Solid waste disposal

Emissions from solid waste disposal sites comprise 81% of the emissions from the waste sector. The emissions from solid waste disposal are projected using the methodology and variables used in New Zealand's latest National Inventory of Greenhouse Gas emissions and removals (MfE, 2005). The methodology uses data specific to New Zealand on waste generation rates, waste composition, the percentage of waste disposed to landfills and landfill gas extraction and combustion.

The population projection used is from Statistics New Zealand's projected population 2004-2051 using the 2004 base. The medium fertility, mortality and a net migration of 5000 people is used as the most-likely scenario. Other variables remain constant at the values reported in the latest national inventory (MfE, 2005). Projected effects of the New Zealand waste strategy and the national environmental standard for landfill gas collection are deducted from the modelled emissions.

The New Zealand Waste Strategy

The New Zealand Waste Strategy was launched in March 2002 with the objective of moving towards zero waste by 2010. The strategy extends to all waste streams including landfill waste, mine and quarrying waste, and sewage. In the initial estimate of emissions over the first commitment period, the New Zealand Waste Strategy was projected to deliver an estimated reduction of 5 Mt CO₂e. This reduction was estimated from projected emissions of 12.5 Mt CO₂e over the first commitment period. Since this initial projection, the projected emissions from solid waste disposal sites over the first commitment period have decreased to 7.1Mt CO₂e. Consequently, the amount of projected reduction has been reduced proportionally to 2.8 Mt CO₂e. This projection is retained as the optimistic value. The most-likely estimate is that 90% of the reduction occurs, i.e. 2.6 Mt CO₂e, with a pessimistic value assuming 75% of the reduction.

The National Environmental Standard for Landfill Gas Collection

A national environmental standard for landfill gas collection and destruction has been introduced under Sections 43 and 44 of the RMA to be applied to landfills that will accept over one million tonnes of refuse throughout their design life (MfE, 2004). There is a transitional period to 2007.

The economic analysis of the national environmental standard calculated a reduction of 1.2 Mt CO₂e over the first commitment period. This reduction was based on projected emissions of 9.3 Mt CO2e over the first commitment period. The reduction has been revised proportionally to reflect the decreased waste emissions in the national inventory (MfE, 2005). The updated value is a reduction of 0.9 Mt CO₂e over the first commitment period. A national environmental standard means that no scenario analysis is required.

Wastewater treatment

Emissions from wastewater treatment produce 19% of emissions from waste. The projected emissions for 2010 were estimated using a linear projection of emissions from 1990 to 2003 (r2 = 0.96). Emissions are projected to be 0.33 Mt CO₂e for 2010.