Executive summary
This report presents the findings of a review of the New Zealand 2005 Net Position Report. Under the terms of the Kyoto Protocol of the UN Framework Convention on Climate Change (UNFCCC) (to which New Zealand is a signatory Party), developed countries have agreed to limit their overall emissions of a basket of six greenhouse gases from a given base-year (1990 in most cases) by the period 2008-2012 (the first commitment period). For New Zealand, the Kyoto Protocol sets the target of average overall emissions over the first commitment period to be 100% of the emissions in the base year.
The Net Position report that was published in May 2005 describes the most recent estimation of New Zealand's net position with respect to its Kyoto Protocol target over the first commitment period. This report gave a 'best estimate' that New Zealand would have a net emissions deficit of 36.2 Mt CO2 eq (with a range of -62.6 Mt CO2 eq to - 11.3 Mt CO2 eq, taking the 95% confidence interval) relative to its Kyoto target of returning greenhouse gas emissions to 1990 levels. This is the first time that a net deficit has been forecast; the 2004 forecast indicated New Zealand would meet its Kyoto obligation with a surplus of 32.6 Mt CO2 eq.
Any projection of greenhouse gas emissions will be subject to uncertainty and it is not uncommon in itself for projections to change upon re-analysis. These adjustments typically reflect a combination of factors including changes in assumptions underlying the projections e.g. on forecasts of GDP, energy and commodity prices, the likely effectiveness of Government policies, as well as the availability of updated statistics and improvements to the calculation methodologies. Nevertheless, the change in the 2005 net position estimate compared with the previous forecast is significant. The main purpose of this review has been to assess the reasonableness of the methodologies and assumptions that lay behind the projection forecasts as documented in New Zealand's 2005 Net Position report.
We have found the methodologies employed to project emissions and sinks across the different sectors to be generally sound and reasonable in their approach. Detailed comments and observations for each of the main sectors are contained in the body of this report. We have recommended a number of enhancements that we consider would help further improve the accuracy and robustness of the forecasts (particularly in relation to a number of the energy and industry sectors and land-use change and forestry). We note that work on many of these improvements is planned for the future, or is already being addressed through on-going development work by the respective Government departments and Agencies. We also recognise that significant efforts have been made to ensure the use of common datasets and assumptions for the emissions forecasts across different sectors. However, we have identified two instances where different datasets and assumptions have been used for different sectors, and therefore recommend for future forecasts that these are aligned.
The quantification of the future impact of New Zealand's climate change policies is important in assessing the net position. Three key Government policies affecting the energy sector (Projects to Reduce Emissions (PREs), carbon tax and Negotiated Greenhouse Agreements (NGAs)) are modelled directly within the New Zealand energy model (SADEM) and this approach appears reasonable. Areas for further consideration have been identified within the context of ongoing work to ensure the accuracy of the savings attributable to both PREs and NGAs.
The remaining climate change policies affecting the energy sector are not modelled in SADEM and are therefore analysed separately and the savings are subtracted from the SADEM projection of emissions. Some of the savings over the first commitment period that have been attributed to these non-modelled policies appear less robust than others (e.g. savings from the updated building code and from CCP-NZ) and we have identified two instances of possible double-counting (between SMES/EIB, the carbon tax and the programme of energy audits). However, any changes resulting from these observations are likely to be less than 3 Mt CO2 eq over CP1.
Uncertainties that reflect a range of potential savings are presented around a 'most-likely' estimate for many policies and this is consistent with good practice. However, the basis for calculating the range is often not clear and sometimes the figures appear somewhat arbitrary. Uncertainty is treated slightly differently in each of the sectors considered. For some sectors consideration is given to the uncertainty caused by future unpredictability (e.g. uncertainty in forecasts of key drivers such as GDP, fuel prices) in order to derive the pessimistic and optimistic scenarios. However in some sectors this is also combined with estimates of value uncertainty (e.g. uncertainty with respect to input calculation parameters such as livestock numbers). We sometimes found there to be a lack of documentation that describes the basis on which the emission savings have been calculated.
As described above, it is not unusual that successive projection forecasts change as improved information becomes available, and uncertainties are reduced. There are two main areas where we consider there to be a potential risk that could cause relatively significant future changes to the 'most-likely' emission projections. In both instances New Zealand Government officials are aware of these and to an extent have endeavoured to capture these risks within the bounds of the pessimistic and optimistic scenarios provided in the Net position report.
The first area concerns the land use land use change and forestry sector (LULUCF), where four key issues will require further consideration to minimise uncertainty in future projections: a possible downward trend in new forest planting, the areas of planting of post-1990 forest into existing shrublands that may meet the Kyoto Protocol definition of forest; the rate of deforestation, and the loss of carbon from soils following afforestation. The second area in which future emission forecasts may change is in the SADEM energy model where work is planned to capture more accurately the energy demand arising from the transport sector. We note that emissions of nitrous oxide from the agriculture sector are also subject to high uncertainty; this situation is unfortunately common to all countries.
With respect to process issues surrounding the compilation of the Net Position report, we consider that the whole of Government approach used by New Zealand is appropriate for national circumstances. A key advantage of this approach is that it allows those having technical expertise and sectoral knowledge in the respective sector areas to actively contribute to projections work.
In all countries (and not just New Zealand) there is now an increasing focus on official projection estimates, both as the time to the first commitment period becomes closer and the implications of Kyoto Protocol targets become clearer. For these reasons we consider that New Zealand may wish to consider moving the process of compiling the projection estimates on to a more formal basis to help ensure the future delivery of robust forecasts. There are a number of potential measures identified that could assist with this. These measures include:
- establishment of an inter-Departmental steering group to oversee the projection compilation process;
- improved (and documented) project planning;
- a formal QA/QC plan;
- improved written documentation that fully describes the methodologies employed and the inherent assumptions made in all sectors (especially including a transparent quantification of the anticipated impact of Government policies).
