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Appendix 4: Background to the coal sector DEF recommendations

Table 2 of Appendix 1 represents the mean of the assumed distributions for different classes of coal that are the foundation of the default emission factors (DEF) included in the draft regulations. The CO2-only emission factors have been provided by an independent specialist, while CH4 and N2O emission factors and the oxidation factor are in turn based on the revised IPCC 1996 inventory guidelines used for the New Zealand Greenhouse Gas Inventory. The independent report also included information on the uncertainties associated with the CO2 component of these emission factors, and the uncertainties likely to be associated with coals tested according to the standards specified in the UEF regulations.

Two key principles underpin the proposed DEFs and materiality threshold for UEF applications:

  • delivering an overall unbiased model relative to a situation where no UEF opportunity existed and
    the DEF was set at the distribution mean (the adverse selection problem)

  • ensuring UEFs actually are significantly different from the DEF (arises from sample and testing variability).

Both these issues can be managed by setting the DEF at about 0.35-0.40 standard deviations (about the 65th percentile) above the mean along with a materiality exclusion of just under one standard deviation below the DEF. Clearly various combinations of the two control variables could be applied to deliver an overall non-biased outcome. Feedback on this is welcomed.

DEF and Materiality Threshold for UEF applications
Emission Source Category Emissions Source Default Emissions Factor Materiality Exclusion Threshold
tCO2-e/GJ tCO2-e/GJ
Coal Lignite – Waimumu and Roxburgh 0.0917 0.0908
Lignite – All Other 0.095 0.0941
Sub-bituminous 0.0908 0.0904
Bituminous (for NZ use) 0.0883 0.0871