View all publications

Executive summary

This report updates New Zealand's projected quantity of emissions and removals of greenhouse gases during the first commitment period (2008-2012) of the Kyoto Protocol. The report is known as the "net position" report. The projected quantity of emissions and removals is a core component of New Zealand's projected financial surplus or deficit over the first commitment period of the Kyoto Protocol. The other components are the international price of emissions units and the exchange rate between the New Zealand and United States currencies.

The report is a compilation of sectoral projections from across Government. Agricultural and forest sink projections are provided by the Ministry of Agriculture and Forestry, energy and industrial processes projections are from the Ministry of Economic Development and waste projections are from the Ministry for the Environment. The Ministry for the Environment combines the sectoral projections to create the projected balance of units.

This report includes the effects of refinements in modelling process and updated assumptions on variables such as economic growth, population growth and oil prices as at May 2006. The projections use the latest information from the national inventory of greenhouse gas emissions and removals submitted to the United Nations Framework Convention on Climate Change Secretariat on 13 April 2006 (MfE 2006 in press).

The projections reported in this document reflect the Government's decision not to proceed with the previously announced carbon tax in December 2005, but do not reflect any impact from the new work programmes being considered by the Government at the time of publication. The projections therefore reflect the climate change policy settings in place at the end of 2005.

The net position report provides a projection of greenhouse gas emissions for 2008-2012 relative to total emissions in the base year of 1990. In comparison, the national inventory of greenhouse gas emissions and removals provides a record of New Zealand's actual greenhouse gas emissions and removals from 1990-2004. A key difference is that the net position report is based around Kyoto Protocol accounting rules for land use, land-use change and forestry, whereas the national inventory adheres to the reporting requirements for inventories under the United Nations Framework Convention on Climate Change.

2006 Results

As at May 2006, New Zealand's net position is projected to be a deficit of 41.2 million units [One emissions unit is equivalent to one tonne of greenhouse gas emissions converted to carbon dioxide equivalents by the global warming potential.] over the first commitment period of the Kyoto Protocol. The net position is projected to range between a surplus of 1.4 million units under a lower emissions scenario and a deficit of 76.1 million units under a higher emissions scenario.

The May 2006 projection shows a change from previous projections. In May 2005, the most likely estimate for the projected net position was a deficit of 36.2 million units with a high scenario of a deficit of 62.6 million units and a low scenario of a deficit of 11.3 million units. This was updated to a deficit of 64.0 million units in the Crown Accounts in December 2005. The December 2005 interim update reflected the Government's decision not to proceed with the carbon tax (an addition of 13.1 million units) and updated information about landowners deforestation intentions (an addition of 14.7 million units). The improvement to 41.2 million units in the May 2006 projection is caused largely by a significant decrease in projected energy emissions since the December 2005 update due to:

  • Emissions from energy (including transport) plus industrial processes are projected to be lower than reported in December 2005 by 14.5 million tonnes carbon dioxide equivalent during the first commitment period. This reduction in emissions is largely due to increases in expected energy costs. For example, the projected international oil price has been increased from around US$30.00 per barrel in 2005 to US$60.00 per barrel in the 2006 net position report. This increase has caused a significant reduction in emissions projections for transport.
  • There have also been some reductions from modelling refinements following a review carried out by AEA Technology and emissions from industry growth is not as strong as in previous projections. These have also lowered energy sector emissions projections.

Table ES1 compares the net position from May 2005, the interim update to the net position reported in the Crown Financial Statements since December 2005, and the current May 2006 net position.

Table ES1: Reconciliation of December 2005 projection of the most likely balance of emissions units (million tonnes carbon dioxide equivalent)

 

May

 

December

 

May

 

2006

Change

2005

Change

2005

Projected Emissions          

a. Projected aggregate emissions

398.5

-16.3

414.8

13.1

401.7

Energy (excluding transport)

91.3

       

Transport

78.8

       

Industrial processes

22.9

       

Energy (including transport) and industrial processes

193.0

-14.5

207.5

13.1

194.4

Solvent and other product use

0.3

0.3

0.0

 

0.0

Agriculture

198.8

-3.2

202.0

 

202.0

Waste

6.5

1.2

5.3

 

5.3

b. Assigned Amount Units

AAUs

307.6

0.0

307.6

 

307.6

c. Emissions to be covered (b-a)

-90.9

16.3

-107.2

-13.1

-94.1

Projection of Removal Units          

d. Removals via forests

78.2

1.0

77.2

 

77.2

e. Deforestation emissions

21.0

0.0

21.0

14.7

6.3

f. Net Removals via forests (d-e)

RMUs

57.2

1.0

56.2

-14.7

70.9

g. Balance (f-c)

-33.7

17.3

-51.0

 

-23.2

h. AAUs allocated to Projects to Reduce Emissions

7.5

 

7.5

 

7.5

Statistical discrepancy

0.0

5.5

-5.5

 

-5.5

Balance of units (g-h)

-41.2

22.8

-64.0

27.8

-36.2

Note: One emissions unit is equivalent to one tonne of greenhouse gas emissions converted to carbon dioxide equivalents by the global warming potential.

Note: Net removals via forests offset emissions and reduce the deficit on the net position.

The Ministry of Agriculture and Forestry has provided a most likely scenario for deforestation of 21.0 million tonnes carbon dioxide. This scenario is based on the Government's current policy to cap the Crown's deforestation liability for pre-1990 forests at 21.0 million tonnes carbon dioxide. A deforestation survey undertaken in late 2005 indicated that deforestation is likely to exceed the 21.0 million tonne cap in the absence of policy interventions if the current market conditions prevail. The high deforestation scenario of 38.5 million tonnes carbon dioxide is based on the 2005 deforestation intentions survey. If the upper deforestation emissions value is assumed, the projected net position deficit increases by 17.5 million units to a deficit of 58.7 million units with a higher value for the deficit of 93.6 million units and a lower value of 16.1 million units. This report presents both values.

Uncertainty

There is still a great deal of uncertainty as to what the final balance of units or net position will be during the first commitment period. The Government's Climate Change policy is continuing to develop following the conclusion of the 2005 review. It will not be until 2015 when the national greenhouse gas inventory covering the first commitment period of the Kyoto Protocol is submitted to the United Nations Framework Convention for Climate Change, when we will actually know the true value of the net position. The uncertainty range in this report is large, with an upper projection of a deficit of 76.1 million units and a lower projection of a surplus of 1.4 million units. The most significant source of uncertainty is attributable to the values used for forest sinks and this will continue to be the case until the New Zealand Carbon Accounting System becomes operational.

Three scenarios are used to quantitatively assess uncertainty about the projection (Table 1 and Chart 1). The variables used in the scenarios represent the best available knowledge as at the time of projection. The most likely scenario represents what is considered the most likely outcome of projected emissions, reductions from fully implemented policies and removals via forest sinks. An upper scenario comprises all upper projection outcomes, ie, high emissions from all sectors and low reductions from all policies and low removals from sinks. Conversely, the lower scenario shows a combination of all lower projection values. It is highly unlikely that all upper or all lower situations will occur together. A repeated sampling technique (also known as a Monte Carlo simulation method) is used to quantify the uncertainty about the most likely outcome.

There is a range of 77.5 million units between the lower and upper emissions scenarios. This uncertainty reflects the difficulty in modelling the complex relationships of the New Zealand energy sector, projecting agricultural markets and animal productivity, and projecting removals from forest sinks prior to the New Zealand Carbon Accounting System becoming operational. The projected value of the net position will continue to change as projection models are further refined, assumptions are updated and the interpretation of the Kyoto accounting rules are applied in practice.

Review of net position

Following the 2005 net position report the Ministry for the Environment commissioned a UK firm AEA Technology to review the report and assess the reasonableness of the assumptions and methodologies underpinning the projections. The review team's key finding was that "the methodologies employed to project emissions and sinks across the different sectors [are] generally sound and reasonable in their approach".

The 2005 report was also reviewed by Audit New Zealand as part of their annual audit of the Ministry for the Environments financial accounts.