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

The projected balance of units over the first commitment period of the Kyoto Protocol (2008-2012) is based on projected emissions, estimates of New Zealand's assigned amount units, the projected removal units generated from forest sinks and any emissions units allocated to projects such as those awarded under the Projects to Reduce Emissions programme. In the following sections of this report, additional detail is provided on each of these components. The Kyoto compliance equation is summarised in Section 2.1.

2.1 Kyoto compliance equation

The maximum amount of emissions (measured as the equivalent in carbon dioxide) that an Annex I Party may emit over the commitment period in order to comply with its emissions target is known as a Party's "assigned amount".

Parties may offset their emissions by increasing the amount of greenhouse gases removed from the atmosphere by so-called carbon "sinks" in the land use, land-use change and forestry (LULUCF) sector. However, only certain activities in this sector are eligible. These are afforestation, reforestation and deforestation since 1990 (Kyoto Protocol Article 3.3) and forest management, cropland management, grazing land management and revegetation (added to the list of eligible activities by the Marrakech Accords). The removal of greenhouse gases from the atmosphere through eligible sink activities minus any deforestation emissions generate credits known as removal units (RMUs).

An Annex I Party to the Kyoto Protocol must hold sufficient assigned amount units (AAUs) during the first commitment period of the Kyoto Protocol to cover its total emissions during the first commitment period. The Party may offset any excess emissions through RMUs. If the Party's emissions exceed its assigned amount plus RMUs, it must take responsibility for its emissions through the trading mechanisms under the Kyoto Protocol's flexibility provisions or face a 130 percent penalty for non-compliance during the second commitment period. The Kyoto compliance equation may be simplified as described in Box 1.

Box 1: Kyoto compliance equation

Sum of all emissions from 2008 to 2012 from:

  1. energy (including transport)
  2. industrial processes
  3. solvents and other product use
  4. agriculture
  5. waste

5 times the emissions in 1990 (known as the assigned amount or AAUs)

Plus

Net removals of carbon dioxide via forest sinks (RMUs)

New Zealand awarded assigned amount units [Project participants have the option to request Emission Reduction Units (ERUs) in place of assigned amount units in accordance with the Kyoto Protocol's joint implementation mechanism.] to projects which are projected to reduce emissions under its climate change programme "Projects to Reduce Emissions". New Zealand's net position accounts for this by subtracting these units from the Assigned Amount. The projected impacts of the Projects to Reduce Emissions programme are incorporated in the emissions projections from the energy sector. However, the actual numbers of assigned amount units (or emission reduction units) awarded to these projects will depend on the actual emission reductions delivered from 2008 to 2012.

2.2 Projected balance of units

As at May 2006, New Zealand's net position is projected to be in deficit by 41.2 million units over the first commitment period of the Kyoto Protocol (Table 1). The balance of units 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 an upper emissions scenario.

Three scenarios are used to quantitatively assess uncertainty about the projection. 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 low emissions, high policy reductions and high removals from sinks.

It is highly unlikely that all upper or all lower situations will occur together. The uncertainty around the projected balance of units is modelled using repeated sampling. The 95 percent confidence interval around the most likely value is used to represent likely bounds to the upper and lower scenarios (Table 1 and Chart 1). Triangular probability distributions for each sector's emissions outcome are used to transform the lower and upper values into probabilities.

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 upper deforestation scenario of 38.5 million tonnes carbon dioxide is based on the 2005 deforestation intentions survey.

If the upper deforestation scenario of 38.5 million tonnes carbon dioxide is used in determining the deficit on the Crown's accounts the deficit will be 58.7 million units with a upper projection for the deficit of 93.6 million units and an lower projection for the deficit of 16.1 million units.

Table 1: Projected balance of emissions units over the first commitment period (Million emissions units)

 

Upper scenario

Most likely scenario

Lower scenario

Projected Emissions

Projected aggregate emissions

420.3

398.5

382.7

Energy (excluding transport)

102.1

91.3

83.7

Transport

85.1

78.8

72.5

Industrial processes

23.0

22.9

22.2

Solvent and other product use

0.3

0.3

0.2

Agriculture

222.2

198.8

180.3

Waste

6.6

6.5

6.4

b. Projected Assigned Amount Units

AAUs

307.6

307.6

307.6

c. Emissions to be covered (b-a)

-90.9

 

Projection of Removal Units

d. Removals via forests

-60.4

-78.2

-114.5

e. Deforestation emissions

38.5

21.0

6.3

f. Net Removals via forests (d+e)

RMUs

-21.9

-57.2

-108.2

g. Balance (c-f)

 

-33.7

 

h. AAUs allocated to Projects to Reduce Emissions

7.5

7.5

7.5

Balance of units (g-h)

 

-41.2

 

Likely balance of units from repeated sampling (95 per cent confidence interval)

-76.1

 

1.4

2005 'net position'

-62.6

-36.2

-11.3

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

Note: Totals for the upper and lower scenarios will not add because of the repeated sampling technique used to derive these.

The range of 77.5 million units between the lower and upper scenarios reflects the difficulty in modelling the complex relationships of the New Zealand energy sector, projecting agricultural markets and animal productivity, and forecasting removals from forest sinks prior to the New Zealand Carbon Accounting System being operational.

Chart 1: Distribution of projected balance of emissions units over the first commitment period of the Kyoto Protocol (million emissions units)

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