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

Total emissions of greenhouse gases for the first commitment period are projected to lie between 420.3 Mt CO2-e and 382.7 Mt CO2-e (95 percent confidence interval), with a most likely value of 398.5 Mt CO2-e (Table 3). The total over the first commitment period equates to a range in average annual emissions, excluding emissions from deforestation, between 76.5 Mt CO2-e and 84.1 Mt CO2-e with a most likely value of 79.7 Mt CO2-e (Chart 4).

These projections 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.

Total emissions over the first commitment period of the Kyoto Protocol are a combination of emissions from the energy, industrial processes, solvents, agriculture and the waste sectors as specified in Annex A and Article 3.1 of the Kyoto Protocol (refer Box 2). Emissions are projected for the mid-point of the first commitment period (2010). Three scenarios - an upper, a most likely, and a lower scenario - are used to assess uncertainty in the projection.

The most likely value of total emissions (excluding deforestation emissions) for 2010 is 79.7 Mt CO2-e and this coincides closely with what would be expected from a linear extrapolation of the trend in emissions from 1990-2004 of 81.1 Mt CO2-e (Chart 4).

Chart 4: Projected emissions for 2010, total emissions reported in the national inventory from 1990-2004 and a linear extrapolation of previous emissions (Million tonnes carbon dioxide equivalent)

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Box 2: Kyoto Protocol Article 3.1

The Parties included in Annex I shall, individually or jointly, ensure that their aggregate anthropogenic carbon dioxide equivalent emissions of the greenhouse gases listed in Annex A [to the Kyoto Protocol, refer below] do not exceed their assigned amounts, calculated pursuant to their quantified emission limitation and reduction commitments inscribed in Annex B [to the Kyoto Protocol, refer below] and in accordance with the provisions of this Article, with a view to reducing their overall emissions of such gases by at least 5 percent below 1990 levels in the commitment period 2008 to 2012.

Annex A To the Kyoto Protocol

Greenhouse gases

Sectors/source categories

Sub sectors

Carbon dioxide (CO2)

Energy

Fuel combustion

Methane (CH4)

 

Energy industries

Nitrous oxide (N2O)

 

Manufacturing industries and construction

Hydrofluorocarbons (HFCs)

 

Transport

Perfluorocarbons (PFCs)

 

Other sectors

Sulphur hexafluoride (SF6)

 

Other

   

Fugitive emissions from fuels

   

Solid fuels

   

Oil and natural gas

   

Other

 

Industrial processes

Mineral products

   

Chemical industry

   

Metal production

   

Other production

   

Production of halocarbons and sulphur hexafluoride

   

Consumption of halocarbons and sulphur hexafluoride

   

Other

 

Solvent and other product use

 

Agriculture

Enteric fermentation

   

Manure management

   

Rice cultivation

   

Agricultural soils

   

Prescribed burning of savannas

   

Field burning of agricultural residues

   

Other

 

Waste

Solid waste disposal on land

   

Wastewater handling

   

Waste incineration

   

Other

Annex B To the Kyoto Protocol (New Zealand Only)

Party quantified emission limitation or reduction commitment (percentage of base year or period)

New Zealand

100

Table 3: Projected emissions of gases and sources listed in Annex A of the Kyoto Protocol over the first commitment period (Million tonnes carbon dioxide equivalent)

 

Upper scenario

Most likely scenario

Lower scenario

Projected aggregate emissions

420.4

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

Note: Projected lower and upper emission scenarios may not necessarily add to projected aggregate emissions because of the repeated sampling technique used to aggregate emissions.

Note: 1 million tonnes is equivalent to 1,000 gigagrams.

For the first time, the projected net position has included a projection for greenhouse gas emissions from the solvent and other product use sector. This sector as shown in Chart 3 produces less than 0.1 percent of New Zealand's greenhouse gas emissions; however, a simple extrapolation of greenhouse gas emissions was included for this sector for completeness.

4.1 Assumptions

In August 2005, the Ministry for the Environment commissioned AEA Technology (based in the UK) to carry out a review of its May 2005 emission projections, with a focus on the reasonableness of the assumptions and methodologies underpinning the projections. AEA Technology was selected because it is an independent, international consulting firm with experience in conducting a number of similar reviews for other countries. The Ministry for the Environment coordinated the review process, with input from the Treasury, Ministry of Economic Development, Ministry of Agriculture and Forestry, and Ministry of Transport.

AEA Technology recommended that a cross-government team be established to oversee the development of projections and to ensure that the projections were based on a common set of assumptions. This recommendation was adopted when preparing the May 2006 projections. Common assumptions driving the May 2006 projections that apply to model-based projections for more than one sector are shown below in Table 4. Economic growth and population projections are taken from Treasury's Half Yearly Economic and Fiscal Update published in December 2005. Some assumptions are unique to one sector only and are discussed alongside the description of the results for that sector.

Table 4: Key assumptions for the most likely scenario

March year ending

Economic growth (GDP)

Exchange rate

Population

Oil prices

 

per cent per annum

NZ$/US$

('000)

$US/bbl

2005

3.8

0.69

4,093

60

2006

2.9

0.60

4,130

60

2007

1.7

0.60

4,166

60

2008

2.5

0.56

4,204

60

2009

3.8

0.55

4,240

60

2010

3.1

0.55

4,275

60

2011

2.5

0.55

4,312

60

2012

2.5

0.55

4,350

60

Source: Treasury, Ministry of Economic Development.

4.2 Projected emissions from the energy and industrial processes sectors

Projections of emissions from transport, energy (excluding transport) and industrial processes are provided separately for the May 2006 net position report. This is an improvement on earlier net position reports where these three projections have been included as one single projection. In future it will be possible to reconcile changes in the net position against changes to the projected emissions from transport, energy (excluding transport) and industrial processes.

Historical and projected emissions from the energy sector excluding transport, the transport sector and industrial processes sector are shown in Chart 5, Chart 6 and Chart 7, respectively.

Chart 5: Projected annual emissions from the energy (excluding transport) sector (Million tonnes carbon dioxide equivalent)

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Chart 6: Projected annual emissions from the transport sector (Million tonnes carbon dioxide equivalent)

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Chart 7: Projected annual emissions from the industrial processes sector (Million tonnes carbon dioxide equivalent)

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Note: Ministry for the Environment has adjusted the projection by adding 22.0 percent to account for noncarbon dioxide gases from industrial processes.

4.2.1 The Supply and Demand Equilibrium Model (SADEM) projections

This section provides a brief overview of the key assumptions used in the Supply and Demand Energy Model (SADEM). The Ministry of Economic Development's energy modelling team provided updated projections of carbon dioxide emissions from fuel combustion in the energy sector and carbon dioxide emissions from chemical reactions in the industrial processes sector. For the 2006 projections, the SADEM was refined to include increased detail on transport. The SADEM input assumptions for economic growth and population growth were agreed cross-government assumptions used for all sectors (as applicable) and were taken from Treasury's Half Yearly Economic and Fiscal Update. The Ministry of Economic Development is concurrently preparing the 2006 Energy Outlook and have undertaken significant model development. More detail of the model structure and new developments will be documented in the 2006 Energy Outlook.

Key energy assumptions

Economic growth, population, exchange rate and oil price assumptions for the May 2006 net position used in SADEM for energy (including transport) and industrial processes are shown in Table 4 earlier. Table 5 below shows the specific energy assumptions necessary for the SADEM projections and compares these assumptions with those used last year. The price of oil and coal is significantly higher this year compared with the 2005 projections, and this will result in lower emissions growth being projected in 2006. Average rainfall patterns have been assumed over the first commitment period. The AEA Technology review recommended these rainfall assumptions be reviewed because they have a significant impact on emissions from electricity generation. A review of the rainfall patterns was undertaken by NIWA, which found the assumptions were appropriate.

Coal and oil price assumptions, along with economic growth and population were varied to produce the upper and lower emissions scenarios. The high emissions scenario also assumes lower than average rainfall while the low emissions scenario assumes above average rainfall resulting in higher fossil fuel thermal generation.

Table 5: Energy price and gas discovery assumptions for 2005 and 2006

  2005 2006 Unit
Oil 32.50 60.00 $US/Barrel
Coal 3.75 4.20 $NZ/GJ
Natural gas (delivered to power generators) 6.50 6.50 $NZ/GJ
LNG 7.80 7.80 $NZ/GJ
Gas discovery 60.00 60.00 PJ/Year

Major demand sectors

Three major energy demand sectors are modelled - residential, industrial and commercial - as well as transport (Table 6). 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, an analysis of the outlook for the specific industries concerned. The remaining portion is modelled using simple ordinary least square linear regression.

The Ministry of Economic Development has updated its projections of heavy industry energy demand (including steel, aluminium, petrochemicals, oil refining, forest products and dairy) in SADEM, having commissioned Covec to re-estimate future energy demand.

The AEA Technology review recommended that New Zealand explore the disaggregation of subsectors in the other industrial and commercial sector, possibly at the 1-digit Australia New Zealand Standard Industrial Classification level. The Ministry of Economic Development has reviewed the data necessary to disaggregate to this level but found that adequate data were not available. The Ministry of Economic Development was, however, able to disaggregate the subsector dairy from the industrial and commercial sector. Further and as recommended by the AEA Technology review, the dairy assumptions used in SADEM were calibrated to the dairy projections provided by the Ministry of Agriculture and Forestry for this report.

Table 6: Energydemand sectors and modelling techniques

Major demand sector

Sub-sector

Model

Net energy (PJ, 2010)

Percentage

Residential demand

Residential

Multivariate, GDP, price, heating and cooling degree days, lagged demand

63.9

12.3

Industrial and commercial demand

Forestry

MAF forecasts

45.7

8.8

Petrochemicals and refining

Company forecasts

17.3

3.3

Metals

Industry specific forecasts

39.9

7.7

Dairy

MAF forecasts

25.7

5.0

Other industrial and commercial

Multivariate, GDP, price, heating and cooling degree days, lagged demand

84.3

16.3

Transport demand

Petrol (land)

Multivariate, GDP, price, lagged demand

105.5

20.4

Diesel (land)

Multivariate, GDP, price, lagged demand

100.5

19.4

Aviation

Ordinary least squares

19.6

3.8

Sea

Ordinary least squares

14.0

2.7

Other

Ordinary least squares

1.2

0.2

TOTAL

   

517.6

100.0

Source: Ministry of Economic Development

Projects to Reduce Emissions

The Projects to Reduce Emissions programme was a key part of the Government's pre-2005 climate change policy package. The programme also contributes to achieving the outcomes of the National Energy Efficiency and Conservation Strategy (NEECS) including capacity building in renewable energy. It provides an incentive, in the form of Kyoto Protocol emission units, for projects that reduce emissions below business as usual during the first commitment period of the Kyoto Protocol.

The method used to model the Projects to Reduce Emissions covers only electricity generation projects, which are the vast majority of all projects funded. Projects to Reduce Emissions units are modelled as an effective discount on the capital costs for new generation projects at the margin of viability. Since there is no guarantee that all projects that received PRE project agreements will proceed, it is also assumed that some projects are not fully installed.

Energy efficiency assumptions

Energy efficiency policies that have been fully implemented include energy efficiency improvements that will be driven by the National Energy Efficiency and Conservation Strategy, local Government initiatives, and the energy-intensive business programme. In the May 2005 net position report, the impact of these polices was modelled separately and deducted from the SADEM energy emissions projection. The 2006 net position report adopts the recommendation of the review of the 2005 net position report by AEA Technologies and models the energy efficiency within the SADEM energy projection. Residential energy efficiency improvements were estimated to provide 1.70 PJ of energy savings per year and other industrial and commercial sectors were estimated to achieve 2.34 PJ of energy savings per year during the first commitment period. The estimated energy savings were used in the SADEM projections.

Energy Outlook 2006

The Ministry of Economic Development is preparing to release the 2006 Energy Outlook around mid-2006. Further information on the energy modelling methodology will be available in that report.

4.3 Projected emissions from the agriculture sector

Projections of emissions from the agricultural sector are based on modelling by the Ministry of Agriculture and Forestry. Projections are calculated from total animal numbers, species balance changes, increasing animal performance (liveweight and productivity) and future application rates of nitrogenous fertilisers. Details of the methodology and assumptions are included in Appendix A.

Emissions from the agriculture sector are projected to range between 180.3 Mt CO2-e and 222.2 Mt CO2-e over the first commitment period. The most likely value is projected to be 198.8 Mt CO2-e. Average annual emissions over the first commitment period are projected to range between 36.1 Mt CO2-e and 44.4 Mt CO2-e with a most likely value of 39.8 Mt CO2-e (Chart 8).

The potential of technologies to reduce emissions, particularly in the agriculture sector, has not been quantified in the May 2006 update. There are new products currently entering the market aimed at reducing nitrous oxide emissions from fertiliser, but for this report the impacts are too uncertain to be quantified. Future updates may include an estimate as more quantitative data are produced on the impacts and industry uptake of technologies. There is also the potential for upward movement in emissions due to the implementation of agricultural industry growth strategies.

As recommended by the AEA Technology review of the 2005 net position report, lower and upper emissions scenarios for agriculture are now based on livestock projections formed by varying the potential changes in prices in the Pastoral Supply Response Model.

Chart 8: Agricultural emissions projected for 2010 and emissions from the agriculture sector as reported in the national inventory (Million tonnes carbon dioxide equivalent)

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4.4 Projected emissions from the waste sector

Projected emissions from the waste sector include 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 reported from the waste sector.

Emissions from the waste sector over the first commitment period are expected to range between 6.4 Mt CO2-e and 6.6 Mt CO2-e with a most likely value of 6.5 Mt CO2-e. Projected annual emissions for 2010 are expected to lie between 1.2 Mt CO2-e and 1.3 Mt CO2-e per annum with a most likely value of 1.2 Mt CO2-e (Chart 9).

Chart 9 shows that since 1990, there has been a large percentage decrease in emissions due to decreased waste volumes and less organic matter entering landfills. The impacts of 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.

Chart 9: Waste sector emissions projected for 2010 and the inventory time series of emissions from the waste sector (Million tonnes carbon dioxide equivalent)

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4.4.1 Waste sector methodology

Solid waste disposal

Emissions from solid waste disposal sites comprise 85 percent 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 2006 in press). 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.

Population projections are taken from Treasury's Half Yearly Economic and Fiscal Update. The medium fertility, mortality and a net migration of 5,000 people are used as the most likely input assumptions. Other variables remain constant at the values reported in the latest national inventory (MfE 2006 in press). Projected effects of the New Zealand waste strategy are deducted from the modelled emissions. The effects of the national environmental standard for landfill gas collection were modelled separately and deducted from the gross emissions (Waste Management 2005).

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 (Tonkin and Taylor 2002), the New Zealand Waste Strategy was projected to deliver an estimated reduction of 2.4 Mt CO2-e, or 13.5 percent, against gross emissions from solid waste disposal sites during the first commitment period of the Kyoto Protocol. This projected proportion is retained as the lower value for the May 2006 projection. The most likely estimate is that 90 percent of the reduction occurs, with an upper value assuming 75 percent of the reduction.

The national environmental standard for landfill gas collection

A national environmental standard for landfill gas collection and destruction was introduced under Sections 43 and 44 of the Resource Management Act and 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.

Landfill gas collection estimates and projections were updated in 2005. It was projected that 7.4 Mt CO2-e, or 55 percent, of gross emissions from solid waste disposal sites would be collected by landfill gas systems over the first commitment period. These estimates did not include the effects of the New Zealand Waste Strategy on gross emissions. Consequently, the landfill gas collection estimates were reduced by the same proportion used to reduce gross waste emissions. The most likely scenario now holds that landfill gas collections systems will reduce gross emissions by 6.5 Mt CO2-e from 2008 to 2012.

Wastewater treatment

Emissions from wastewater treatment produce 15 percent of emissions from waste. The projected emissions for 2010 were estimated using a linear projection of emissions from 1990 to 2004 (r2 = 0.96). Emissions are projected to be 0.33 Mt CO2-e for 2010.