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3.1 New Zealand’s emissions profile and the economy

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Summary

This section:

  • describes the composition of New Zealand’s emissions and compares this with other countries’ profiles
  • explores the growth in New Zealand’s emissions since 1990
  • given the growing role of carbon dioxide in New Zealand’s emission profile, explores the link between energy and economic growth
  • considers the relationship between economic growth and emissions, comparing New Zealand’s experience with that of other key Annex I countries.

It concludes that:

  • New Zealand’s relatively high proportion of methane and nitrous oxide and low share of carbon dioxide is unique by international standards, reflecting the importance of our pastoral-land activities and the relatively large contribution of renewable energy sources to our electricity generation
  • emissions growth since 1990 has been strongest for CO2 emissions, which increased by 2.5% per annum, largely driven by road-transport emissions
  • strong growth in methane emissions from dairy cattle was partly offset by reductions in other sources of enteric fermentation and in methane emissions from waste
  • energy use is closely related to the level of economic activity
  • a country’s scope for decoupling emissions and GDP growth depend on the nature of its comparative economic advantages, the contribution of technology and the impact of external events (such as outbreaks of bovine foot and mouth disease)
  • these avenues for decoupling are not necessarily applicable to the New Zealand context.

3.1.1 New Zealand’s unique emissions profile

In 2003, the most recent year for which full data is available, New Zealand’s total greenhouse gas emissions were 75,345 Gg CO2e. This measurement is not used outside of this section, so it is anomalous. Usually tonnes and Mt are used Figure 15 shows the composition of emissions by gas. In 2003, carbon dioxide (CO2) comprised 46.0% of New Zealand’s gross emissions, methane (CH4) 35.4% and nitrous oxide (N2O) 17.9%. Hydrofluorocarbons (HFCs), Perfluorocarbons (PFCs) and sulphur hexafluoride (SF6) accounted for some 0.5% of gross emissions.

Figure 15 - New Zealand’s Greenhouse Gas Emissions by Gas 2003

CO2 (without LUCF) 46%. CH4: 35%. N20: 18%. HFCs: 1%. PFCs: 0%. SF6: 0%.

Source: Ministry for the Environment (2005) New Zealand’s Greenhouse Gas Inventory 1990-2003

Table 1 compares New Zealand’s profile with that of other selected countries, highlighting its uniqueness among Annex I countries. New Zealand’s profile is more closely aligned with that of Argentina, a Non-Annex I country. For the majority of Annex I countries, CO2 accounts for more than 75% of gross emissions, with methane and nitrous oxide playing a correspondingly less important role. Among Annex I countries, Ireland most closely matches New Zealand, but CO2 emissions still account for nearly 67% of its total emissions.

Table 1 - Emissions Profiles for Selected Countries 2002

Country CO2 CH4 N2O
% of Total Gross Emissions
Argentina 46.8 31.6 21.7
Australia 68.6 23.8 6.8
Canada 79.0 12.9 7.3
European Union 82.0 8.5 7.9
Finland 84.8 6.2 8.3
Germany 85.4 8.2 5.5
Ireland 66.6 18.6 14.2
Japan 94.1 1.5 2.7
New Zealand 46.0 34.5 17.9
Russian Federation 80.4 15.5 1.9
United Kingdom 84.9 7.0 6.5
United States 83.6 8.6 6.0

Sources: UNFCCC Greenhouse Inventory Database (see <www.wri.org>) and New Zealand’s Greenhouse Gas Inventory 1990-2003. Data for Argentina is for 1997 and for New Zealand, 2003

Underpinning the uniqueness of New Zealand’s profile is the importance of methane emissions from enteric fermentation and nitrogen emissions from agriculture soils. In 2003, these two sources accounted for 48.5% of New Zealand’s total gross emissions. Table 2 shows that while Ireland is most closely aligned with New Zealand, emissions from these two sources accounted for only some 24% of its total emissions in 2002, half the proportion for New Zealand. For the European Community, emissions from these sources accounted for some 12% of total emissions and for Australia, some 16% of total emissions.

Table 2 - Importance of Methane Emissions from Enteric Fermentation and Nitrous Oxide Emissions from Agriculture Soils for Selected Countries 2002 [Data for other selected countries can be supplied.]

Country CH4 Emissions from Enteric Fermentation N20 Emissions from Agriculture Soils Total of two sources
% of Total Gross Emissions
Argentina 19.3 20.5 39.8
Australia 12.3 3.7 16.0
Canada 2.6 4.1 6.7
European Union 4.1 8.4 12.5
Germany 2.6 3.1 5.7
Ireland 13.8 10.4 24.2
Japan 0.5 0.6 1.1
New Zealand 31.3 17.2 48.5
United Kingdom 2.7 4.2 6.9
United States 1.7 4.2 5.9

Sources: UNFCC Greenhouse Gas Inventory Database (<www.wri.org>) and New Zealand’s Greenhouse Gas Inventory 1990-2003. Data for Argentina is for 1997 and for New Zealand, 2003

The other particularly notable feature of New Zealand’s profile is the relatively low share of emissions accounted for by carbon dioxide from energy industries (including electricity generation), which reflects the very significant role of hydroelectricity in New Zealand’s energy supply. In 2003, carbon dioxide emissions from energy industries accounted for some 10% of New Zealand’s total emissions. As shown in Table 3, this contrasts markedly with Australia, where these accounted for 38% of total emissions in 2002. In the European Union, they accounted for 27.3% of total emissions, but the situation varies among member countries. For example, in Norway, hydroelectricity is important in explaining the lesser role of carbon dioxide emissions from energy industries in its emissions profile.

Table 3 - Importance of CO2 Emissions from Transport and Energy Industries for Selected Countries 2002 [Data for other selected countries can be supplied.]

Country CO2 Emissions from Transport CO2 Emissions from Energy Industries
% of Total Gross Emissions
Argentina 14.1 12.8
Australia 14.2 38.1
Canada 24.8 27.3
European Union 20.4 27.8
Germany 17.4 35.2
Ireland 16.3 23.5
Japan 19.2 28.6
New Zealand 18.3 10.1
Norway 24.2 19.7
United Kingdom 19.4 30.7
United States 25.5 32.4

Sources: UNFCC Greenhouse Gas Inventory Database (<www.wri.org>) and New Zealand’s Greenhouse Gas Inventory 1990-2003. Data for Argentina is for 1997 and for New Zealand, 2003.

Table 3 shows that the significance for New Zealand of CO2 emissions from transport is within the range of other Annex I countries. These emissions account for some 18% of New Zealand’s emissions, which is somewhat lower than in the United States, Canada and Norway, where CO2 emissions from transport account for between 24% and 29% of total emissions. In the United Kingdom, CO2 emissions from transport account for some 19% of total emissions and in Australia, 14%.

New Zealand’s unique emissions profile has implications for the range of emission mitigation options currently available to New Zealand and the likely cost of domestic mitigation relative to some other countries. Effective and low-cost mitigation options have not yet been identified to address either methane from enteric fermentation or nitrous oxide from soils.

A further significant source of emissions is transport. As with other countries, the increasing trend in transport emissions will not be easily addressed in the short term. Because future developments in transport technologies will largely occur overseas, New Zealand’s potential for mitigation in this respect will depend largely on the availability and uptake (as opposed to development) of any cost-effective new technologies. Overseas experience can also assist in scoping policy options and effectiveness.

Overall, the particular profile and the high degree of concentration of New Zealand’s emissions means that we face a limited range of viable mitigation options in the short term.

3.1.2 Emissions trends since 1990

In 2003, total gross emissions were 22.5% above the 1990 base level of 61,525.43 Gg CO2 equivalent, representing an annual average growth rate of 1.6% per year.

This rate of growth is likely, however, to overstate the underlying growth trend. An important feature of New Zealand’s emissions is significant year-to-year fluctuations arising from the importance of hydro in electricity generation. In dry years, it is necessary to use thermal stations, which use gas and coal, to supplement hydro-electric generation. The rise in emissions in 2003, apparent in Figure 16, was attributable, in part, to this dry-year factor.

Figure 16 – New Zealand’s Total Greenhouse Gas Emissions 1990-2003

This graph is summarised in the text above.

Source: New Zealand’s Greenhouse Gas Inventory 1990-2003

Figure 17 shows the trend in emissions by gas type. Over the 1990 to 2003 period, carbon dioxide emissions have grown most rapidly and were 37.1% higher than in 1990. This is equivalent to an average growth rate of 2.5% per year. As indicated above, this is likely to overstate the underlying trend, given the dry-year factor in CO2 emissions from public electricity generation. Nitrous oxide emissions grew on average by 2.0% per year and methane emissions by 0.4% per year.

Figure 17 – Change in New Zealand’s Emissions of CO2, CH4 and N2O 1990-2003

This graph is summarised in the text above.

Source: New Zealand’s Greenhouse Gas Inventory 1990-2003

Carbon dioxide

A major driver in the growth of carbon dioxide emissions is the growth in transport emissions. These increased, on average, by 3.7% per year. Data for 2004 indicates a somewhat slower level of growth in 2004, marginally pulling down the average annual growth rate to 3.6% per year. It is, however, too early to say whether the lessening in transport emission in 2004 is the start of a trend.

The most important driver of transport emissions has been increased emissions from road transport, with this source accounting for some 89% of the increase in emissions. In terms of fuel source, diesel accounted for some 67.3% of the increase in transport emissions, and petrol some 28.2%. This suggests that increased road freight, together with the growing share of diesel vehicles in the passenger transport fleet, have been important contributing factors.

CO2 emissions from energy industries have increased, on average, by 1.8% per year between 1990 and 2003. Emissions from thermal electricity generation increased, on average, by 4% per year. Contributing factors are increased demand for electricity, and the substitution since 2001 of coal for gas in thermal generation because of the sharp decline in the Maui gas field and the 2003 dry-year factor. [Recently released data for 2004 indicates that emissions from thermal energy generation fell sharply in 2004, decreasing by 4.6%.] The strong growth in emissions from thermal electricity generation has been offset to some extent by the closure of synthetic petrol production facilities in 1996, with these having accounted for 1,488 Gg of CO2 emissions in 1990.

Manufacturing and construction accounted for an increase of 1,302 Gg in CO2 emissions from 1990 to 2003, or a growth rate of 2% per year. The major source of growth has been emissions from natural gas consumption in the manufacture of methanol. Emissions from this source increased from 367 Gg CO2 in 1990 to 2,013 Gg in 2002, and then fell by more than 50% in 2003 because of the decline in the availability of low-price natural gas. Recent MED data suggests a further marginal decline in 2004.

Carbon dioxide emissions from industrial processes increased from 2662 Gg in 1990 to 3470 Gg in 2003, or some 2.1% per year. This has reflected a general trend of growth in iron and steel production, aluminium, cement and urea. There was, however, a particular increase in emissions from iron and steel production in 2003.

Methane

The 0.4% average annual increase in methane emissions results from the offsetting effects of divergent trends in emissions from enteric fermentation and from waste. Emissions from enteric fermentation grew, on average, by 0.7% per year, with this offset in part by the 2.9% per year reduction in waste emissions.

The increase in emissions from enteric fermentation reflects the changing pattern and intensification of the agriculture sector, particularly as a result of the shift in land use towards dairying. Emissions from dairy cattle increased by 52.3% over the period as a result of increased dairy cattle numbers and increased emissions per animals (related to the increased productivity of herds). Emissions from sheep fell by 18.9% in total, reflecting a reduction in the sheep population (down 31.95%), offset in part by increased emissions per animal (up 19.4%). Emissions from non-dairy cattle and deer have also increased as a result of population growth and increased emissions per animal.

Nitrous oxide

Nitrous oxide emissions grew on average by 2.0% per year, accounting for an increase of 3,000 Gg CO2 equivalent. Over half of the growth in these emissions is attributable to increased use of synthetic nitrogen fertiliser, from 51.786 tonnes in 1990 to 298,380 tonnes in 2003. The remainder is attributable to increased animal production of nitrogen, which in turn is a result of the increased intensity of agriculture and associated changes in the population structure (increased dairy cattle) and the increased nitrogen production per animal.

3.1.3 Energy and economic growth in New Zealand

Historical context

New Zealand’s economic history and associated policy background has shaped its structural composition and energy use. Our natural resources (in particular, abundant hydro and coal resources) have meant that the economy has historically enjoyed relatively low energy costs. This has, in turn, attracted energy-intensive industries. The supplementation of tariffs with import licences in the 1930s assisted New Zealand’s growing manufacturing sector. Through the mid-twentieth century, the economy witnessed the resulting industrial developments in sawmilling, pulp and paper making, steel, oil refining and aluminium smelting (Briggs, 2003).

Historically, Britain’s free trade policy, combined with New Zealand’s temperate climate, meant that from the nineteenth century, primary products from New Zealand could be sold to the prospering British economy at competitive prices despite the associated transport costs. Our current economic structure still reflects these historical roots, with our comparative advantage lying in producing commodities that require high energy intensity either in processing or in transportation.

Dairy, forestry and meat products all require extensive movement of bulky, heavy goods around the country, and when processed further in New Zealand, require considerable further inputs of energy. In 2001, the New Zealand Institute of Economic Research (NZIER) reported that New Zealand agriculture requires 4,500 kJ of energy per dollar of GDP. The transport and storage sector uses around 20,000 kJ per dollar, and primary food manufacturing (dominated by dairy and meat processing), 7,000 kJ.

Drivers of energy-demand growth

There are a number of key determinants of growth in energy use:

  • economic growth. As an input into production, energy use is closely related to the level of economic activity. Evidence for New Zealand suggests that there is a one-way causal relationship from GDP to energy consumption (Fatai et al) [However, this analysis did not adjust for energy quality, which is thought to be crucial in correctly establishing the relationship.]
  • the economic structure of industry. The relative energy intensities of industries and their contribution to economic growth will impact on the growth in energy demand. Structural composition is important to bear in mind when interpreting cross-country comparisons of energy intensity
  • the price of energy, in terms of different energy sources and types and also relative to other production inputs. The effect that price changes will have on demand depends on own- and cross-price elasticities, and hence the extent to which energy can be substituted with other inputs (capital, labour)
  • technological change. Generally speaking, we may expect new capital equipment (eg, plant, machinery, vehicles) to be more energy efficient than old stock. In this respect, energy demand is influenced by the turnover of capital stock (and appliance stock in the residential sector). New investment growth is correlated with the economic cycle
  • Population growth and demographic change. Population growth is itself a driver of economic growth and hence energy use. But changes in the demographic composition of the population, as well as societal changes, can also influence energy demand. For example, in developed countries, there is a trend towards larger houses and fewer people per household. Both these trends serve to provide upward pressure on residential energy-demand growth. Societal change can influence consumption patterns and lifestyles, which can impact on energy use in terms of the types of end use (eg, use of particular appliances)
  • Climate. Climate impacts on energy use, such as for heating and air conditioning. Space heating represents the most significant residential energy end use in almost all International Energy Agency (IEA) countries (typically accounting for around 40% of total energy use), with climate being a key driver of this component. Other geographical factors (such as topography) are also likely to impact on total energy consumption (including transport fuel use).

Energy use is also affected by a variety of intermediaries in the production and consumption processes. Intermediaries include designers of new plant and machinery that will use energy, and architects of buildings whose occupants will use energy.

These intermediaries, acting in the broader context of a country’s economic and policy history, contribute to the characteristics of existing infrastructure. Because infrastructure and large capital investments such as roading have a long life span, their impact on energy use can be apparent for many decades. Changes in major infrastructure are likely to be incremental and at the margin. These factors, as well as potentially long payback periods, can lead to inertia surrounding the energy use associated with existing infrastructure.

Historical trends in New Zealand’s energy intensity

New Zealand’s total energy intensity (measured by the ratio of energy to GDP) is relatively high by OECD standards, as shown by Table 4. However, it is important to note that this does not translate directly into a high carbon intensity. This is due to the contribution of hydro (and other low-emissions renewables) to our electricity generation.

Table 4 - Energy and CO2 Intensity of GDP for Selected Countries 2002

 

Energy Intensity [BTU per 1995 US dollars at market exchange rates (BTU = British thermal units, the quantity of heat required to raise the temperature of one pound of water from 60 to 61 degrees Fahrenheit at a constant pressure of one atmosphere).]

Carbon Dioxide Intensity [Metric tons of carbon dioxide per 1000 1995 US dollars at market exchange rates. Relates exclusively to CO2 from the consumption and flaring of fossil fuels.]

Argentina 9,875 0.48
Australia 11,936 0.88
Canada 17,341 0.79
Chile 11,498 0.59
China 35,764 2.75
Denmark 3,920 0.26
France 5,998 0.22
Germany 5,269 0.31
Ireland 5,273 0.38
Italy 6,186 0.36
Japan 3,876 0.21
New Zealand 11,871 0.51
Norway 10,968 0.25
Poland 20,004 1.60
United Kingdom 7,039 0.41
United States 10,575 0.62

Source: Energy Information Administration 2004, International Energy Annual

New Zealand’s energy intensity increased between 1987 and 1993, and has since been declining. To gain a better understanding of changes in energy intensity within an economy, it is useful to separately identify the contribution from:

  • structural change; ie, change in the composition of economic activity within an economy
  • technical changes resulting from replacing or retrofitting old technology with more energy-efficient equipment (and management processes)
  • energy-quality changes in both a thermodynamic [The scientific/engineering definition relating to the physical relationship between energy inputs and outputs.] and an economic sense. [Derivation of quality co-efficient for New Zealand shows electricity to be the consistently highest-quality energy input over time, followed by geothermal, liquid fuel (including petroleum), gas and finally solid fuel (coal).]

Research undertaken by Lermit and Jollands (commissioned by Energy Efficiency and Conservation Authority (EECA) (EECA, 2001)) quantified the relative contribution of these three factors for the 1987 to 2000 period (excluding for the residential sector). Their analysis suggests that the increase in energy intensity between 1987 and 1993 was primarily attributable to declining technical efficiency. Between 1993 and 2000, the improvement in energy efficiency was attributable to improvements in technical efficiency, a shift in the structural composition of the economy away from energy-intensive activities and, to a lesser extent, improvements in energy quality, mainly due to improvements in the quality of liquid fuels.

There has been debate about the underlying drivers of the observed decline in technical efficiency between 1993 and 2000. Lermit and Jollands suggested this was attributable to the slow growth in investment. The period was characterised by economic recession and major restructuring, and concurrent weak performance in the manufacturing sector. Subsequent analysis by NZIER queries this explanation. (NZIER, 2003b). It points to two reasons why intensity is unlikely to increase as a result of low investment growth:

  • the proportion of capital stock replaced in any year, even in a year when economic growth is high, is relatively low
  • even in years when investment growth is low, the level of investment is still positive and has been more than enough to offset depreciation, thereby lifting the total capital stock.

The Lermit and Jollands analysis does, nonetheless, highlight the significance of the general macroeconomic cycle for short-run energy-efficiency change. During periods of poor economic performance, investment growth will slow, limiting the improvements in energy efficiency from new, more energy-efficient capital. Capacity utilisation appears to be a likely driver of changes in the technical effect. When capacity utilisation drops (especially when economic growth is sluggish), any fixed energy requirements will represent a higher proportion of total inputs, serving to increase energy intensity. The converse is true for high capacity utilisation, which itself may spur new capital investment (to expand capacity). Other contributing factors are likely to include the relative prices of other substitutable inputs (including labour), the cost of capital (and hence of new investment) and energy prices themselves.

NZIER analysis confirms this short-run relationship between energy efficiency and capacity utilisation, finding that capacity utilisation (measured by the capital/output ratio) tends to account for most of the changes in the technical effect. In the long run, they find that energy use is related to the capital stock, and that as New Zealand’s capital stock has grown over time, it has become more energy efficient. However, because new investment represents a very small proportion of the total capital stock, these improvements have been very gradual.

Lermit and Jollands’ decomposition analysis was updated in 2003 (EECA, 2003) to explore changes in energy intensity between 2001 and 2002. The revised methodology used is documented in a report to the Energy Efficiency and Conservation Authority (EECA) (Lermit, 2001). In this update, they decompose growth in energy use into the following components:

  • structural effect (as previously)
  • activity effect, capturing changes in sectoral-level economic activity levels
  • underlying energy-efficiency effect (effectively, the technical effect, with the activity and wealth effects stripped out)
  • wealth effect, isolating changes due to GDP growth (ie, the value of output).

The residential sector is also modelled and decomposition here includes isolation of the impact of climate (a weather effect).

This analysis shows that between 2001 and 2002, economy-wide energy use grew 1.4%. GDP growth over this period was 3.4%. Energy-efficiency improvements are calculated as being 1.85% for the year, which is above the National Energy Efficiency and Conservation Strategy target for this period (1.67% on a compound growth basis). Efficiency gains came largely from the transport sector; gains were also recorded in the commercial and industrial sectors. Efficiency in the residential sector appears to have declined, and the primary sector also registered a deterioration (located in the agriculture, mining and fishing industries). [Transport includes both freight and passenger (private) transport.]

In regard to the residential sector, between 1991 and 1998, residential energy use declined per capita by 5%, and per m2 of floor area by 9%. EECA attributes this trend to a range of factors, including the northward population drift (hence warmer climate), increased turnover of the domestic appliance stock, higher domestic electricity prices and a higher proportion of new homes (which are better insulated and fitted out with more efficient heating equipment). They also point to trends towards more energy-efficient domestic practices such as washing laundry in cold water and increased use of microwaves for cooking.

New Zealand’s energy intensity per capita is low compared with other developed countries. New Zealand has the lowest residential energy use per capita in the OECD, despite having larger-than-average houses (by floor area). EECA suggest that this is largely due to New Zealand’s temperate climate, resulting in relatively low amounts of energy used for space heating. Moreover, New Zealand households tend not to heat (or air condition) their entire house. This latter factor could suggest a trade-off in terms of comfort or welfare, which is perhaps mitigated by the moderate climate. It may also be, in part, an income-related effect (with New Zealand having relatively modest income per capita compared with its OECD counterparts). Given the possible combination of factors at play, it is difficult to predict likely future trends in this sector.

3.1.4 Greenhouse gas emissions and economic growth

New Zealand experience since 1990

A major driver of the rising trend in New Zealand’s emissions has been the growth in the economy since 1990. New Zealand’s economic performance improved significantly over the 1990s, following a period of major economic restructuring and deregulation. From mid-1991, the economy grew strongly, with particularly buoyant output growth between 1993 and 1996. While the latter half of 1997 and early 1998 saw the economy slip briefly into recession, the following year saw a recovery in broad-based growth, with the economy growing 4.4% in calendar year 1999 and 3.5% in 2000. Overall, the New Zealand economy averaged 3% annual average growth over the 1990 to 2003 period.

Although the New Zealand economy diversified over this period, New Zealand’s economic growth remained reliant on exports of commodity-based products as a main source of export receipts, and on imports of raw materials and capital equipment for industry. Key merchandise exports include dairy products, meat, wool, aluminium, iron and steel, and wood products.

While the greenhouse gas intensity in GDP fell at an average rate of 1.4% per year over this period (see Figure 18), this was outstripped by economic growth, leading to a significant increase in the absolute level of emissions. In effect, New Zealand achieved only limited decoupling of emissions and economic growth.

Figure 18 – New Zealand’s Greenhouse Gas Intensity of GDP 1990-2003

This graph is summarised in the text above.

Source: Statistics New Zealand; Greenhouse Gas Emissions New Zealand’s Greenhouse Gas Inventory 1990-2003

International experience

There is no unequivocal relationship between emissions and GDP growth, either across countries or over time. The chart below plots annual average growth in greenhouse gas emissions and GDP over the 1990 to 2002 period for a selection of Annex I countries.

Ireland is a clear outlier, with its strong GDP growth over the period (averaging 7.8% per annum) likely to have been a significant driver of its relatively high growth in emissions (2.1% per annum). New Zealand sits at the high end for both variables, alongside Australia and Canada.

However, a number of Annex I countries appear to have achieved some success in decoupling emissions growth from economic growth. The United Kingdom, Germany, France and Sweden have all reduced their greenhouse gas emissions at the same time as their economies have continued to expand (albeit more slowly than New Zealand’s).

Figure 19 - Growth in Emissions and GDP for Selected Countries 1990-2002

This graph is summarised in the text above.

Sources: Emissions data from UNFCCC Greenhouse Inventory Database (www.wri.org); GDP data from World Development Indicators 2004

How have they achieved this? Perhaps the best way of investigating this is by sector, or source of emissions.

Germany and the United Kingdom have both achieved reductions in CO2 emissions and (due to the composition of their total greenhouse gas emissions) this has driven their overall improvement in emissions. In the United Kingdom, a major contributing factor has been the switch from coal to natural gas and nuclear in electricity production. In Germany, this has been assisted by efficiency improvements in its coal-fired power stations.

More broadly, structural change is likely to have assisted reductions in energy intensity (and hence in CO2 emissions) in many countries. The shift in developed countries towards a more services-oriented economy is generally assumed to aid decoupling of economic and emissions growth, to the extent that service sector industries are less energy (including transport) intensive. For instance, the OECD (2004) sees the relative decoupling of transport sector and emissions growth in the United States resulting from the structural shift from low-value raw-material production (such as fossil fuels, basic chemicals and cereals) towards more high-value-added industries (such as electronics and textiles) as having reduced economy-wide transport intensity.

In the United Kingdom, the services sector has expanded rapidly over the last decade or so, while the agriculture sector has contracted. Germany has also seen strong service-sector growth, coupled with a declining industrial sector. This is likely to have contributed to their decline in emissions.

However, the relationship between structural change and emissions growth is far from clear. For instance, Mulder and de Groot (2004) examined energy use in 14 OECD countries over a 27-year period. They found that structural change in the economy has a significant positive effect on energy intensity in some countries and a negative effect in others.

Mitigation from structural change depends crucially on, among other things, the composition of service-sector industries (such as their transport intensity) and the sources of fuel (including indigenous energy resources). The nature of a country’s comparative economic advantage will directly impact on the scope for emissions mitigation through structural change.

A number of European countries, including the United Kingdom, Germany and the Netherlands, have achieved reductions in methane emissions from reductions in stock numbers. In the European Union, dairy cattle numbers were, on average, 26% lower in 2003 than they were in 1990, and sheep numbers 12% lower [European Environment Agency (2005) Annual European Community Greenhouse Gas Inventory 1990-2003 and Inventory Report 2005 < http://reports.eea.eu.int/technical_report_2005_4/en >]. Underlying these trends have been changes in the European Union common agriculture policies and nitrate directives, as well as the outbreak of foot and mouth disease resulting in stock reductions in the United Kingdom.

Even more significant has been the reductions in methane emissions from waste and fugitive emissions in these countries. For example, the United Kingdom has achieved reductions from the implementation of methane recovery systems at landfills and reduced emissions from coal mines.

Reduced stock numbers in European countries have also contributed to declines in nitrous oxide emissions. In recent years, use of synthetic fertilisers there has reduced, partly as farmers have readjusted their operations in response to changes in European Union farm policies. An additional factor has been the European Union nitrate directive, which has involved controls and restrictions on the use of fertiliser and application of manure.

In summary, international trends between emissions and GDP growth have varied over time and across countries, according to circumstances and opportunities. A country’s scope for decoupling emissions from economic growth depends on a range of factors, including the nature of its economic comparative advantages, its energy resources, the policy context, the contribution of technology and the impact of external events (such as outbreaks of foot and mouth disease). New Zealand’s prospects for decoupling emissions and economic growth are explored in Section 4.1.1.