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• 1. Introduction

• Energy Modelling

• Emissions Projections

• Older Reports

• Interim Update
• Future CO2 Emissions

• 1.1 Key Assumptions

The scenarios presented in this paper are an interim update on the New Zealand Energy Outlook to 2025 ("Energy Outlook 2003") and previous CO₂ projections in April 2004. The results are a product of modelling the complex interactions of the New Zealand energy sector. The scenarios are not attempts to project what will actually happen in the energy sector; rather, they provide an indication of a range of possible outcomes under a number of different assumptions.

The interdependence of these and many other factors is a complex issue which is best addressed in a formal, structured manner in order to identify and understand better the interrelationships and dynamics, both within the energy sector and between it and the rest of the economy. This is done by the Energy and the Environment Group of the Ministry of Economic Development, using its Supply And Demand Energy Model (SADEM).

There are a number of important caveats underlying this analysis:

• The most significant is that the SADEM model has undergone significant revision and updating since the last Energy Outlook in 2003 and the most recent projections of CO₂ emissions in April 2004.
• A review by Covec and Infometrics has highlighted a number of areas where significant improvements are required. It is intended that these issues be progressively addressed and the model further revised leading up to the 4th National Communication (due January 2006) and the next Sustainable Energy Futures Report (previously known as the Energy Outlook) in mid-2006.
• The results presented here are therefore likely to change as a consequence and should be considered a provisional or interim update on Energy Outlook 2003.

This report summarises the CO₂ emission projections undertaken for the Climate Change Office (CCO). Non-CO₂GHG (Greenhouse Gas) emissions from the energy sector are not directly modelled but are included by CCO in the main report.

1.1 Key Assumptions

The following assumptions (without future policy measures) behind the projections are explained more fully in the appendix:

• GDP growth using Treasury projections out to 2020. The high/low scenario has a +/- 0.7% variance around this projection.
• Oil prices rising from US$32.50/bbl in 2005 to US$40.00/bbl in 2025. The high/low scenario has a -/+ US$10.00/bbl around the 2025 projection (see appendix for details).
• Exchange rate of NZ$1.00 = US$0.67 in 2005, and then a constant of NZ$1.00 = US$0.60 from 2006 out to 2025.
• North Island delivered coal prices at a constant $3.75/GJ. The high/low scenario has a -/+ $0.25/GJ variance around this projection. It is assumed South Island coal demand at prices significantly lower than this is minimal.
• New gas available from discoveries averaging 60PJpa from 2009 onwards.
• Methanex gas to methanol plant to close by mid-2006.
• No EECA/NEECS targets (i.e. no additional energy efficiency)
• A carbon tax of $15/tCO₂ from April 2007.
• Carbon credits (from the Projects to Reduce Emissions [PRE]) for new renewable electricity generation installed before 2010.
• A price of $6.50/GJ for gas for electricity generation in 2007.

These assumptions were modelled in a "Most Likely" scenario. As CP1 approaches and the price-based measures take effect, the measures scenario now becomes the "Most Likely" scenario. The measures in this scenario include the price effect of a carbon tax, and the modelled effect of carbon credits (from the Projects to Reduce Emissions mechanism) on new electricity generation.

Three scenarios were undertaken on the basis of low, medium, and high assumptions. The medium assumption was taken as the "Most Likely" scenario. The three key underlying variables that were changed to achieve these scenarios were GDP, and oil and coal prices.