A Deep Dive into the New Zealand energy and transport sector emissions
Why a deep dive into energy and transport sector emissions
In 2015 the BusinessNZ Energy Council launched BEC2050: two New Zealand-specific energy scenarios – Kayak and Waka. Based on the work of the World Energy Council (WEC), these scenarios provided two cohesive narratives about New Zealand’s energy future to 2050 and quantified the outcomes expected under each scenario.
On 4 November 2016 the United Nations' Framework Convention on Climate Change “Paris Agreement” came into force. This agreement was a major turning point for the global collective effort to minimise temperature rises by limiting greenhouse gas (GHG) emissions. Under the Paris Agreement New Zealand’s “Nationally Determined Contribution” (NDC) is a reduction target of 30% in total GHG emissions, below the 2005 level, by 2030 (equivalent to 11% below 1990 levels).
New Zealand’s NDC (as well as the global target of zero net emissions by the second half of the century) is clear and unambiguous. Indeed, these targets are almost certain to tighten in the future. However, the future is clouded with uncertainty, as our scenarios illustrate.
This raises the crucial question of how we, as a country, will plan – through our policies and investments – to meet the target.
The BEC2050 modelling allows us to go back and ask more detailed questions about how the energy sector might evolve, in this case investigating the prospects for energy and transport sector emissions. This deep dive sets out the potential contribution the energy and transport sector will make to the total 2030 emissions target under the Paris Agreement and sheds light on where additional emissions reductions may come from.
The Paris commitment was a total greenhouse gas target; no specific targets have been developed for subsectors (e.g., agriculture, waste, energy and transport). The BEC2050 scenarios only cover the energy and transport sector. Even so, the detail this deep dive provides on the source of emissions in energy and transport and the potential for reductions under each scenario will assist policy setting in the sector and inform the size of the task in other sectors.
BEC2050 - Kayak and Waka
The Kayak and Waka scenarios are two divergent but equally plausible scenarios that include alternative macroeconomic, policy, and consumer behaviour assumptions to those observed today. The modelling of the two scenarios has provided – for the first time in many years – plausible, integrated, energy sector futures developed by a broad cross-section of New Zealanders from both within and outside the energy sector. In doing so, it provides common platform and vocabulary for an ongoing national discussion about energy, and a quantification of the future, vital to policy and investment decisions.
The modelling for Kayak and Waka places New Zealand in WEC’s two international scenarios. WEC’s global scenario assumptions include the status of an agreement on climate change, and related global economic and demographic assumptions. With the international situation as an input, the Kayak and Waka scenarios develop the New Zealand response, consistent with the outcomes of the other critical uncertainties dealt with in the scenarios.
THE KAYAK SCENARIO
In a Kayak world a global deal on climate change is agreed but international commitments on reducing emissions are weak. Carbon markets develop but are fragmented across ad-hoc regional and national schemes. New Zealand governments turn towards the market to drive the uptake of new low-carbon and energy-efficient technology. There are no direct or indirect support mechanisms for these technologies apart from a modest carbon price.
THE WAKA SCENARIO
In the Waka scenario global leaders unanimously agree that climate change is the defining problem of our time and a comprehensive global deal on climate change is agreed based on strong emissions reduction commitments. In New Zealand, governance and decision-making become more hands-on with climate change mitigation strategies prioritised to meet New Zealand’s international obligations. Emissions from the energy sector are reduced accordingly.
BEC2050 at a glance
The 2030 carbon price in NZ
Carbon Prices (NZD 2011 real)
Population grows by
0.9% per annum
0.6% per annum
GDP grows by
2.1% per annum
1.6% per annum
GDP ($b 2011 real)
Find all assumptions at www.bec.org.nz/projects/bec2050
Energy Sector Carbon Emissions (MtCO2)
As this deep dive is focused on the energy sector’s contribution to our overall NDC under the Paris Agreement, we are consider emissions to 2030. Compared with 2010, Waka, by 2030, will have achieved an 8Mt reduction while Kayak will see little change. 1
Emissions in the BEC2050 scenarios are expressed as millions of tonnes of carbon dioxide emitted per annum (MtCO₂/year) by the energy sector. Note that these are CO₂ emissions alone (not CO₂-e). Non-CO₂ emissions (CH4, N₂O etc) account for about 5% of total energy sector GHGs (mainly from transport and gas usage) but are not included in our results.
1The BEC2050 modelling includes emissions from international transport (aviation and marine). These emissions are not covered by New Zealand's NDC, hence the absolute level of energy and transport emissions in Figure 1 (and the 2005 reference level) overstates those covered by the NDC. However, since international transport emissions behave somewhat similarly in both scenarios removing these emissions doesn't change the narrative as the difference between Kayak and Waka emissions in 2030 is still approximately 8Mt. Hence analysing Kayak and Waka outcomes still illuminates the potential drivers of greater emissions reductions.
Context for carbon emission analysis
New Zealand's actual carbon emissions by sector
Modeled carbon emissions by sector 2010-2030
Aviation (Dom. & Int.)
Surface Freight (Dom. & Int.)
Personal Car Transport
2The Ministry of Business Innovation and Employment (MBIE) provides similar information expressed in a different way. See http://www.mbie.govt.nz/info-services/sectors-industries/energy/energy-data-modelling/publications/energy-greenhouse-gas-emissions. For BEC2050 we include electricity production within its end use sector in order to provide a more demand-side perspective.
In which sectors do Kayak and Waka differ most?
Figure 4 shows that the Residential, Commercial and Agriculture sectors offer the most significant avenues for emissions reductions in each scenario. Personal Car Transport and Industrial Heat also see 1.0Mt to 2.5Mt of additional reductions in the Waka scenario.
Underlying growth and structural change has a large influence on emissions
The differences between these underlying growth factors can be seen in the two scenarios’ emission intensity (CO2/$GDP) and emissions per capita. While these measures decline in both, Kayak’s decreasing intensity is largly offset by absolute growth in GDP and population (hence total emissions remain relatively constant at 34Mt). Waka achieves an absolute reduction of emissions due to its more aggressive decarbonisation: a faster decline in intensity and per capita emissions is only partly offset by its own (lower) economic and population growth assumptions.
Differences in the degree of substitution between fuels (especially towards Waka’s heavily decarbonised electricity sector) is the second largest component, and (along with a small difference in efficiency gains) is mostly driven by Waka’s higher carbon price. Private individuals’ changes to their transport behaviour generates 1Mt of additional emissions reductions in Waka, around 12% of the total.
The leverage effect from renewable electricity generation
While we consider specific sectors below, an important context is the powerful leverage effect of increasing low-carbon electricity generation across a number of sectors. Total electricity emissions reduce 1.6Mt in Kayak and 4Mt in Waka.
The leverage effect of large supply-side investment decisions in the electricity sector is significant. It would take many tens of thousands of individual decisions regarding, for example, electric vehicles to achieve the same effect on emissions as a single renewable energy power station.
Both scenarios see 1.3Mt of emissions reductions as a result of the modelled decommissioning of the Huntly Power station and, as a result, the elimination of coal generation at some point prior to 2030.
Otherwise both scenarios reflect a differing degree of substitution between gas and renewables: As shown below in Figure 5, both scenarios see similar (and significant) investment in renewables but the lower demand in Waka allows it to dramatically reduce its use of gas generation.
Change in electricity generation by fuel (TWh/year)
Note that modelling is based on mean years so dry years may require more fossil fuell generation although the commercial arrangements to achieve that are not considered here. Also, fugitive emissions of CO₂ from geothermal energy rise in both scenarios, proportional to the degree of geothermal investment.
Personal car transport offers opportunities via technology and behaviour change
Emissions from personal car transport decline in both scenarios but by 2.3Mt more in Waka than in Kayak, reflecting the fact that total fuel consumption in the personal car fleet falls 2% in Kayak and 27% in Waka.
The emissions reductions in the Personal Car Transport sector are result of:
As a result of higher population growth, there are more private cars on the road in Kayak compared with Waka. However, this has a relatively small impact on emissions, as it represents only 6% of emissions in the private car fleet.
Number of light duty vehicles on the road (million)
The distance we drive (vehicle kilometres travelled, VKT) per capita increases 8% in Kayak, while dropping 9% in Waka as urban intensification sees people locate closer to work and choose public transport or other options (walking, biking). Once combined with population growth in the respective scenarios, we observe an increase in total VKT of 33% in Kayak but only 11% in Waka, accounting for around 1.0Mt of the difference between scenarios. Thus 12% of Waka’s additional emissions reductions are enabled through changing the way we travel and live.
Total Vehicle Kilometres Travelled by light duty vehicles (billions)
In Kayak 33,000 vehicles have switched to highly efficient electric cars4 while in Waka the light electric vehicle fleet would reach 475,000 in 2030. The switch to electric vehicles reduces liquid fuel consumption commensurately. That, combined the more renewable electricity in the fleet, reduces emissions by a small amount - 0.05Mt - in Kayak, but by a more substantial 0.8Mt in Waka.
Electric Powered Vehicles
Waka sees reductions in fossil fuel consumption due to the combined effect of fuel efficiency and substitution. Improved efficiency in the liquid-fuelled internal combustion engine (ICE), as a result of more efficient cars (including hybrids) being absorbed into the fleet through turnover and growth is achieved under both scenarios. However, due to the higher carbon price, we observe greater efficiency improvements in the ICE in Waka, leading to around 0.5Mt of additional emissions reductions.
Fuel consumption in all transport
Opportunities to reduce industrial heat emissions
There is some substitution from coal to gas for heat in both scenarios, especially in Waka, and a modest uptake of geothermal energy for process heat (with some associated emissions).
The ability to switch from coal to gas for process heat in the South Island is limited, however, by the lack of availability of a local supply and distribution network. That said, the majority of coal consumption for process heat occurs in the North Island. But neither of our scenarios suggests that there is any substantial switch to renewable fuels (biofuels or electricity) for process heat.
Increased Energy Efficiency in Industrial Heat Sector (%)
The model does not see these options as economic by 2030 but if technology improves it may be another avenue for further reductions in carbon emissions.
This highlights the challenge for the industrial heat sector. Since there are few alternatives to fossil fuels (and few alternatives to coal in the South Island) seen by the model as commercially viable, the only other options open to businesses facing Waka’s increasing carbon price are either greater efficiency or, ultimately, exit.
We see a mixture of both, in Waka there are higher energy efficiency improvements than Kayak (a greater rate of boiler replacement), but also a 14% contraction in the industrial heat sector. Hence, as highlighted earlier, the Waka scenario is somewhat predicated on a more aggressive transition to a low energy intensity economy and that is achieved (to some degree) by a wider economic transition.
3A pure battery operated electric vehicle has two impacts on emissions: (i) it is more efficient at converting energy into motion and (ii) it can use highly renewable electricity to do so. For simplicity, we account for both effects under “substitution” here.
Potential for further investigation
We identified several areas of potential carbon emission reductions that the model did not detect. Future emissions reduction may come from efficiencies, innovation and technology not yet at commercial scale or even invented.
The model suggests there are few opportunities for emissions reductions in Surface Freight in either scenario. Changes in emissions from Surface Freight (domestic & international) primarily reflect differences in underlying growth. Both scenarios see similar degrees of efficiency, as the difference in the carbon price between the two scenarios has little effect (NZD60/t in Waka equates to ~5c/l on diesel costs). Further, the uptake of electricity into the surface freight sector (electric rail and buses) is also relatively similar in both scenarios, offsetting 10PJ of diesel consumption (0.7Mt of emissions). But our current modelling does not consider the economics of switching freight between sea, rail, road and air, which warrants consideration from a policy perspective. Domestic and international non-road transport (aviation and sea) is a significant component of energy demand totalling 17% of total national energy consumption by 2030.
Bioenergy, especially liquid biofuels in freight and solid biofuels for industrial heat, offers some hope in the quest for greater sustainability and lower carbon emissions. Biofuels need to be investigated from an overall supply chain perspective, especially the source of the feedstock and the quantum of biofuels (and thus reduced fossil fuels) it can support.
Emissions from Industrial Specific (all non-heat related industrial energy consumption) do not change significantly. While the underlying demand for energy from industry grows +16% in Kayak and +13% in Waka, in emissions terms, this is offset by the emissions reductions in electricity rather than any reduction in liquid fuels use. There is no fuel substitution taking place for liquid fuels, hence any emissions reductions are largely the result of significant emissions reductions in electricity.
Aviation, under both scenarios, increases its emissions.4 The Aviation figures indicate that, as a country, the opportunity for New Zealand to substitute away from flying is relatively limited domestically and - given our remote location as a country, and our tourism aspirations - almost zero internationally. But BEC2050’s aviation figures do not factor in possible improvements in fuel efficiency. The historically observed improvements in fuel efficiency in the domestic aviation sector may continue at similar, or potentially greater, rates.
4These include international emissions which would not be included when energy sector emissions are accounted for in the countrywide NDC targets.