Renewable electricity generation, and possibly electricity efficiency projects, are expected to play an important part in the Projects to Reduce Emissions programme. Such projects achieve reductions in CO2 emissions indirectly, by offsetting emissions from fossil fuel used in the power generation sector. Consequently, estimating the emission reductions for these projects is largely a matter of evaluating their marginal impact on the generation sector, as mediated by the electricity market.
Project applicants will be required to account for emissions attributable to grid-purchased electricity using a standard emission factor. The emission factor used for the first tender round in 2003 was 600 tonnes CO2 per GWh of electricity. A revised emission factor of 625 tonnes CO2 per GWh of electricity is being used for the second tender held in 2004. These figures are incorporated in the additionality model that applicants use in preparing their proposals.
These emission factors will be used for reporting emissions and reductions achieved by projects from the respective tender round, through the life of the agreements for those projects, covering emission abatement up to the end of 2012. For future tender rounds, the electricity factor will be subject to further revision.
Determination of an appropriate emission factor for the New Zealand electricity sector is far from straightforward because of uncertainties surrounding the future development of the sector. The Maui redetermination, the contract recently signed for new coal supply for generation, and the cancellation of Project Aqua are examples of major changes in the sector that have occurred within the last two years and which have an impact on expected future emissions.
The NZCCO engaged Concept Consulting Group in 2003 and 2004 to carry out an analysis of the impact of projects on the electricity generation sector through the first commitment period (2008-2012), and to advise on the appropriate emission factors to use for each year. These two reports, Electricity Factor Report 2003 and 2004, are available via the links at the end of this note. The methodology that has been used involves constructing a consistent and plausible scenario for the electricity sector based on current information. A block of extra base load generation is added to the scenario, with no additional emissions, to show the gross impact of a quantum of new renewables on CO2 for the commitment period. Please note that the 2004 update report does not include some of the methodological background included in the 2003 report, thus a reader unfamiliar with the subject should read both reports.
These emission factors have been developed specifically for the first two Projects tender rounds. It is likely that they may be used for some other purposes, but the background needs to be kept in mind. The analysis has focused on the Kyoto Protocol's first commitment period, not on the effects of projects before and after that period.
Also, the emission factors are based on a counter-factual or baseline scenario in which relatively little implementation of new renewables and energy efficiency occurs - a 'business as usual' situation without the impacts of any projects. As successive tender rounds are held and more projects are committed, the business as usual assumptions might be expected to move, and to become more compatible with the reference scenario in the recent report: New Zealand Energy Outlook to 2025. This will be reflected in ongoing re-assessments of the emission factor.