In a dynamic CGE modelling exercise, the impacts over time of regulatory changes are deviations relative to a baseline scenario that represents a set of business-as-usual projections.
To develop the baseline for this project, we first incorporated additional electricity generation and biofuels detail into the model database. The standard New Zealand IO table does not contain any biofuels industries or commodities, and there is a sole electricity generation industry and electricity commodity.
The cost and sales structures of these industries were estimated using publicly available material and the structures of similar industries for which we have data.
We incorporate emissions by type of gas (CO2, CH4, N2O, F-Gases) that enter production functions in their raw tonnages and are then converted to CO2-equivalents via Global Warming Potential (GWP) factors.
Energy accounts are coded with primary and final energy types, stationary and transport energy use, and electric generation distinguished on generation “sent out” (net of distribution losses) and “end use” (includes distribution and transmission losses) bases.
Emissions data was sourced from StatsNZ, supplemented with existing emissions intensity of output estimates from other CGE model databases.
The baseline emissions profile is generated from the economic activity by industry projections, using emissions intensity coefficients, along with exogenously imposed energy efficiency improvements that largely reflect historical trends. Projections of fuel efficiency improvements and EV uptake in the transport sector were provided by MoT.
Our gross emissions baseline is slightly lower than the Ministry for the Environment’s (MfE, 2021) latest projections. In 2035, we have 65Mt CO2-e of gross emissions in our baseline, compared to 68.6Mt for MfE.
These differences largely reflects different methodologies and assumptions regarding technological change. They are unlikely to have a material impact on the results we present.
We draw on fossil fuel and biofuels world price forecasts by Hale & Twomey (2021) and the views of Sapere (2021) on potential commercial viability and costs of biofuels Macroeconomic projections
The standard MDG6NZ model baseline incorporates historical changes in the structure and size of the New Zealand economy from 2013 to 2020 and is then projected out to 2035 using official short-term forecasts and longer-term fiscal projections from Treasury.