CHAPTER 5 GREENHOUSE GAS EMISSIONS



This chapter commences with an overview of those policy initiatives within Australia’s Clean Energy Future program that are designed to reduce atmospheric GHG emissions. It then outlines how environmental-economic accounts can influence the design and operation of these policy initiatives and how SEEA-style accounts can inform the ongoing assessment of the impact of policy on biophysical phenomena and on economic performance. The chapter describes various policy questions related to GHG emissions that are potentially informed by ABS environmental-economic accounts, and follows this with examples of data currently produced by the ABS to provide a brief commentary on Australia’s progress against its GHG emissions objectives. One particularly valuable form of analysis examines GHG emissions required to satisfy final demand for goods and services, so that for example, cumulated emissions from the manufacture of food products, including from agricultural production, manufacturing processes, transport and retailing, is attributed to the final consumer using data and structures embodied in ABS Input-Output (I-O) tables. Finally, this chapter describes SEEA-style carbon stock accounts, which support an understanding of GHG emissions within the context of a broader carbon stock accounting framework.


Introduction

The Commonwealth Scientific and Industrial Research Organisation (CSIRO), the Bureau of Meteorology(footnote 1) , and Academies of Science from around the world(footnote 2) have advised that the world is warming and high levels of carbon pollution risk environmental and economic damage.

The Intergovernmental Panel on Climate Change (IPCC) define climate change as: ‘a statistically significant variation in the mean state of the climate or its variability, persisting for an extended period (typically decades or longer)’(footnote 3) . Climate change is caused by increases in the total stock of greenhouse gases in the atmosphere. In 2009, the six greenhouse gases measured by the accounting rules of the Kyoto Protocol reached a global level of 439 parts per million (ppm) CO₂-equivalent(footnote 4) , an increase of 160 ppm compared to pre-industrial levels.

Australia has adopted a range of responses to climate change(footnote 5) . The first pillar of Australia’s response is to reduce Australia’s GHG emissions and, in order to meet this objective, the Australian Government is developing and putting in place relevant policies through its Clean Energy Future program.


Australia’s Clean Energy Future policies

The objectives of the Clean Energy Future program are to “…support Australian businesses and households reduce their carbon pollution, to create the new green-collar jobs of the future and to transform our economy.”(footnote 6)

The Clean Energy Future policies aim to achieve this through:

• introducing a carbon pricing mechanism;
• promoting innovation and investment in renewable energy;
• encouraging energy efficiency; and
• creating opportunities in the land sector to cut pollution.

Greenhouse gas emissions and the Australian economy

A carbon pricing mechanism is the first element of the Government’s plan for a clean energy future, and is designed to trigger a broad transformation of the economy by breaking the link between emissions and economic growth.

Figure 5.1 shows that total greenhouse gases (carbon dioxide, methane, nitrous oxides and fluorinated gases) in Australia, excluding changes due to land use and land use change and forestry (LULUCF), increased by 24% between 1989-90 and 2009-10(footnote 7) (footnote 8) . During the same period, economic activity as measured by GDP increased by 88%.

As mentioned in chapter one, the phenomenon where the economy grows at a rate faster than the related pollution is known as decoupling. This can be caused either by structural change in the economy (for instance, where the generally lower-emitting service industries have grown more strongly than higher emitting industries) or by the adoption of technological innovations by businesses or by a combination of both.

In the case of Australia, the decoupling is relative, as GHG emissions are increasing but at a lower rate than economic activity (as measured by GDP).

Figure 5.2 presents data on GHG emissions, labour force and economic production by industry(footnote 9) .

In 2009-10, the electricity, gas, water and waste services industry had the highest GHG emissions of any industry(footnote 10) , followed by the agriculture, forestry and fishing industry and manufacturing (see figure 5.2). These three industries together accounted for 74% of emissions, but only 15% of total gross value added and 14% of employment in the Australian economy. Conversely, the commercial and services industries(footnote 11) accounted for 70% of all employment and about 62% of gross value added, but only 5% of emissions (see figure 5.2). However, these and other industries, as well as households, can be seen as indirectly responsible for the emissions of the electricity industry.

In view of this, various techniques have been used to apportion emissions from electricity generation to the industries using electricity, since the electricity produced is ultimately consumed by industries and households. This has been done using the National Inventory by Economic Sector Gas Accounts produced by Department of Climate Change and Energy Efficiency (DCCEE). This work is described below under ‘Greenhouse gas induced by final demand’.


Greenhouse gas induced by final demand

The measure of greenhouse gas directly emitted by Australian industries and households and the changes in emissions levels over time is a key element of the data used in developing and evaluating policy. This measure is often referred to as the production approach as it measures emissions that occur directly from Australian production and directly from Australian households (e.g. the combustion of fossil fuels in private vehicles).

It is also possible to look at emissions occurring through the final consumption of goods and services by Australian households and governments. For example, the cumulated emissions from the production of manufactured food products, including from agricultural production, manufacturing processes, transport and retailing, is attributed to the final consumer. This shifts the focus of the analysis to the demand-side, that is, to the emissions required to satisfy final demand, including emissions embodied in imports and exports. Ultimately, industries exist to satisfy final consumption in Australia and abroad. The international transfer of environmental burdens by a country can be understood by considering its environmental balance of trade.

Figure 5.3 illustrates the relationship between the production and consumption approaches to measurement of GHG emissions.

The ABS has developed experimental estimates that identify and measure emissions according to the consumption approach using environmentally extended input-output analysis. This analysis shows how much greenhouse gas emissions are produced by Australian resident businesses and households; how much of these emissions are associated with goods and services leaving the country through exports; how much emissions are generated elsewhere through imports; and how much emissions are occurring both nationally and internationally in order to meet the demands of Australian consumption.

Figure 5.4 presents the direct and indirect emissions induced by final demand category for 2008-09. These experimental estimates show that of the 759 Mt of GHG emissions induced by the Australian economy, 531 Mt (or 70%) were induced to satisfy domestic final demand, while 228 Mt (or 30%) of GHG emissions were induced by exports. Approximately 90% of emissions induced under the mining category (and 41% of emissions induced under the manufacturing category) are induced by exports. In 2008-09, mining and manufacturing were the two most significant contributors to total GHG emissions induced by exports from Australia.

Of total emissions induced by categories of final use, 45% related to household final consumption expenditure (mainly through ‘manufacturing-food, beverages and tobacco’, ‘electricity, gas, water and waste services’ and ‘commercial and other services’).

Table 5.4 Experimental estimates of direct and indirect GHG emissions induced by categories of final demand (MT) - 2008-09
Direct and indirect emissions			Household final consumption	Government final consumption	Investment and change in inventories	Total domestic use	Exports	Total use
Agriculture, forestry and fishing			13	0	5	19	37	56
Mining			2	0	5	7	68	75
Manufacturing
	Food, beverages and tobacco		43	0	1	45	27	72
	Textile, Wood, paper and printing		6	0	1	7	1	8
	Petroleum, coal and chemical products		15	2	2	19	12	31
	Non-metallic mineral products		1	0	0	1	0	1
	Metal products		1	0	3	4	43	47
	Machinery and equipment		17	0	34	51	6	57
		Total manufacturing	83	2	41	126	90	217
Electricity, gas, water and waste services			76	0	19	95	0	95
Construction			0	0	60	60	0	60
Transport
	Road		5	1	1	6	4	10
	Other transport		19	3	0	23	15	38
		Total transport	24	3	1	29	19	48
Commercial and services			101	36	13	150	13	162
Total direct and indirect emissions by Final use category			299	42	144	485	228	712
Direct Emissions by households			46			46		46
Total direct and indirect emissions Australia			345	42	144	531	228	759

While figure 5.4 provides a summary of the data results from this modelling exercise, the following figures each aim to draw out particular elements of the summary data.

Figure 5.5 shows the induced emissions by final demand according to the industry producing the final demand products. The most significant contributors are the manufacturing, and commercial and services(footnote 12) industries.

Note that emissions induced by final demand relate only to those emissions associated with the final consumption expenditure of households and governments, and of gross capital formation and exports. It includes emissions embodied in intermediate inputs but excludes the emissions associated with that industry output subsequently consumed as an intermediate input by other industries. For example, the total emissions produced by the electricity generation industry are much larger than emissions induced by its final demand. This is because much of the output of the electricity generating industry is consumed as an intermediate input by other industries and therefore recorded as part of emissions induced by these other industries. Similarly, the transport industry records induced emissions that are less than the total emissions produced by this industry. Direct emissions by households relates to emissions arising from households’ transport activities, combustion of gas for heating and petrol used for lawn mowers, etc.

Figure 5.6 provides a breakdown of GHG emissions induced by final demand for various manufacturing products. Typically, domestic demand is the main driver of induced GHG emissions across the various manufacturing industries - the notable exception is the manufacture of metal products(footnote 13) which reports a large proportion related to exports. The observations shown in figure 5.6 are consistent with Australia’s export profile.

Figure 5.7 reveals that for induced GHG emissions for household final consumption the highest induced emissions for 2008-09 relate to goods and services produced by the commercial and services industry (101 Mt); electricity, gas, water and waste services (76 Mt); and food, beverage and tobacco product manufacturing (43 Mt).

Figure 5.8 shows that among Australia’s exports in 2008-09, emissions were induced to the greatest extent by goods and services produced by the mining industry (68 Mt); metal products manufacturing (43Mt); agriculture, forestry and fishing (37Mt); and food, beverage and tobacco product manufacturing (27Mt).

The following paragraphs provide further insight to the sources and methods used by the ABS in developing modelled estimates of greenhouse gases induced by categories of final demand.

This study uses the 2008-09 suite of I-O tables for the Australian economy in conjunction with data for GHG emissions by industry as supplied by DCCEE to model a consumption-based (i.e. final demand-side) view of Australia’s GHG emissions. It uses the standard environmentally extended Leontief model to bridge the gap between the production and final demand sides of the economy. Importantly, it brings into focus the global GHG emissions implications of Australian consumption, regardless of whether that consumption is satisfied by domestic production or by imported products.

For the purposes of this study, the scope of emissions extends to all GHG emissions under the Kyoto framework comprising all IPCC energy sectors(footnote 14) (including stationary energy and transport); industrial processes; solvent and other product use; agriculture; waste; and LULUCF. It uses the Australian Greenhouse Emissions Inventory(footnote 15) as its primary data source but reallocates transport and electricity activity data onto an Australian and New Zealand Standard Industrial Classification (ANZSIC) industry basis, i.e. transport activity undertaken by a producing unit in the mining industry is allocated to mining and not to the transport industry. The DCCEE emissions data are available in respect of 40 sectors, i.e. at the 3-digit ANZSIC level for manufacturing and at 2-digit ANZSIC for the other industries, while the Australian I-O matrix uses a 111 Input-Output Industry Group (IOIG) classification. A key decision faced in undertaking this work was whether to model induced GHG emissions across the 40 sectors of the DCCEE presentation or across the 111 IOIG-based industries of the Australian I-O tables. The decision to use the 111 IOIG industries was adopted partly in order to avoid the aggregation error inherent in the alternative approach, which was to construct a smaller I-O table to match the 40 sectors of the DCCEE emissions data. A further reason was to ensure the modelled data were fully compatible with the SEEA and SNA frameworks.

The ABS performed a number of other adjustments to the emissions data from the National Greenhouse Inventory by Economic Sector. These adjustments are designed to support full integration and comparability with data of the SEEA and the SNA. The specific adjustments required to convert DCCEE data onto a SEEA basis relate to emissions induced by travellers while abroad; international bunkering (related to international transport, principally shipping and aircraft) and the reallocation of electricity emissions from an activity basis to an ANZSIC industry basis. The first two adjustments are necessary because the scope of the SEEA relates to the activities of all units that are resident of the economic territory, while Kyoto Protocol-based data relate to emissions taking place in a defined territory. The two bases differ because Australian residents may emit GHG abroad and similarly non-residents may emit within the Australian territory. Electricity GHG emissions data are reallocated from an activity basis to a standard ANZSIC industry classification basis. For example, the electricity self-generated by an enterprise in the manufacturing industry is included in the manufacturing industry, not the electricity generation industry.

The sum result of these various adjustments is a body of GHG emissions information that can be directly compared and integrated with estimates produced according to the SNA and the SEEA. This better informs decision-making across environmental and economic domains and substantially enhances the usefulness of the various data sets involved.

Nevertheless, the approach used here has two important assumptions that potentially affect the quality of the results. Firstly, in respect of GHG emissions, imported products are assumed to be produced using production functions that are identical to those used for locally produced products of the same type. Given the reliance on coal for electricity generation in Australia, the likely impact of this assumption is an overstatement of emissions embodied in imports. If this is the case, the data produced here will understate reported net exports of emissions. The assumption could be removed by incorporating global production functions and regional I-O models, though this would involve a considerable amount of additional data and would complicate the model significantly. The second important assumption is that all consumers of electricity pay the same price per unit for their electricity. Neither of these assumptions is expected to be entirely valid, but to date no rigorous analysis of possible biases in the results has been undertaken. In both cases, the assumptions can potentially be addressed through the use of more sophisticated models to take these factors into account, subject to the availability of data and resources, these developments may possibly be reflected in future editions of this work.
Energy use as a major driving factor of GHG emissions

Energy derived from the burning of fossil fuels contributed 67% of Australia’s GHG emissions in 2009-10 and fugitive emissions (e.g. gas escaping from coal mines and oil wells) from fuels contributed a further 7% (Kyoto Protocol basis including LULUCF). Given the dominance of fossil fuel combustion as a source of emissions, energy policy and research is directed at a re-engineering of industry production processes to be more energy efficient and to rely more on renewable sources of clean energy. In addition, there are policy issues around the future availability and prices of petroleum products.

The basis of much climate change mitigation policy in Australia is centred on economic instruments such as taxes. There are clear inter-relationships between policies that utilise economic instruments involving prices and taxes, and physical flows of various energy products and of related GHG emissions. In order to understand and to manage these inter-related phenomena, it is essential that our information on economic performance, energy supply and use, and flows of GHG emissions be directly comparable. The SEEA Central Framework directs the compilation of energy accounts and GHG emissions accounts in a way that allows direct comparison and integration of these sets of information with each other and with economic information of the SNA.

Information drawn from the SEEA-based Energy Account, Australia (ABS cat. no. 4604.0) can be used for monitoring the overall development of the Australian energy industry and in tracking the progress of policies to support clean technologies. Data produced within Energy Account, Australia are directly comparable with data from the broad suite of SNA and SEEA-based outputs. The production of GHG emissions accounts on a SEEA basis delivers a body of data that can be seamlessly integrated with information contained in Energy Account, Australia.

In practice, however, the data for energy and air emissions may come from different sources which are prepared using different concepts to meet different regulatory needs of governments. In this case, the SEEA has a role as a data integrating framework. Experience has shown that the resolution of inconsistencies is often a difficult and time consuming process, but it can be done - with positive benefits for the producers and users of data. The confrontation of data from different sources and the resolution of inconsistencies is an ongoing process within the ABS and other agencies.


Carbon stock accounts

The initial focus of the United Nations Framework Convention on Climate Change (UNFCCC) was to reduce fossil fuel emissions, this being the single biggest source of human induced GHG emissions. Under the guidance of the IPCC, a flows based global accounting system was established(footnote 16) . Since the initial global climate change negotiations, land-based mitigation opportunities have received increasing attention by policy makers and researchers, for example the Australian Government’s Carbon Farming Initiative.

Further thinking on the topic has recognised the need for a holistic view of carbon that extends the current flows-based framework to recognise the unique characteristics of different stocks of carbon.


A carbon stock framework

Large amounts of carbon flow naturally and continuously between the geosphere, biosphere, and the atmosphere. This is commonly called the global carbon cycle, and it includes many complex interactions, with different stocks of carbon cycling at different speeds.

Emissions from fossil stocks are effectively a one-way emission, as they require geological timeframes to return to an inactive state. In this way emissions from the geosphere are not equivalent to, and cannot be simply mitigated by, their capture in the biosphere.

Within the biosphere, different ecosystems vary in their longevity and capacity to rebuild and maintain carbon stocks. This presents a significant set of trade-offs for decision makers. In relation to land this is because of competing claims for human food and settlement and because some ecosystems may not have the capacity to return to their earlier carbon stock levels. A set of carbon stocks accounts will provide policy makers and the public with important information in making the trade-off decisions.

An experimental framework for a carbon stock account was presented in Appendix 1 to Completing the Picture (ABS Cat. No. 4628.0.55.001). Guided by the structure and principles of SEEA-style accounting, it provides comprehensiveness in the recording of the opening and closing stock of carbon with the various changes between the beginning and end of the accounting period recorded as either additions to the stock or reductions in the stock. Carbon reservoirs are disaggregated to two levels to enable reporting of the stock levels and changes for different types of geocarbon, i.e. oil, gas, black coal, brown coal and other and to tag biocarbon (carbon in biomass) stocks to terrestrial and marine ecosystem type, i.e. natural, semi-natural and agricultural).

Researchers and policy makers can use carbon stock account information together with measures of carbon carrying capacity(footnote 17) and land use history to investigate the depletion of carbon stocks from converting natural ecosystems to other land uses; to prioritise land for restoration of biocarbon stocks through reforestation, afforestation, revegetation, restoration or improved land management with their differing trade-offs against food and fibre production; and identify land uses that result in only temporary carbon removal and storage.

DCCEE, the Australian National University and the ABS are currently collaborating on an information paper related to carbon stock accounts. The paper will further refine the framework of carbon stock accounts, develop estimates to partially populate a carbon stock account for Australia, and explore some of the analytical capabilities of these accounts.

Beyond this information paper, more research will be necessary to provide estimates of terrestrial and marine ecosystem stock levels. This embryonic stage opens a major opportunity to develop, with the science community, consistency in standards, definitions, coverage and reporting periods. Disaggregating biocarbon stock reservoirs into categories of ‘natural’, ‘semi-natural’ and ‘agricultural’ presents methodological challenges that could possibly be addressed through a linked land cover account. The benefits for policy making are likely to be substantial.

1 E.g. CSIRO/Bureau of Meteorology, 2010. State of the Climate. Online: http://www.bom.gov.au/announcements/media_releases/ho/stateClimate2012.pdf; H. Cleugh, M. Stafford Smith, M. Battaglia and P. Graham, 2011. Climate Change: science and solutions for Australia. CSIRO Publishing, Collingwood. Online: http://www.publish.csiro.au/Books/download.cfm?ID=6558 <back
2 E.g. National Research Council of the National Acadamies, 2009. Restructuring Federal Climate Research to Meet the Challenges of Climate Change, National Academy of Sciences, Washington D.C. Online: http://www.nap.edu/chapterlist.php?record_id=12595&type=pdf_chapter&free=1; Royal Society, 2010. Climate Change: a summary of the science. Online: http://royalsociety.org/uploadedFiles/Royal_Society_Content/policy/publications/2010/4294972962.pdf Royal Society, 2009. Preventing Dangerous Climate Change: The need for a global agreement. Online: http://royalsociety.org/uploadedFiles/Royal_Society_Content/policy/publications/2009/4294969306.pdf <back
3 Intergovernmental Panel on Climate Change (IPCC), Working group II: Impacts, Adaption and Vulnerability Online: http://www.ipcc.ch/ipccreports/tar/wg2/index.php?idp=663 <back
4 Different greenhouse gases have different effects on the climate system. A greenhouse gas equivalent measure (CO₂ equivalent) is used to enable aggregation. <back
5 Australian Government, 2012. Working together for a Clean Energy Future. Online: http://www.cleanenergyfuture.gov.au/. Accessed 4 April 2012. <back
6 Department of Climate Change and Energy Efficiency (DCCEE), 2012. Reducing Australia’s Emissions. Online: http://www.climatechange.gov.au/government/reduce.aspx. Accessed 4 April 2012. <back
7 Based on data published by DCCEE. However, since estimates for LULUCF are available only for the most recent years, time series data contained in figure 5.1 exclude LULUCF in order to maintain a consistent series. <back
8 DCCEE inventories of GHG emissions are reported on a territory basis. Data in figure 5.1 have been adjusted onto a residence basis to support their full integration with various economic data. <back
9 Net CO₂ released from LULUCF is included in Kyoto Protocol data from 2007–08 onwards and has been included in the estimates contained in figure 5.2. <back
10 Data from the DCCEE National Inventory by Economic Sector provided the basis for estimates of GHG emissions produced by industry in Australia. <back
11 The ‘Commercial and services’ industries are comprised of the following Australian and New Zealand Standard Industrial Classification (ANZSIC) industry Divisions: Wholesale Trade; Retail Trade; Accommodation and Food Services; Information Media and Telecommunications; Financial and Insurance Services; Rental, Hiring and Real Estate Services; Professional, Scientific and Technical Services; Administrative and Support Services; Public Administration and Safety; Education and Training; Health Care and Social Assistance; Arts and Recreation Services; and Other Services. <back
12 The ‘Commercial and services’ industries are comprised of the following ANZSIC industry Divisions: Wholesale Trade; Retail Trade; Accommodation and Food Services; Information Media and Telecommunications; Financial and Insurance Services; Rental, Hiring and Real Estate Services; Professional, Scientific and Technical Services; Administrative and Support Services; Public Administration and Safety; Education and Training; Health Care and Social Assistance; Arts and Recreation Services; and Other Services <back
13 ‘Manufacture of metal products’ is the sum of the following ANZSIC Subdivisions: Primary Metal and Metal Product Manufacturing; and Fabricated Metal Product Manufacturing <back
14 The IPCC uses a definition of sectors, which is not consistent with the SNA <back
15 From 1 July 2008 a registered corporation above a threshold is required to report the amount of GHG emissions and energy produced or consumed by facilities under the operational control of its group members (which may include subsidiaries, joint ventures or partnerships) during a reporting year <back
16 IPCC 2006, 2006 IPCC Guidelines for National Greenhouse Gas Inventories. http://www.ipcc–nggip.iges.or.jp/public/2006gl/index.html <back
17 The mass of biocarbon able to be stored in the ecosystem under prevailing environmental conditions and natural disturbance regimes, but excluding anthropogenic disturbance (Gupta, R.K. and Rao, D.L.N., 1994, Potential of wastelands for sequestering carbon by reforestation. Curr Sci 66:378–380) <back