Canada's Emission Trends 2014: annex 3

Annex 3: Alternate Emissions Scenarios

Emissions projections depend on a number of economic and energy variables, which make them subject to uncertainty, and thus most appropriately viewed as a range of plausible outcomes. Future developments in technologies and the rate of resource extraction cannot be foreseen with certainty. Typically, these key uncertainties are addressed through examining alternative cases. The sensitivity analysis presented here focuses on two key uncertainties: future economic growth, and the evolution of oil and natural gas price and production.

In Table A.9, the emissions outcomes of these alternative cases are presented independently and in various combinations. These alternative cases explore the interaction of energy markets and economic growth, and their impact on emissions, under a range of assumptions.

Under a scenario where oil and gas prices are assumed to be 29% higher than in the reference case in 2020, and annual average growth in GDP between 2012 and 2020 is expected to be 2.7% (compared with 2.2% in the reference scenario), emissions could reach 781 Mt of CO₂ eq (not including the contribution from LULUCF) in 2020.^Footnote 24 Alternatively, under a scenario with slower GDP growth (average growth of 1.5% between 2012 and 2020) and lower world oil and gas prices (29% lower than the reference case in 2020), emissions could be as low as 716 Mt CO₂ eq, (not including the LULUCF contribution) in 2020.

Assumptions

The fast and slow GDP growth extremes were derived by applying the assumptions from the 2013 Annual Energy Outlook by the U.S. Energy Information Agency for fast and slow economic growth for population and productivity in the macroeconomic framework of the model. Also applied were high and low population growth assumptions for Canada, based on impacts derived from Statistics Canada’s 2010 population growth projections for high and low population growth. The fast and slow GDP growths were then solved endogenously within the model.

Oil and gas prices and production for all scenarios are based on projections from the National Energy Board. In the baseline scenario, the world oil price is projected to grow from $96/bbl (barrel of oil) in 2012 real Canadian dollars (2012 C$) in 2012 to $102/bbl in 2020. The natural gas price is also predicted to increase in the baseline scenario, from the 2012 value of $2.63/GJ to $4.72/GJ (per gigajoule) in 2020.

The high price scenario sees prices of $132/bbl (2012 C$) for oil and $6.04/GJ for natural gas in 2020. Crude oil and natural gas production are both increased (by 11% and 19% in 2020, respectively) under the high price scenario relative to the baseline forecast. This scenario is used alone and in combination with different GDP growth assumptions.

A low price scenario is also included, where the world oil price drops to $72/bbl (2012 C$) by 2020, and the natural gas price increases more slowly to $3.30/GJ in 2020. Crude oil and natural gas production see relative decreases of 11% and 26% in 2020 under the low price scenario. The low price scenario is similarly combined with different GDP growth assumptions.

These high and low cases for oil and natural gas prices were provided by the National Energy Board as the probable range of future energy prices used within their analysis.

Figure A.4 illustrates how differing price and GDP growth assumptions in various combinations might impact Canadian GHG emissions through 2020.

GHG emissions in the fast-GDP-growth scenario are about 7% higher in 2020 than 2012 levels. As economic activity increases, there will unquestionably be a higher demand for energy and a corresponding increase in emissions. In contrast, emissions are expected to be much lower if the Canadian economy grows at a slower pace. When combined with high oil and gas prices, emissions could be 10% higher than 2012 levels by 2020. Expected growth of the economy is the primary driver of expected emissions growth. Any variation in this path will lead to a different set of projections about expected future emissions. Table A.11 quantifies the results of the full range of emissions alternatives illustrated in Figure A.4.

The growth in emissions is expected to slow down as energy prices increase and consumers are provided with a greater incentive to make more efficient choices. However, the increase in price also drives higher production in the oil and gas sector, which generally offsets this effect. Emissions from the oil and gas sector in the high world oil and gas prices case rise by 52 Mt from 2012 to 2020, whereas they rise by only 4 Mt in the low price scenario.

The range in total projected emissions from all scenarios rises as we extend our projection further into the future. As a result of the assumptions made about the growth in Canadian GDP and the future evolution of oil and natural gas price and production, the range is roughly 65 Mt in 2020.

Figure A.4: Projected GHG Emissions Under Full Range of Alternative Economic Assumptions (excluding LULUCF)