IDEAS home Printed from https://ideas.repec.org/p/mtu/wpaper/17_06.html
   My bibliography  Save this paper

Evolution of the New Zealand Emissions Trading Scheme: Linking

Author

Listed:
  • Catherine Leining

    (Motu Economic and Public Policy Research)

  • Judd Ormsby

    (Motu Economic and Public Policy Research)

  • Suzi Kerr

    (Motu Economic and Public Policy Research)

Abstract

The New Zealand Emissions Trading Scheme (NZ ETS) was conceived as New Zealand’s gateway to the international carbon market with two objectives: assisting New Zealand to meet its international climate change obligations and reducing domestic net emissions below business-as-usual levels. Underlying these objectives was the principle of least-cost compliance for both the New Zealand government and NZ ETS participants. Uniquely among ETS to date, from 2008 through mid-2015 the NZ ETS operated with buy-and-sell linkages to the Kyoto market that did not constrain domestic emissions and were used to set the domestic price. As international Kyoto unit prices plunged from 2011 onward, so did New Zealanders’ incentives to invest in higher-cost domestic mitigation. Instead, NZ ETS participants complied by purchasing large numbers of Kyoto units. In November 2012, the government announced it would take its post-2012 commitment under the UNFCCC, not the Kyoto Protocol. NZ ETS participants responded by surrendering low-cost Kyoto units and banking NZUs which were expected to remain usable in the longer term. In mid-2015, the NZ ETS delinked from the Kyoto market. Although the New Zealand government has explored bilateral ETS linkages, none has come to fruition to date. As of 2017, the NZ ETS operates as a stand-alone system with a substantial participant-held NZU bank as the legacy of past linking. The government now faces important decisions about the future of unit supply in the NZ ETS and linkages to international markets. This paper examines New Zealand’s experience with linking and de-linking its ETS to capture lessons that could be of value to policy makers in New Zealand and other countries. It finds that the considerable opportunities to a small ETS market from linking can be negated if the environmental, economic and political risks are not managed strategically. It also highlights some of the technical and political challenges of negotiating bilateral linking agreements. New Zealand’s future policy on ETS linking, and more generally support for international mitigation as part of our global contribution, should ensure the integrity of New Zealand’s contribution to global mitigation and support strategic domestic decarbonisation in the longer term.

Suggested Citation

  • Catherine Leining & Judd Ormsby & Suzi Kerr, 2017. "Evolution of the New Zealand Emissions Trading Scheme: Linking," Working Papers 17_06, Motu Economic and Public Policy Research.
    • Handle: RePEc:mtu:wpaper:17_06
    as

    Download full text from publisher

    File URL: https://motu-www.motu.org.nz/wpapers/17_06.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Thomas Carver & Patrick Dawson & Suzi Kerr, 2017. "Including Forestry in an Emissions Trading Scheme: Lessons from New Zealand," Working Papers 17_11, Motu Economic and Public Policy Research.
    2. Christoph BOhringer & Andreas LOschel, 2003. "Market power and hot air in international emissions trading: the impacts of US withdrawal from the Kyoto Protocol," Applied Economics, Taylor & Francis Journals, vol. 35(6), pages 651-663.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Thomas Carver & Patrick Dawson & Suzi Kerr, 2017. "Including Forestry in an Emissions Trading Scheme: Lessons from New Zealand," Working Papers 17_11, Motu Economic and Public Policy Research.
    2. Suzi Kerr & Catherine Leining, 2019. "Paying for Mitigation: How New Zealand Can Contribute to Others’ Efforts," Working Papers 19_09, Motu Economic and Public Policy Research.
    3. Catherine Leining & Suzi Kerr, 2019. "Managing Scarcity and Ambition in the NZ ETS," Working Papers 19_07, Motu Economic and Public Policy Research.
    4. Liao, Ling & Diaz-Rainey, Ivan & Kuruppuarachchi, Duminda & Gehricke, Sebastian, 2023. "The role of fundamentals and policy in New Zealand's carbon prices," Energy Economics, Elsevier, vol. 124(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Flachsland, Christian & Marschinski, Robert & Edenhofer, Ottmar, 2009. "Global trading versus linking: Architectures for international emissions trading," Energy Policy, Elsevier, vol. 37(5), pages 1637-1647, May.
    2. repec:dar:wpaper:35491 is not listed on IDEAS
    3. Ying Fan & Xu Wang, 2014. "Which Sectors Should Be Included in the Ets in the Context of a Unified Carbon Market in China?," Energy & Environment, , vol. 25(3-4), pages 613-634, April.
    4. Lopez, Ramon E., 2009. "World Economic Crises in Times of Environmental Scarcity and Wealth Concentration," Working Papers 56408, University of Maryland, Department of Agricultural and Resource Economics.
    5. Habib Zaman Khan & Muhammad Nurul Houqe & Ielemia K Ielemia, 2023. "Organic versus cosmetic efforts of the quality of carbon reporting by top New Zealand firms. Does market reward or penalise?," Business Strategy and the Environment, Wiley Blackwell, vol. 32(1), pages 686-703, January.
    6. Balistreri, Edward J. & Hillberry, Russell H. & Rutherford, Thomas F., 2011. "Structural estimation and solution of international trade models with heterogeneous firms," Journal of International Economics, Elsevier, vol. 83(2), pages 95-108, March.
    7. Carbone, Jared C. & Helm, Carsten & Rutherford, Thomas F., 2009. "The case for international emission trade in the absence of cooperative climate policy," Journal of Environmental Economics and Management, Elsevier, vol. 58(3), pages 266-280, November.
    8. Wei, Chu & Löschel, Andreas & Liu, Bing, 2013. "An empirical analysis of the CO2 shadow price in Chinese thermal power enterprises," Energy Economics, Elsevier, vol. 40(C), pages 22-31.
    9. Bjart J. Holtsmark & Knut H. Alfsen, 2004. "Implementation of the Kyoto Protocol without Russian participation," Discussion Papers 376, Statistics Norway, Research Department.
    10. Levente Timar, 2022. "Modelling private land-use decisions affecting forest cover: the effect of land tenure and environmental policy," Working Papers 22_12, Motu Economic and Public Policy Research.
    11. Klepper, Gernot & Peterson, Sonja, 2006. "Marginal abatement cost curves in general equilibrium: The influence of world energy prices," Resource and Energy Economics, Elsevier, vol. 28(1), pages 1-23, January.
    12. FitzGerald, John & Bergin, Adele & Conefrey, Thomas & Diffney, Sean & Duffy, David & Kearney, Ide & Lyons, Sean & Malaguzzi Valeri, Laura & Mayor, Karen & Richard S. J. Tol, 2008. "Medium-Term Review 2008-2015, No. 11," Forecasting Report, Economic and Social Research Institute (ESRI), number MTR11, march.
    13. Tor Håkon Jackson Inderberg & Ian Bailey, 2022. "Anchoring Policies, Alignment Tensions: Reconciling New Zealand’s Climate Change Act and Emissions Trading Scheme," Politics and Governance, Cogitatio Press, vol. 10(1), pages 290-301.
    14. Hagem, Cathrine & Westskog, Hege, 2006. "Distributional constraints and efficiency in a tradable permit market," Memorandum 09/2006, Oslo University, Department of Economics.
    15. Liao, Ling & Diaz-Rainey, Ivan & Kuruppuarachchi, Duminda & Gehricke, Sebastian, 2023. "The role of fundamentals and policy in New Zealand's carbon prices," Energy Economics, Elsevier, vol. 124(C).
    16. Löschel, Andreas & Lange, Andreas & Hoffmann, Tim & Böhringer, Christoph & Moslener, Ulf, 2004. "Assessing Emission Allocation in Europe: An Interactive Simulation Approach," ZEW Discussion Papers 04-40, ZEW - Leibniz Centre for European Economic Research.
    17. Schmidt, Robert C. & Marschinski, Robert, 2010. "Can China benefit from adopting a binding emissions target?," Energy Policy, Elsevier, vol. 38(7), pages 3763-3770, July.
    18. López, Ramón, 2010. "Global economic crises, environmental-resource scarcity and wealth concentration," Revista CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), December.
    19. Elkerbout, Milan & Bryhn, Julie & Righetti, Edoardo & Chapman, Francesca, 2022. "From carbon pricing to climate clubs: How to support global climate policy coordination towards climate neutrality," CEPS Papers 35998, Centre for European Policy Studies.
    20. Böhringer, Christoph & Rosendahl, Knut Einar, 2009. "Strategic partitioning of emission allowances under the EU Emission Trading Scheme," Resource and Energy Economics, Elsevier, vol. 31(3), pages 182-197, August.
    21. Larson, Donald F. & Ambrosi, Philippe & Dinar, Ariel & Rahman, Shaikh Mahfuzur & Entler, Rebecca, 2008. "Carbon markets, institutions, policies, and research," Policy Research Working Paper Series 4761, The World Bank.

    More about this item

    Keywords

    Emissions trading; environmental economics; climate change; greenhouse gases; linking emissions trading schemes; environmental public policy; history;
    All these keywords.

    JEL classification:

    • Q50 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - General
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
    • N5 - Economic History - - Agriculture, Natural Resources, Environment and Extractive Industries
    • N57 - Economic History - - Agriculture, Natural Resources, Environment and Extractive Industries - - - Africa; Oceania

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:mtu:wpaper:17_06. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Maxine Watene (email available below). General contact details of provider: https://edirc.repec.org/data/motuenz.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.