Friday, 1 May 2020

Illuminating carbon market dynamics using the NZ ETS Cap Explorer Tool

By Ruth Copeland, Communications Director, Motu Economic and Public Policy Research

With the Environment Select Committee due to report back on the Climate Change Response (Emissions Trading Reform) Amendment Bill, perhaps this is a timely reminder to have a good look at the NZ ETS Cap Explorer Tool released last year by Motu. The government plans to improve the current ETS by introducing a ‘cap’ on emissions covered by the scheme. This cap will reduce over time to help us meet our emission reduction targets.

The tool is designed to highlight complex ETS dynamics using data derived from the modelling of hypothetical scenarios. If you adjust the parameters within the various scenarios, you can easily investigate the effect on emission levels and prices.

The scenarios and data used in constructing this tool do not align with current government projections, targets and policies. This means the tool is intended to be educational, not predictive, but it nevertheless provides many useful insights and shines a light on potential carbon market dynamics and resilience.
You can use the tool to help you understand the implications of policy, price and technological changes which affect supply and demand within the ETS. In particular, the tool investigates six different scenarios: Emissions, prices, and government revenues under two 2050 targets Non-ETS-related reductions in energy, industrial & waste emissions Non-ETS-related reductions in biological agricultural emissions Free allocation and government auction revenue Fiscal implications of purchasing international emission reductions International emission price changes and purchasing costs for international emission reductions. 
The ETS Cap Explorer Tool is a prototype and was originally designed to extend the scope and methodology of the Productivity Commission’s modelling for its Low Emission Economy Enquiry. As a prototype it will continue to evolve over time and we welcome any suggestions for improvement. 
The tool was developed at Motu by Shaan Badenhorst and Sophie Hale with input from Catherine Leining and Dr Suzi Kerr. Further discussion of the tool's design and insights is available in a Motu Note. You can find the NZ ETS CAP Explorer Tool here.

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