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.

What a small country’s successes and mistakes can teach us about emission pricing

By Suzi Kerr, Chief Economist at Environmental Defense Fund. First published at EDF's blog.

I’m from Aotearoa, New Zealand, and I really love its land and people, but I am fully aware that from a global perspective it appears pretty insignificant – that’s actually one of its charms.  But being small doesn’t mean you can’t make big contributions including toward stabilizing the climate. This recently published article highlights some lessons New Zealand’s experience with emissions trading can offer other Emissions Trading System (ETS) designers at a time when effective climate action is ever more urgent.

Talking intensively to ETS practitioners and experts around the globe about their diverse choices and the reasons why they made them has made me acutely aware of the need to tailor every ETS to local conditions.  In a complex, heterogeneous world facing an existential crisis, diversity in climate policy design makes us stronger and frankly, improves the odds that the young people we love will live in a world where they can thrive.

Social Cost of Carbon: final big questions (with help from the birds)

Photo by Francesco Veronesi on Flickr cc by 2.0

by Bronwyn Bruce-Brand, Research Analyst at Motu Economic and Public Policy Research

This is the final in a series of three posts answering key questions about the Social Cost of Carbon (SCC). To help keep you interested, I have inserted some egg-cellent ideas about how we might get SCC to soar.

Ma ngā huruhuru ka rere te manu: It is the feathers that enable the bird to fly.

Social Cost of Carbon: two further questions (with more help from New Zealand’s native wildlife)

Photo by Department of Conservation on Flickr cc by 2.0

by Bronwyn Bruce-Brand, Research Analyst at Motu Economic and Public Policy Research

This is post two in a series of three posts answering key questions about the Social Cost of Carbon (SCC). In the interests of getting you to the end of this article, I have included some bird breaks (hopefully these won't get too squawkward).

Social Cost of Carbon: Two of six big questions (with a little help from New Zealand’s native wildlife)

by Bronwyn Bruce-Brand, Research Analyst at Motu Economic and Public Policy Research

Nobel Prize Laureate and environmental economist William Nordhaus calls the social cost of carbon (SCC) “the most important single economic concept in the economics of climate change” and it’s a requirement for all US federal environmental regulation analysis.1 So, what is the SCC and how does it work?

Photo by southstar on flickr cc by 2.0

This series of posts answers the first two in a series of six key questions about the SCC with the help of some of New Zealand’s most beautiful native birdlife. As an economist who works with climate change policy, I still find the technicalities of the SCC and how it fits with regulation, environmental science and predictions of the future fly over my head sometimes. So, in the interests of getting you to the end of this article without rage-quitting or falling asleep, I have included some bird breaks, with fun facts and a few puns about some of our most loveable feathery friends. Other than that, I’ll just wing it (not sorry).

What’s driving business to understand and act on climate change issues now, and what will going forward?

by Catherine Leining, Public Policy Fellow Motu Research
This has been adapted from a keynote address for the 2019 Climate Change & Business Conference

Motu is an independent non-profit research organization. The businesses I work with are the early movers, and they are very well informed and engaged. My impression is that the early movers see climate change as a significant opportunity, a significant threat, or a corporate social responsibility obligation.  I suspect that for many businesses in the middle, decarbonisation is a future problem or someone else’s problem.     

I see three key drivers that will change how businesses will respond to climate change in the future.

The first driver is emission pricing. The current prices in the NZ ETS have to rise significantly to support New Zealand’s Paris target and long-term decarbonisation. Modelling for the Productivity Commission suggested prices ranging from $30-80 by 2030 and $75-250 by 2050. We are still in a policy vacuum about what the emission price pathway will look like and what additional regulations will apply. In the meantime, businesses need to future-proof their investments by factoring in a high and rising shadow emission price or risk stranding their assets. Frankly, that applies to central and local government too.

The second driver is that the social license to emit is rapidly expiring. We are seeing unprecedented demonstrations now; fast forward a decade when we have hit 1.5oC and are competing for entitlements to an exhausted global carbon budget. Pressure from investors and consumers may be more influential in the near term than government targets. To maintain their social license, businesses are going to need to show genuine commitment, transparency and accountability for action to reduce emissions.

The third driver is that climate change creates enormous business opportunities. In our beautiful welcome, we heard about the winds of change. We can harness those winds – or be blown away by them. We need to create the kind of business targets that will unlock innovation and harness the winds. Right now, a lot of business targets involve drawing a boundary, reducing internal emissions by a percentage, and planting trees. We need a mindset shift for targets from constraint to transformer, cost to investment, and self to system. We need targets for collectively changing whole supply chains and financing models, building new partnerships, educating consumers, creating new markets, and replacing technology and infrastructure with unprecedented speed. The biggest business opportunities lie in being not just carbon neutral, but carbon transformational.

My final comment is that policy uncertainty is lethal to long-term low-emission investment.  Reaching strong political consensus on the way ahead would empower the producers, investors, and consumers who will make change happen.

For emissions targets to work, they need to be a catalyst for action

by Catherine Leining, Policy Fellow at Motu Economic and Public Policy Research.
This article was first published in The Spinoff's Covering Climate Now series on 16 September 2019.

Since 1992, multiple rounds of greenhouse gas emission targets have failed to reduce absolute emissions globally or in Aotearoa in line with preventing dangerous climate change. One definition of insanity is repeating the same action and expecting different results. Whether it is insanity or courage, we are trying again.

New Zealand’s economy is emissions intensive and vulnerable to climate change impacts. When it is so clear that we have a serious problem, why are emission targets so hard? Here are a few reasons:

• They impose near-term costs on us while the benefits will accrue globally and across generations.
• They create win/lose competition for economic growth rights within a shrinking cap on emissions.
• They are interdependent with other environmental, economic and social targets.
• They are hard to allocate equitably across sectors and translate into practical actions.
• They raise risks our production and emissions will be displaced offshore.
• They incentivise manipulative behaviour, as we saw with buying low-quality offshore emission units in the first Kyoto commitment period.