Emissions Trading Scheme or Carbon Tax? The Australian experience and lessons for New Zealand

By Suzi Kerr, Senior Fellow, Motu Economic and Public Policy Research, and Frank Jotzo, Director of the Centre for Climate Economics and Policy at the Australian National University.

Note: This piece follows from a discussion on this topic by Suzi and Frank at the annual conference of the Australian Agricultural and Resource Economics Society in Rotorua in mid-February 2015.

Australia had an emissions trading scheme with a fixed price. It was one good way to encourage carbon cuts throughout the economy. But the opponents called it a carbon tax and won the political debate. The scheme has now been abolished, and an economically and environmentally inferior subsidy scheme has taken its place.

There is a cautionary tale in this for New Zealand. The country needs to make some big decisions about climate change policy. The emissions trading scheme looked mortally wounded and now is limping along again. But policy settings for the future are still unclear. Investors, including foresters, do not know what emissions price they should factor into their decisions.

Australia's pathway to deep decarbonisation by 2050

By Catherine Leining, Policy Fellow, Motu Economic and Public Policy Research


Australia's deep decarbonisation pathway to 2050:
Image from ClimateWorks Australia

In December 2014, Amandine Denis, Head of Research at ClimateWorks Australia, gave a seminar at Motu on Australia's participation in the Deep Decarbonisation Pathways Project (DDPP).  She explained that Australia has the technical potential to achieve zero net emissions from energy (with some offsetting by forestry) by 2050 using a pathway that enables GDP growth at an average annual rate of 2.4% - a rate similar to that of the last five years.

The DDPP was launched by the Sustainable Development Solutions Network (SDSN) and the Institute for Sustainable Development and International Relations (IDDRI) to demonstrate how countries can reduce emissions to limit global temperature increases below 2°C.  So far, researchers in 15 countries covering 70% of global emissions have chosen to develop technically feasible national pathways for deep decarbonisation. Participating countries include Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Japan, Mexico, Russia, South Africa, South Korea, the UK, and the USA.  Researchers work independently from their respective governments.

New Zealand’s journey toward a low-emission future: Today’s climate change landscape

By Catherine Leining, Senior Policy Fellow, Motu

Note: Motu has just published three Motu Notes on climate change issues prepared as background papers for its Low-Emission Future Dialogue. The first in the series presents an overview of the climate change challenges facing New Zealand and the current policy context.  This information is highly relevant because in 2015 New Zealand will need to present its post-2020 emission reduction commitment - referred to as an Intended Nationally Determined Contribution - under a new international climate change agreement currently under negotiation. The paper's executive summary is provided below.  The full paper is available here. 

In the coming decades, New Zealand will face important choices shaped by both the risks and opportunities created by climate change. This paper provides an overview of the current climate change landscape from which New Zealand is starting the next stage of its journey toward a global low-emission future. The key findings are:

Climate change science, emission trends and mitigation scenarios The latest reports from the Intergovernmental Panel on Climate Change (IPCC) reinforce the case for significant reductions to global greenhouse gas (GHG) emissions. Under business-as-usual growth in emissions, the global mean surface temperature in 2100 could increase by 3.7^oC to 4.8^oC compared to pre-industrial levels. A least-cost pathway to limit temperature increases to not more than 2^oC above pre-industrial levels would involve reductions of 40–70 percent below 2010 levels by 2050 on the way toward a zero-net-emission global economy. A key objective should be limiting cumulative emissions, and delaying action significantly increases the costs of mitigation.

California’s cap and trade is succeeding after two years, report says

By Katie Hsia-Kiung, High Meadows Research Fellow, US Climate and Energy Program, Environmental Defense Fund

Note from Catherine Leining at Motu:  This week we host a guest blog on the California Emissions Trading Scheme (ETS) by Katie Hsia-Kiung at the Environmental Defense Fund.  On 3 February 2015, Katie and her colleagues Erica Morehouse and Derek Walker gave a fascinating presentation on the California ETS to participants in Motu's Low-Emission Future Dialogue. With coverage of the electricity, industrial, transport and natural gas sectors as of 2015, the system covers 85% of the state's emissions, and additional sectors can engage through an offsets mechanism. They highlighted some of the key design differences relative to the NZ ETS, including: partial auctioning of allowances with a price floor (currently US$11.34) and an allowance price containment reserve; a quantity limit on the use of offsets (8%); and direct linking with Quebec's ETS.  Their auction produced revenue of about US$1 billion in 2012, and this is projected to increase to US$12 billion by 2020. Revenue is being directed to reduce the system's impact on electricity ratepayers and benefit the most impacted communities through programmes on sustainable communities and clean transportation, energy efficiency and clean energy, and natural resources and waste diversion.  Significantly, California's ETS was envisaged as an "insurance mechanism" accounting for about 20% of the emission reductions within a suite of 70 complementary mitigation policies operating across the state. This experience could help to inform the government's review of the NZ ETS scheduled in 2015.  

These days, everyone seems to have an opinion about everything. The ubiquity of social media channels has saturated public discourse with so many viewpoints that it can be nearly impossible to distinguish facts from fiction. But facts still matter. Even though an argument about the quality of a neighborhood restaurant or the accomplishments of your local elected official might be inherently subjective, there’s no question that strong, empirical evidence gives you the best shot at coming out on top. What’s more, the greater the consequences of the issue being debated, the higher the stakes are when it comes to analyzing and acting on real-world evidence.