Why NZ's emissions trading scheme should have an auction reserve price

By Dr Suzi Kerr and Catherine Leining, Motu Economic and Public Policy Research 

While people's eyes often glaze over when they hear the words “emissions trading”, we all respond to the price of carbon.

Back in 2010, when the carbon price was around NZ$20 per tonne, forest nurseries in New Zealand boosted production. But when prices plunged thereafter, hundreds of thousands of tree seedlings were destroyed rather than planted, wiping out both upfront investment and new forest growth.

Emission prices have since recovered but no one knows if this will last. With consultation underway on improving the New Zealand Emissions Trading Scheme (NZ ETS), the government should seriously consider a "price floor" to rebuild confidence in low-emission investment.