Zero Carbon Bill - oral submission from Catherine Leining and John McDermott

John McDermott is the Executive Director at Motu Economic and Public Policy Research in Wellington, and Catherine Leining is a Policy Fellow at Motu. This is the oral submission to the Environment Select Committee they made on the Zero Carbon Bill in their individual capacities.  

To build a successful low-emission economy, we need continuity of sound, evidence-based policy across elections. Today we will highlight three technical areas for improving this bill in line with New Zealand’s commitments under the Paris Agreement, and conclude with comments about target ambition. 

How emissions trading schemes work and they can help us shift to a zero carbon future

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

Would you please explain how the New Zealand Emissions Trading Scheme (ETS) works in simple terms? Who pays and where does the money go?

Every tonne of emissions causes damages and a cost to society. In traditional market transactions, these costs are ignored. Putting a price on emissions forces us to face at least some of the cost of the emissions associated with what we produce and consume, and it influences us to choose lower-emission options.

An emissions trading scheme (ETS) is a tool that puts a quantity limit and a price on emissions. Its “currency” is emission units issued by the government. Each unit is like a voucher that allows the holder to emit one tonne of greenhouse gases.

The New Zealand Emissions Trading Scheme (NZ ETS) is the government’s main tool to meet our target under the Paris Agreement. In a typical ETS, the government caps the number of units in line with its emissions target and the trading market sets the corresponding emission price.