Emissions trading

Trading systems use price to encourage polluters to reduce their environmental impact. Regulators fix the total amount of pollution to a level that will achieve an environmental target and introduce a price on pollution. Polluters use their own information to decide how much they wish to reduce pollution. This can lead to environmental benefits at a lower cost.

Motu’s new project, Shaping New Zealand’s Low-Emission Future, includes important new research to create a comprehensive, authoritative, independent and up-to-date history of the New Zealand Emission Trading Scheme (ETS).

Motu is documenting how the ETS was implemented and identifying the lessons learned to date. We are doing basic research on two questions:

  • How can New Zealand best respond to uncertainty in the rewards for mitigation investment?
  • How can New Zealand link its ETS to developing countries to fund effective mitigation outside New Zealand?

Motu’s other work on emissions trading focuses on New Zealand's forestry and agriculture, but also considers electricity markets and general equilibrium modelling. In addition, Suzi Kerr has been involved in research on international emissions trading. 

Emissions trading for non-economists

Motu has produced a series of introductions to elements of emissions trading for non-economists:

  • Cap and trade system – one-pager, paper.
  • Risk of emissions leakage – one-pager, paper.
  • Points of obligation – one-pager, paper.
  • Managing economic risk – one-pager, paper.
  • Transition into and evolution of an emissions trading scheme – one-pager, paper.
  • Allocating emissions units – one-pager.

In Motu’s environmental trading game, participants act as farmers in a nutrient (or emissions) trading system, though the game can be adapted for any other environmental problem. It is suitable for use with any group interested in better understanding these issues, both in an educational or professional setting (and comes with non-technical instructions).

Working Paper

Note