Saturday, 19 November 2011


Extending the date for various industries' entry into the New Zealand Emissions Trading System costs the public purse only to the extent that the government is required to buy carbon credits on the international market to make up for any failure to reach aggregate pollution reduction targets.

I've argued that there is only such cost if the government wishes for there to be such cost: Kyoto is not binding, and it's hard to point to other countries willing to impose very large fiscal costs on themselves to meet the targets by buying credits. Some are spending relatively small amounts of money. But nothing like the amounts that agriculture is held to be costing the country through delayed implementation.

And now we find that most folks are banking on there being no binding second stage post-Kyoto. Here's the Science Media Centre; here's a Nature commentary piece.

If there is no binding second stage, then there is no penalty for non-compliance in the first stage. Recall that the penalty for first stage non-compliance is tougher second-period targets. If the second period doesn't bind, then the first period doesn't bind. And we're, again, kinda nuts if we're going to spend measurable fractions of GDP buying international carbon credits to make up for a delayed accession of agriculture to the ETS.

I could be missing something, but here's what I'd expect this means:
  • New Zealand still should be doing its best to do its part to reduce global warming. I think this is better done by biotech research into low-methane pastoral systems that's then released under free licence to anybody who wants to use it, but it's more than plausible that keeping the ETS is second-best given its existence and given lots of folks' investments having been made on expectation of its continuation. And, in the longer term when everybody's moved to ETS or tax regimes, we'd want to be there too anyway.

  • New Zealand should not expect to be on the hook for big national costs if it winds up making more sense to delay any sector's accession to the system. Agriculture will fail to earn carbon credits for any reduction in emissions, but if implementation is delayed because they can't abate in the very short term, that's no real loss.


  1. I'd be more interested in research showing what would happen to our grasslands, forests and desert regreening if we reversed CO2 growth as the world heads towards 9 billion people. Already we know that forests are growing much more wood due to CO2 growth.. about 18% more in NZ and over 50% in the US. Grass growth is likewise vital to feeding people and the regreening occurring in some deserts could be placed at risk.


  2. Consider the stock vs flow issue. It'll be impossible to get back to ex ante stocks. Even levelling off now would just maintain current rate of stock increase.

  3. More evidence of ETS madness.

  4. @V: Doesn't that equilibrium require collusion be maintained among wholesalers?

  5. Some relevant news from your home country...

    I don't know why the energy companies locked in deals assuming close to the highest price allowed (we have a price ceiling on NZ credits). Other sectors have been quick to switch to CER units as a cheaper substitute to the NZ units. The effects can be seen here:
    -Some of what is said would make Bruce Yandle smile.