Carbon Calculus

If you want to reduce greenhouse gas emissions, improve the ETS and use it to buy-back and retire credits rather than mucking about with sector-specific stuff. 

Me in this week's NBR print edition. A snippet:

The New Zealand government has committed to reducing our greenhouse gas emissions. Fortunately, New Zealand has a functioning Emissions Trading Scheme (ETS) that the government has promised to strengthen. Every litre of petrol and diesel includes the cost of the ETS credits purchased to cover the fuel’s eventual carbon dioxide emissions. Electricity is in the ETS, so every kilowatt of power comes with its ETS credit as well, where necessary.

Sector-specific tax and regulation options, like subsidies for planting trees, regulations on industrial practices like methane flaring, or automotive fuel economy standards, could make sense in the absence of a price on emissions. In that world, the government would have to guess what people would be doing if carbon were priced, and then regulate to encourage those behaviours. And some of those interventions could even be cost-effective.

But layering additional feebates, incentives or regulations on top of sectors already covered by the ETS very easily risks New Zealand failing to do nearly as much as it could to reduce emissions.

An electric vehicle subsidy is unlikely to increase greenhouse gas emissions. But it would increase emissions compared to putting the same amount of money towards buying up and retiring credits in the ETS. Why? Buying credits always encourages those who can reduce emissions most cheaply to sell their credits, and electric cars might not be the best-buy for reducing emissions.

I'll add a link once there's a version online. Update: link!($)