"Free" units that benefit big business are not the issue

By Suzi Kerr, Senior Fellow, Motu Economic and Public Policy Research.

Radio NZ is reporting that various big kiwi businesses received millions of dollars worth of emissions credits from the Government. In our opinion, this is not the biggest issue for the NZ ETS going forward, though there are compelling reasons why this free allocation should phase out faster.

Two issues that are key for New Zealand are the overall ambition of our ETS, which drives price, and controls on the quality of units surrendered in our system when we re-connect to international markets. This is clear in recent reports from the Environmental Protection Agency.

During the 1 July 2014 – 30 June 2015 year, New Zealand firms surrendered 32 million emissions units, the vast majority of which they had purchased. If they had paid current NZ prices for those units, emissions would have cost them (and their consumers) around $189 million.  If prices were at the 'social cost of carbon' those units would have been worth more than $1.5 billion.  That would send a real economic signal.  The problem is not the system but the level of the price.

From Sea to Shining Sea: US Cap-and-trade Programs Showing Success on Both Coasts

By Katie Hsia-Kiung, High Meadows Research Fellow, US Climate and Energy Program, Environmental Defense Fund

When the preliminary plans for California’s cap-and-trade program were first introduced in 2010, it was quickly regarded as a groundbreaking policy due to its stringency, size, and scope. California was the ninth largest economy in the world – it has now jumped to eighth – and the Golden State’s program would soon implement the first economy-wide cap on greenhouse gas pollution in the country. But, it was not the first cap-and-trade program in the United States. In fact, ten states in the northeast had implemented the Regional Greenhouse Gas Initiative (RGGI) in 2008. Like California’s program, the RGGI system places a mandatory cap on greenhouse gas emissions and sets a corresponding price on carbon, but covering only the electricity sector. Despite the difference in scope and location of these two programs, they are both demonstrating that carbon pricing through cap-and-trade is an effective way to decrease harmful greenhouse gas pollution while allowing the economy to grow.