Friday, 07 July 2017 09:43

A new approach to emissions trading in a post-Paris climate

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Despite the US withdrawal from the 2015 Paris Agreement on climate change, other countries, including New Zealand, remain committed to cutting their greenhouse gas emissions.

In our report, we explore how New Zealand, a trailblazer for emissions trading, might drive a low-emission transformation, both at home and overseas.
Turning off the tap

Emitting greenhouse gases is a lot like overflowing a bathtub. Even a slow trickle will eventually flood the room.

The Paris Agreement gives all countries a common destination: net zero emissions during the second half of the century. It is also an acknowledgement that the world has only a short time to turn the tide on emissions and limit global temperature rise to below two degrees. The sooner we turn down the tap, the more time we have for developing solutions.

Time is running out on meeting the goal of keeping global temperature rise below two degrees. from Unsplash, CC BY-ND

New Zealand’s 2030 commitment is to reduce emissions 30% below 2005 levels (11% below 1990). In 2015, our emissions (excluding forestry) were 24% above 1990 levels. The government projects a gap of 235 million tonnes between what has been pledged and what New Zealand will actually emit in the period from 2021 to 2030.

Reducing emissions rapidly enough within New Zealand to achieve our Paris commitment could be extremely expensive, and even at a cost of NZ$300 per tonne, the target could not be met through domestic action alone.

International emission reductions help bridge the gap. New Zealand could turn off its own greenhouse gas tap while supporting other countries to do the same.
Joining forces across borders

In the past, New Zealand relied heavily on the global Kyoto carbon market and purchased international emission reductions using the New Zealand Emissions Trading Scheme (ETS). Some ETS firms bought low-cost overseas Kyoto units of questionable integrity while domestic emissions continued to rise.

In 2015, New Zealand pulled out of the Kyoto carbon market and its ETS is now a domestic-only system.

Under the Paris Agreement, carbon markets have changed in three important ways:

Currently, international emission reductions can be traded only from government to government. It is no longer possible for NZ ETS participants to buy international units directly from the market.

International emission reductions sold as offsets to other countries will have to be additional to the seller’s own Paris target.

Countries have flexibility to trade international emission reductions through arrangements outside of the central UN mechanism which is at an early stage of development.

A new approach to reducing emissions

What does this mean for New Zealand? First, we cannot and must not rely on international markets to set our future domestic emission price.

Second, as both taxpayers and responsible global citizens, we need to decide where to fund emission reductions. Most mitigation opportunities are in developing countries. The benefits of investing in lower-cost reductions overseas need to be weighed against the costs of deferring strategic investment in New Zealand’s own low-emission transformation.

Third, we need an effective mechanism to direct New Zealand’s contribution to mitigation overseas.

In collaboration with others, Motu researchers are prototyping a new approach: a results-based agreement between buyer and seller governments within a climate team.

For example, New Zealand could partner with other buyers – such as Australia, South Korea or Norway – to pool funding at a scale that provides incentives for a country with a developing or emerging economy – such as Colombia or Chile – to invest in low-emission transformation beyond its Paris target. These countries could then create a more favourable environment for low-emission investment – including by New Zealand companies.

Despite the US withdrawal from the 2015 Paris Agreement on climate change, other countries, including New Zealand, remain committed to cutting their greenhouse gas emissions.

In our report, we explore how New Zealand, a trailblazer for emissions trading, might drive a low-emission transformation, both at home and overseas.
Turning off the tap

Emitting greenhouse gases is a lot like overflowing a bathtub. Even a slow trickle will eventually flood the room.

The Paris Agreement gives all countries a common destination: net zero emissions during the second half of the century. It is also an acknowledgement that the world has only a short time to turn the tide on emissions and limit global temperature rise to below two degrees. The sooner we turn down the tap, the more time we have for developing solutions.
Time is running out on meeting the goal of keeping global temperature rise below two degrees. from Unsplash, CC BY-ND

New Zealand’s 2030 commitment is to reduce emissions 30% below 2005 levels (11% below 1990). In 2015, our emissions (excluding forestry) were 24% above 1990 levels. The government projects a gap of 235 million tonnes between what has been pledged and what New Zealand will actually emit in the period from 2021 to 2030.

Reducing emissions rapidly enough within New Zealand to achieve our Paris commitment could be extremely expensive, and even at a cost of NZ$300 per tonne, the target could not be met through domestic action alone.

International emission reductions help bridge the gap. New Zealand could turn off its own greenhouse gas tap while supporting other countries to do the same.
Joining forces across borders

In the past, New Zealand relied heavily on the global Kyoto carbon market and purchased international emission reductions using the New Zealand Emissions Trading Scheme (ETS). Some ETS firms bought low-cost overseas Kyoto units of questionable integrity while domestic emissions continued to rise.

In 2015, New Zealand pulled out of the Kyoto carbon market and its ETS is now a domestic-only system.

Under the Paris Agreement, carbon markets have changed in three important ways:

Currently, international emission reductions can be traded only from government to government. It is no longer possible for NZ ETS participants to buy international units directly from the market.

International emission reductions sold as offsets to other countries will have to be additional to the seller’s own Paris target.

Countries have flexibility to trade international emission reductions through arrangements outside of the central UN mechanism which is at an early stage of development.

A new approach to reducing emissions

What does this mean for New Zealand? First, we cannot and must not rely on international markets to set our future domestic emission price.

Second, as both taxpayers and responsible global citizens, we need to decide where to fund emission reductions. Most mitigation opportunities are in developing countries. The benefits of investing in lower-cost reductions overseas need to be weighed against the costs of deferring strategic investment in New Zealand’s own low-emission transformation.

Third, we need an effective mechanism to direct New Zealand’s contribution to mitigation overseas.

In collaboration with others, Motu researchers are prototyping a new approach: a results-based agreement between buyer and seller governments within a climate team.

For example, New Zealand could partner with other buyers – such as Australia, South Korea or Norway – to pool funding at a scale that provides incentives for a country with a developing or emerging economy – such as Colombia or Chile – to invest in low-emission transformation beyond its Paris target. These countries could then create a more favourable environment for low-emission investment – including by New Zealand companies.

|  A TheConversation release  ||  July 7,  2017