Carbon Pricing in New Zealand's Emissions Trading Scheme
39 Pages Posted: 5 May 2016
There are 2 versions of this paper
Carbon Pricing in New Zealand's Emissions Trading Scheme
Date Written: February 3, 2016
Abstract
The New Zealand Emissions Trading Scheme (NZ ETS) is an intensity-based system and the second oldest national ETS. It is unique in that it is highly international (with unlimited use of Kyoto allowances) and it incorporates forestry. We provide the first empirical analysis of the determinants of allowance prices on the NZ ETS. Our results indicate that imports of offsets rather than fundamentals have been the major price determinant. Moreover, the pricing of New Zealand units (NZUs) can be placed into three distinct periods, delineated by two structural breaks. In the first period, the system is largely autarkic; in the second period, as international offset prices drop below the NZU price, the system becomes a ‘price taker’; in the final period, following some policy interventions, the system regains some independence. The case of the NZ ETS shows both the power of linking ETSs and the dangers of doing so.
Keywords: Asset Pricing; Carbon Finance; Carbon Markets; Emissions Permit Markets; Emissions Trading; New Zealand; NZ ETS
JEL Classification: G12; G14; Q52; Q53; Q54; Q58
Suggested Citation: Suggested Citation