Allocation of New Zealand Units Within Agriculture in the New Zealand Emissions Trading System

Motu Economic and Public Policy Research Working Paper No. 09-16

82 Pages Posted: 18 May 2010

See all articles by Suzi Kerr

Suzi Kerr

Motu Economic and Public Policy Research Trust

Wei Zhang

Motu Economic and Public Policy Research Trust

Date Written: December 1, 2009

Abstract

When agricultural emissions are included in the New Zealand Emission Trading System (ETS) the economics of farming will be significantly altered. Under the legislation current in October 2009, in the early years of the system the agricultural sector as a whole would have received NZ units equivalent to 90% of 2005 emissions to ease the transition. Amendments to the Bill passed in November have delayed the start date from 2013 to 2015 and extended the protection even further. This paper addresses one of the key issues for making an agricultural emissions trading system a success: how to use the allocation of NZ units to achieve equitable and acceptable cost sharing and a smoother transition. We first discuss the potential motivations for free allocation and the two extreme potential allocation options that could be associated with the two key motivations. The option finally chosen is likely to be somewhere between these two extremes. Empirical studies can inform assessment of options. Previous empirical studies have addressed a variety of questions, including what the economic impact of the system is and on whom, how much leakage is there likely to be, and what might be the adjustment costs. We discuss each of these, comparing different existing studies and addressing some current gaps in our understanding and knowledge with new empirical work on farm level impacts and on likely responses to the ETS. We conclude by laying out some key options for allocation design and drawing links between these and the empirical material.

Keywords: New Zealand, emission trading, agriculture, free allocation, trade exposure

JEL Classification: Q12, Q52, Q54, Q58

Suggested Citation

Kerr, Suzi and Zhang, Wei, Allocation of New Zealand Units Within Agriculture in the New Zealand Emissions Trading System (December 1, 2009). Motu Economic and Public Policy Research Working Paper No. 09-16. Available at SSRN: https://ssrn.com/abstract=1604248 or http://dx.doi.org/10.2139/ssrn.1604248

Suzi Kerr (Contact Author)

Motu Economic and Public Policy Research Trust ( email )

Level 1, 93 Cuba Street
P.O. Box 24390
Wellington, 6142
New Zealand
+64 4 383 4250 (Phone)
+64 4 383 4270 (Fax)

Wei Zhang

Motu Economic and Public Policy Research Trust ( email )

Level 1, 93 Cuba Street
P.O. Box 24390
Wellington, 6142
New Zealand

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