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We've had the ETS for a while. Why is it not working? Video 3/7

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Published on Oct 18, 2017

Summary haiku: Prices were too low / No more. Price is rising, now / reductions begin.

Video 3/7 If emissions trading is supposed to reduce emissions, why hasn't that happened in New Zealand? Can the ETS be fixed? More info at http://motu.nz/our-work/environment-a...

Low ETS prices did not force companies nor consumers to change their behaviour, so emissions kept going up. The ETS price was very low and as long as the price for high-emission activities did not rise, firms did not need to reduce their emission levels. Furthermore, there was uncertainty about future emission limits and prices, so companies they did not change their investment patterns. New Zealanders did not experience any increase in costs for these high-emission activities and therefore did not change their consumption patterns either, so emissions kept going up. However, as emissions prices have increased in the last two years, firms are increasingly encouraged to reduce their emissions.

The ETS market functions well now, but participants need to know for certain that the future domestic supply of units will decline as New Zealand moves toward a low-emissions economy. This requires limiting both the number of units that are auctioned and freely allocated by the government, and the number of overseas units that can be used in the system (if that becomes possible in the future). The ETS is currently cut off completely from overseas units. New Zealand can’t keep outsourcing all of our emission reductions; under the Paris Agreement, all countries need to stop pumping emissions into the atmosphere.

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