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

Author

Listed:
  • Suzi Kerr

    () (Motu Economic and Public Policy Research)

  • Wei Zhang

    () (Motu Economic and Public Policy Research)

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.

Suggested Citation

  • Suzi Kerr & Wei Zhang, 2009. "Allocation of New Zealand Units within Agriculture in the New Zealand Emissions Trading System," Working Papers 09_16, Motu Economic and Public Policy Research.
  • Handle: RePEc:mtu:wpaper:09_16
    as

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    File URL: http://motu-www.motu.org.nz/wpapers/09_16.pdf
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    Cited by:

    1. Robert W. Hahn & Robert N. Stavins, 2011. "The Effect of Allowance Allocations on Cap-and-Trade System Performance," Journal of Law and Economics, University of Chicago Press, vol. 54(S4), pages 267-294.
    2. Daigneault, Adam J. & Greenhalgh, Suzie & Samarasinghe, Oshadhi, 2011. "Estimated Impacts of New Zealand Agriculture Climate Policy: A Tale of Two Catchments," 2011 Conference, August 25-26, 2011, Nelson, New Zealand 115352, New Zealand Agricultural and Resource Economics Society.
    3. Allan, Corey & Kerr, Suzi, 2013. "Examining Patterns in and Drivers of Rural Land Values," 2013 Conference, August 28-30, 2013, Christchurch, New Zealand 160191, New Zealand Agricultural and Resource Economics Society.
    4. McDonald, Hugh J. & Kerr, Suzi, 2011. "Why do New Zealanders Care about Agricultural Emissions?," 2011 Conference, August 25-26, 2011, Nelson, New Zealand 115507, New Zealand Agricultural and Resource Economics Society.

    More about this item

    Keywords

    New Zealand; emission trading; agriculture; free allocation; trade exposure;

    JEL classification:

    • Q12 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Micro Analysis of Farm Firms, Farm Households, and Farm Input Markets
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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