Emissions Trading Schemes and Carbon Taxes: Reinvestigating the Policy Tools New Zealand uses to Address Climate Change

Abstract

In 2016 there is scientific consensus that the climate is changing and humans are responsible. If significant action to reduce global greenhouse gas emissions does not occur, the consequences of climate change may be catastrophic. This paper analyses the use of market based policy tools to reduce greenhouse gas emissions in New Zealand. In particular, it considers whether the New Zealand Emissions Trading Scheme should be replaced with a carbon tax. This is done by weighing the difficulties involved in implementing a carbon tax against the benefits that it could bring. Key difficulties discussed include the treatment of stockpiled emissions credits that exist within the New Emissions Trading Scheme and the changing treatment of agriculture and forestry. Potential benefits of a carbon tax include reduced administrative and transactional costs, revenue generation and insulation from vested interests. This paper concludes that the difficulties involved in implementing a carbon tax as New Zealand’s main response to climate change are exceeded by the benefits.