09 August 2010

The NZ ETS has no cap. Its not a 'Cap and Trade' scheme.

Why is the NZ ETS the World's Worst Emissions Trading Scheme?

The number one reason is because the NZ ETS lacks the most crucial feature of a 'cap-and-trade' emissions trading scheme, a fixed cap or limit on emissions.

Here are some definitions of cap and trade emissions trading schemes taken largely from peer-reviewed journals.

“A cap-and-trade system constrains the aggregate emissions of regulated sources by creating a limited number of tradable emission allowances, which emission sources must secure and surrender in number equal to their emissions.”

Judson Jaffe, Matthew Ranson and Robert N. Stavins (2009) 'Linking Tradable Permit Systems: A Key Element of Emerging International Climate Policy Architecture', Ecology Law Quarterly 36:789

“In an emissions trading or cap-and-trade scheme, a limit on access to a resource (the cap) is defined and then allocated among users in the form of permits. Compliance is established by comparing actual emissions with permits surrendered including any permits traded within the cap.”

Tietenberg Tom (2003) 'The Tradable-Permits Approach to Protecting the Commons: Lessons for Climate Change', Oxford Review of Economic Policy 19:3, pages 400-419.

“Under a tradable permit system, an allowable overall level of pollution is established and allocated among firms in the form of permits. Firms that keep their emission levels below their allotted level may sell their surplus permits to other firms or use them to offset excess emissions in other parts of their facilities.”

Stavins, Robert N. (November 2001) 'Experience with Market-Based Environmental Policy Instruments', Discussion Paper 01-58, Resources for the Future, Washington, D.C. p 4

These definitions all include a cap on emissions. The cap is perhaps the single most important element of a cap and trade scheme.

Neither the 2009 National Government version of the NZ ETS, or the 2008 Labour version puts a cap on emissions within New Zealand.

In 2007, the Ministry for the Environment's report Framework for a New Zealand Emissions Trading Scheme stated; "Domestic emissions that exceed New Zealand’s allocation under the Kyoto Protocol (including units issued for removals by forest carbon sinks) must be matched by emission units purchased internationally from within the Kyoto cap on emissions."

In 2008, the Ministry for the Environment Fact Sheet 16 stated;There is no cap on the emissions that occur within New Zealand'

In other words, although the Labour NZ ETS had a fixed limit on the number of NZ Units that were to be issued, there would no limit on the number of 'Kyoto' units that emitters could buy on the international market and use in NZ.

The National NZ ETS has no cap either on international 'Kyoto' units that may be imported into NZ or on the volume of NZ Units that will be gifted to emitters.

Ministry for the Environment Emissions trading Bulletin No 12, INFO 441 (September 2009) states "The Bill (the Climate Change Response (Moderated Emissions Trading) Amendment Act 2009) changes the allocation provisions of the existing (Climate Change Response Act 2002) from allocating a fixed pool of emissions to an uncapped approach to allocation. There is no longer an explicit limit on the number of New Zealand units (NZUs) that can be allocated to the industrial sector"


The NZ ETS has no Cap. It is not a cap and trade scheme. It will not reduce NZ's emissions of greenhouse gases.

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