Putting a price on our emissions

Two main methods of controlling greenhouse gas emissions from human activities, using price signals, are being debated in New Zealand; carbon "fee and dividend" or "cap-and-trade" using an emissions trading scheme (ETS).

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The Wise Response Society believes New Zealand should offset emissions domestically, rather than with units traded internationally, for several reasons.

Firstly, international markets, even if legitimate, are likely to be quickly oversubscribed, driving emissions prices skyward.

Secondly, the mechanisms for the two methods differ in how they perform. Under a carbon fee, the price of emitting a unit of pollution is set, but the total quantity of emissions is not. So a fee ensures everyone knows the price (at least for the immediate future) for each unit of emissions, but the quantity of emissions is uncertain and must be monitored.

Conversely, a cap-and-trade ETS scheme provides certainty about the quantity of emissions because it cannot exceed the cap, but uncertainty remains about the cost of achieving these reductions. With a domestic fee and dividend approach, important but vulnerable industries can be protected with differentiated fees and the dividend can be redistributed to citizens equally so low emitters benefit more, building a negative feedback loop within the country.

Third, the ETS is essentially an application of the free market neo-liberal approach to economics, which has been dominant for the past three decades, but a growing consensus is highlighting its limitations and failures, particularly regarding environmental protection.

Finally, Wise Response believes we are at increasing risk of crossing a critical threshold, setting in motion positive feedback loops that would make it very difficult to constrain climate change. That makes reductions of emissions from human activities urgent, and an international trading scheme would take more time to effect behaviour change than an autonomous domestic fee.

Bigger emissions cuts, sooner, is also the most precautionary, because should the effects of climate change prove more onerous than anticipated, the country would be in a better position to further adapt.