Emissions Trading and the Economic Impact of the Paris Agreement on New Zealand

Resumen

A new international climate change agreement under the United Nations Framework Convention on Climate Change was concluded in Paris in December 2015. The Paris Agreement (PA) asserts that greenhouse gases (GHG) emission pathways should be consistent with holding the increase in global temperature below 1.5^°C or 2^°C above pre-industrial levels. New Zealand (NZ) has committed to reduce emissions to 30% below 2005 levels by 2030. The purpose of this paper is to estimate the economic costs from the PA terms when the mitigation potential relies on pricing/not pricing agricultural emissions and linking/not linking the NZ Emissions Tradable Scheme (NZ ETS) to other markets of emissions permits in Australia, the European Union and the United States. Through a general equilibrium model we find that NZ is capable of meeting the PA terms; however, GDP decreases by 7% below the baseline by 2030 because of the stringency of the targets. Although pricing agriculture and linking the NZ ETS to other emissions markets mitigates losses, linking to the European Union ETS may not be desirable because of significant losses on competitiveness. Results also show that linking to Australia or the US emissions markets mitigates compliance costs because of lower prices on emissions permits.