Allocating Risks in a Domestic Greenhouse Gas Trading System

As tradeable permit programmes mature, two inter-related issues are becoming more critical in creating viable responses to a long-term, highly uncertain environmental problem such as climate change. First, we need to update policies in response to new information; and second, we need to design policies so that they can be updated without creating adverse strategic incentives for either government or regulated entities. Consideration of both exogenous risk (uncontrollable) and endogenous risk (concerns about policy credibility) suggests that permits should be auctioned several years in advance of use, and each permit should be defined as a percentage of a possibly varying target. For exogenous risks, this system allows all risk to be pooled and managed as efficiently as possible within the private sector. For endogenous risk, it creates a vested interest that will pressure government to maintain or strengthen targets to offset the obvious pressures to weaken regulation. It also reduces the ability of government to reallocate rents without cost to itself, or to gain revenue by altering targets. In addition, policy should be made as complete and as transparent as possible, and its key elements should be embedded in legislation to limit prospects for capricious changes in the future.

Efficient Contracts for Carbon Credits from Reforestation Projects

This paper tackles the complex issue of how buyers and sellers within a domestic carbon credit system designed to include regenerating indigenous forest would optimally design contracts for trades of the new good, "carbon sink credits". The paper begins by briefly defining the constraints that sink projects must meet. This implicitly shows the freedom we have in designing contracts. In the context of a simple numerical example I discuss the constraints that the market puts on contracts. In particular I consider the interests of the buyers and sellers, and how they can maximise and share gains through contract design. I outline the sources of risk and discuss who has advantages in dealing with these risks. The best contract designs impose the risk on those most able to address or absorb it. I illustrate the potential gains from sink contracts with a range of conditions and contracts.

EFFICIENT CONTRACTS FOR CARBON CREDITS FROM REFORESTATION PROJECTS

This paper tackles the complex issue of how buyers and sellers within a domestic carbon credit system designed to include regenerating indigenous forest would optimally design contracts for trades of the new good, “carbon sink credits”. The paper begins by briefly defining the constraints that sink projects must meet. This implicitly shows the freedom we have in designing contracts. In the context of a simple numerical example I discuss the constraints that the market puts on contracts. In particular I consider the interests of the buyers and sellers, and how they can maximise and share gains through contract design. I outline the sources of risk and discuss who has advantages in dealing with these risks. The best contract designs impose the risk on those most able to address or absorb it. I illustrate the potential gains from sink contracts with a range of conditions and contracts.climate, contracts, carbon credits, reforestation, projects

Indigenous Forests and Forest Sink Policy in New Zealand

This paper tackles the complex issue of how to include regenerating indigenous forest in a domestic carbon credit system. The paper specifically addresses New Zealand conditions but most of the issues and conclusions are relevant in any developed country with indigenous regrowth. The paper begins by defining the constraints that any sink policy must meet. I begin by discussing environmental integrity, and in particular measurement and monitoring, “human-induced” change, and permanence. I then outline the international rules as they stand and how these could be translated into domestic rules.forest, climate, emissions trading, Mâori, Kyoto

Economic Geography and Spatial Statistics: Theory and Empirics of New Zealand Regions

This paper sets the stage for current Treasury research on New Zealand regional socio-economic issues by: - Outlining a basic theoretical framework; - Introducing a regional database and Geographic Information Systems, a new empirical tool for data analysis; and - Illustrating the potential of this data and tools for analysing policy relevant issues by testing some empirical hypotheses derived from the theoretical framework.

Why do New Zealanders Care about Agricultural Emissions?

The question of how to effectively address agricultural greenhouse gas emissions is of critical importance for New Zealand and the world. Ensuring that our responses are effective requires us to first consider what we aim to achieve: why do we care about agricultural emissions? This paper responds to this fundamental inquiry, and argues that New Zealanders‟ diverse individual motivations can be grouped under three headings: one, concern about the direct impacts of climate change on New Zealand and the world; two, pressure from others based on their concern about climate change; three, complementary goals. This framework is useful in setting out how our underlying motivations should shape our responses, and highlights the importance of choosing responses that will be robust to future uncertainties.Environmental Economics and Policy, Land Economics/Use,

How Does Changing Land Cover and Land Use in New Zealand relate to Land Use Capability and Slope?

Land cover and use are critical for climate change, water quality and use, biodiversity and soil conservation as well as important drivers of rural economic activity and the evolution of rural communities. The Land Use in Rural New Zealand (LURNZ) model is a simulation model that predicts overall shifts in land use at a national scale and then allocates those changes spatially. We create a new dataset that allows us to consider fine scale land cover and use on private rural land and land characteristics associated with those land covers and uses. Second, we produce some summary statistics on the land cover transitions that were observed from 1996 to 2002. We find some evidence that supports our simple model of the relationship between land use changes and observable land quality, and the use of Land Use Capability and slope in rules to simulate the location of changes in land use and cover and also identify some directions for future work.Land use, climate change, water, soil, land use capability, LURNZ, New Zealand, spatial modelling

Nutrient Trading in Lake Rotorua: Overview of a Prototype System

Water quality in Lake Rotorua has been declining for at least the last 30 years as increased levels of nutrients have entered the lake. Despite significant effort and expenditure, the level of nutrients entering the lake still exceeds sustainable levels. A nutrient trading system would help the catchment achieve this goal at least cost. Nutrient sources would bear the cost of their impact on water quality and hence take these costs into account in their decision-making. This paper presents a prototype nutrient trading system for achieving cost effective nutrient loss reductions for the Lake Rotorua catchment.Water quality, nutrients, trading, Lake Rotorua