Responding to Climate Change: A Carbon Tax or an Emissions Trading Scheme? A New Zealand Perspective A thesis submitted in partial fulfilment of the requirements for the Degree of Master of Commerce in Accounting and Information Systems in the University of Canterbury by Sally Sung University of Canterbury 2011 Table of Contents List of Figures ......................................................................................................................... v List of Tables ......................................................................................................................... vi Abbreviations........................................................................................................................ vii Acknowledgements ................................................................................................................. x Executive Summary ............................................................................................................... xi Chapter 1: Introduction 1.1. Overview of Thesis ......................................................................................................... 2 1.2. Research Objectives and the Development of the Research Question ............................... 7 1.3. Importance of Research ................................................................................................... 8 1.4. Structure of Thesis........................................................................................................... 9 Chapter 2: Literature Review 2.0. History of New Zealand‘s Climate Change Policies 2.1. Overview ....................................................................................................................... 11 2.2. Carbon Tax.................................................................................................................... 13 2.2.1. Responses to the Proposed Implementation of a Carbon Tax .............................. 15 2.2.2. Public Submissions on the Proposed Implementation of the Carbon Tax ............ 16 2.2.3. International Responses on the Carbon Tax Regime ........................................... 17 2.2.3.1. Australia .............................................................................................. 18 2.2.3.2. Canada ................................................................................................. 18 2.2.3.3. Europe ................................................................................................. 19 2.2.3.4. The United States ................................................................................. 20 2.2.4. Opinions on the Imposition of a Carbon Tax ...................................................... 21 2.3. Emissions Trading Scheme ............................................................................................ 23 2.3.1. Emission Unit Types and Prices ......................................................................... 23 2.3.2. Types of Emissions Trading Scheme Designs .................................................... 25 2.3.3. New Zealand Emissions Trading Scheme (NZ ETS) .......................................... 26 2.3.3.1. Status Quo and the Problem ................................................................. 28 2.3.3.2. Effects on Households and Firms ......................................................... 33 2.3.3.3. Submissions on the Initial and Revised NZ ETSs ................................. 37 2.3.3.4. Sectoral Responses – Policies and Measures of the NZ ETS ................ 39 2.4. Response from the NZ Government on Climate Change ................................................ 43 2.4.1. Political Perspectives on Climate Change Policies .............................................. 45 2.4.2. Other Substantive Political Criticisms ................................................................ 53 2.5. Australian Emissions Trading Scheme ........................................................................... 57 2.5.1. Current State of the Australian ETS ................................................................... 57 2.5.2. Australian Submissions on the ‗Carbon Pollution Reduction Scheme‘……… .... 59 2.5.3. Australian Debate on Climate Change Policies ................................................... 60 2.5.4. Alignment of the NZ ETS and the Australian CPRS ........................................... 65 2.6. European Union Emission Trading System (EU ETS) ................................................... 68 2.6.1. Current State of the Australian ETS ................................................................... 71 2.6.2. Commentary on the EU ETS .............................................................................. 71 2.7. United Nations Climate Change Conference (The Copenhagen Summit) ....................... 72 2.8. Carbon Tax versus ETS ................................................................................................. 75 ii Chapter 3: Research Approach and Methods 3.0. Research Approach........................................................................................................ 81 3.1. Overview ....................................................................................................................... 81 3.2. Research Designs .......................................................................................................... 82 3.3. Research Methods ......................................................................................................... 85 3.3.1. Analysing Political Literature ............................................................................. 87 3.3.2. Quantitative Method .......................................................................................... 88 3.3.2.1. Overview ............................................................................................. 88 3.3.2.2. Secondary Analysis .............................................................................. 89 3.3.3. Qualitative Analysis ........................................................................................... 92 3.3.3.1. Overview ............................................................................................. 92 3.3.3.2. Survey Research Method – Semi-structured Interviews ........................ 93 Chapter 4: Quantitative Data Analysis 4.1. Overview ....................................................................................................................... 99 4.2. Estimates and Projections from WOGOCOP ............................................................... 105 4.3. Historical Emissions (1990 – 2008) ............................................................................. 107 4.3.1. Overview ......................................................................................................... 107 4.3.2. Projected Business-As-Usual Emissions Level ................................................. 112 4.4. Current Estimates for CP1 ........................................................................................... 112 4.4.1. Projected Emissions without any Policy Implementation .................................. 112 4.4.1.1. Overview ........................................................................................... 112 4.4.1.2. Projected Emissions by Sectors .......................................................... 114 4.4.2. Projected Emissions with the Imposition of a Carbon Tax ................................ 119 4.4.3. Projected Emissions with the Implementation of an ETS .................................. 121 4.4.3.1. Overview ........................................................................................... 121 4.4.3.2. Emissions Post ETS implementation .................................................. 122 4.5. Emissions Beyond 2012 .............................................................................................. 133 4.6. Discussion of Statistical Results .................................................................................. 135 4.6.1. Comparison of Statistics between ‗2008 Labour‘s NZ ETS‘ and ‗2009 National‘s Modified-ETS‘ ................................................................................ 142 4.6.2. Comparison with WOGOCOP ......................................................................... 145 4.7. Chapter Summary ........................................................................................................ 146 Chapter 5: Qualitative Analysis – Interviews 5.1. Overview ..................................................................................................................... 151 5.2. Perspectives on Climate Change Policies .................................................................... 151 5.3. Is an NZ ETS More Like a Tax Voucher Rather Than a Trading System? ................... 158 5.4. Behavioural-Effectiveness of ETS/Carbon Tax ............................................................ 160 5.5. Was There a Need to Modify the ETS? ........................................................................ 169 5.6. Future Implications – Where to from Here? ................................................................. 173 5.7. ‗Extended‘ Discussion ................................................................................................. 176 5.7.1. Export Costs .................................................................................................... 176 5.7.2. Why a Carbon Tax in 2002? ............................................................................