“Apparently the Government are looking at ditching the ETS beyond the first Kyoto commitment period if major trading partners aren’t in on it.”

It is convenient that it is incredibly likely there will be a scheme with our major trading partners in it then …

“In conjunction, many sectors are only facing half of the costs of carbon anyway (i.e. the other half are being met by wider society), which implies that allocative efficiency costs would be relatively less.”

Yes the scheme is suboptimal. That annoys me 😀

“Matt – if you didn’t think the scheme would last beyond 2012, and given the design of the scheme as outlined, are you still be certain that the allocative efficiency costs would outweigh the establishment and operation costs of the ETS?”

I would be confident enough to NOT CHANGE current policy – which is that the ETS is coming into effect in July. Changing the scheme again will also punish those who have made investment choices based on the timing of the scheme after all.

The burden of proof at this point is on those wanting to change, not those allowing the scheme to proceed as planned.

Apparently the Government are looking at ditching the ETS beyond the first Kyoto commitment period if major trading partners aren’t in on it.

Although the scheme has been ‘designed’, I can’t help but feel there are many ‘administrative’ features for which the costs are yet to be met.

In conjunction, many sectors are only facing half of the costs of carbon anyway (i.e. the other half are being met by wider society), which implies that allocative efficiency costs would be relatively less.

Matt – if you didn’t think the scheme would last beyond 2012, and given the design of the scheme as outlined, are you still be certain that the allocative efficiency costs would outweigh the establishment and operation costs of the ETS?

LOL

@David Farrar

Good questions for sure.

Goonix effectively raised the first one when thinking about a time limit up until 2012/1 – so in my opinion (which could easily be debated against) doing it up until then makes sense.

Doing it after Kyoto, if there is no argeement isn’t a good idea. Why? The purpose of the ETS is solely to set the relative price of carbon to the “social level” (and if set up effectively to ensure that any liability/profit incurred during the scheme is appropriately moved around). It is the external liability that makes this higher – if there is no liability there is no point. Even if we do believe in global warming, the effective solution has nothing to do with NZ directly, but through internation agreement – without that, NZ increasing the cost of emissions does nothing.

“Does the possibility we may have a Kyoto surplus affect the argument?”

It shouldn’t. Ultimately, the ETS is about setting the “relative price” at the right level. If we have a surplus, it is still in our interest to make everyone face the true cost of an individual carbon unit – as even in surplus territory 1 extra unit has the opportunity cost associated with 1 less unit of surplus to trade on international markets.

The main difference SHOULD be the level of the transfer. This is where the design of both the Labour and National ETS have fallen down.

I think Labour had it right on relative prices – but “transfered” a lot of revenue raised from the free allocation to the public when it should have gone to the businesses. National has tried to correct this injustice – but has done it by blunting the relative price signal instead of simply transfering the initial free allocation back.

My ETS would set the relative price of carbon at the appropriate level, and then send the free allocation from the Kyoto protocal to the relative industries.

I agree but two questions.

As our Kyoto liability ends in 2012, in an ETS the best response for beyond 2012 if a post-Kyoto agreement is unlikely?

Does the possibility we may have a Kyoto surplus affect the argument?

Fair enough – that is why I tried to answer it along those longs in the first para. Second para was an attempt to describe why I don’t believe it will end at 18 months 😀