The role of fundamentals and policy in New Zealand's carbon prices

• DOI: 10.1016/j.eneco.2023.106737
• Publication Date: 2023-05-18T01:46:29Z
• Authors: Ling Liao; Ivan Diaz-Rainey; Duminda Kuruppuar...; Sebastian Gehricke
• Keywords: Allocative efficiency

The New Zealand Emission Trading Scheme (NZ ETS) is unique in that it includes forestry as a carbon sink (a source of unit supply). Further, NZ ETS has been subject to many policy changes including switch from allowing unlimited importation units becoming completely autarkic. In this context, we analyse the pricing dynamics for Units (NZUs) driven by interaction between allowances supply and demand 2010 2019 two sets subperiods divided official actual de-link dates. Our empirical models find international offset negatively affected NZU returns before date, domestic after banked dates, green (mainly forestry) offsets, surprisingly, positively date. results also highlight perspective, sectoral effects had significant relationships with different dynamics. Namely, manufacturing construction activities shifted affect implying fixed allocative baselines have resulted over-allocation over time. Stationary energy sector affecting date probably due their exploitation during linking period.