Climate explained: how emissions trading schemes work and they can help us shift to a zero carbon future



Putting a price on greenhouse gas emissions forces us to face at least some of the environmental cost of what we produce and consume.
from http://www.shutterstock.com, CC BY-ND

Catherine Leining, Motu Economic and Public Policy Research


CC BY-ND

Climate Explained is a collaboration between The Conversation, Stuff and the New Zealand Science Media Centre to answer your questions about climate change.

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Would you please explain how the New Zealand Emissions Trading Scheme (ETS) works in simple terms? Who pays and where does the money go?

Every tonne of emissions causes damages and a cost to society. In traditional market transactions, these costs are ignored. Putting a price on emissions forces us to face at least some of the cost of the emissions associated with what we produce and consume, and it influences us to choose lower-emission options.

An emissions trading scheme (ETS) is a tool that puts a quantity limit and a price on emissions. Its “currency” is emission units issued by the government. Each unit is like a voucher that allows the holder to emit one tonne of greenhouse gases.

The New Zealand Emissions Trading Scheme (NZ ETS) is the government’s main tool to meet our target under the Paris Agreement. In a typical ETS, the government caps the number of units in line with its emissions target and the trading market sets the corresponding emission price.

In New Zealand, the price for a tonne of greenhouse gases is currently slightly below NZ$25, which is not in line with our target. We are still waiting for the government to set a cap on the NZ ETS, which is (hopefully) coming.




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In the past, we had no limit on the number of emission units in the system, which is why emission prices stayed low, our domestic emissions continued to rise, and the system accumulated a substantial number of banked units.

How an ETS works and who pays

The government decides which entities (typically companies) in each sector (e.g. fossil fuel producers and importers, industrial producers, foresters, and landfill operators) will be liable for their emissions. In some cases (e.g. fossil fuel producers and importers), liable entities are not the actual emitters but they are responsible for the emissions generated when others use their products.

There is a trading market where entities can buy units to cover their emissions liability and sell units they don’t need. The trading price depends on market expectations for supply versus demand. Steeper targets mean lower supply and higher emissions mean higher demand; both mean higher emission prices and more behaviour change.

Each liable entity is required to report emissions and surrender to the government enough units to cover the amount of greenhouse gases they release. The companies that have to surrender units pass on the associated cost to their customers, like any other production cost. In this way, the emission price signal flows across the economy embedded in the cost of goods and services, influencing everyone to make more climate-friendly choices.


Supplied by author, CC BY-ND

There are several ways for entities to get units.

First, some get free allocation from the government. Currently, these free allocations are granted to trade-exposed industrial producers (for products such as steel, aluminium, methanol, cement and fertiliser) as a way of preventing the production and associated emissions from shifting to other countries without reducing global emissions. Producers who emit beyond their free allocation need to buy more units, whereas those who improve their processes and emit less can sell or bank their excess units.

Second, entities can earn units by establishing new forests or through industrial activities that remove emissions. By stripping emissions from the atmosphere, such removal activities make it possible to add units to the cap without increasing net emissions. The government publishes information on ETS emissions and removals every year.

Third, entities can buy units from the government through auctioning. In this case, market demand still sets the price. The NZ ETS does not yet have auctioning, but again this is (hopefully) coming. The government currently does allow emitters to buy uncapped fixed-price units at NZ$25.

In the past, entities had a fourth option – buying offshore units – but this stopped in mid-2015. This option is not currently available under the Paris Agreement. If that changes in the future, quantity and quality limits will be needed on offshore units.




Read more:
New Zealand poised to introduce clean car standards and incentives to cut emissions


Where the money goes

The entities that surrender units to the government directly face the price of emissions – either because they had to buy units from other entities or the government, or because they lost the opportunity to sell freely allocated units.

When the government sells units – through auctioning or the fixed-price mechanism – it earns revenue. In 2018, the New Zealand government sold 16.82 million fixed-price units and received NZ$420 million in revenue. When selling fixed-price units that allow the market to emit more, the government has to compensate through more action to reduce domestic emissions (like reducing fossil fuel use or planting more trees) or purchasing emission reductions from other countries – and these actions have a cost.

When ETS auctioning is introduced (potentially in late 2020), the government will receive more significant revenue. It has signalled that any revenue from pricing agricultural emissions (methane and nitrous oxide) will be returned to the sector to help with a transition to lower emissions.

What will happen with NZ ETS auction revenue from other sectors is an open policy question. So are the questions of how large the NZ ETS cap, and how high the emission price, should be. This will be determined under the Zero Carbon Bill and future amendments and regulations to the ETS.

This article was prepared in collaboration with Bronwyn Bruce-Brand and Ceridwyn Roberts at Motu Economic and Public Policy Research.The Conversation

Catherine Leining, Policy Fellow, Climate Change, Motu Economic and Public Policy Research

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Poor Filipino fishermen are making millions protecting whale sharks



Whale sharks at Oslob are now part of a new ecotourism industry.
Wayne Jones, Author provided

Judi Lowe, Southern Cross University

A group of the world’s poorest fishermen are protecting endangered whale sharks from being finned alive at Oslob in the Philippines.

The fishermen have stopped fishing and turned to tourism, feeding whale sharks tiny amounts of krill to draw them closer to shore so tourists can snorkel or dive with them.

Oslob is the most reliable place in the world to swim with the massive fish. In calm waters, they come within 200m of the shore, and hundreds of thousands of tourists flock to see them. Former fishermen have gone from earning just a US$1.40 a day on average, to US$62 a day.




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Our research involved investigating what effect the whale shark tourism has had on livelihoods and destructive fishing in the area. We found that Oslob is one of the world’s most surprising and successful alternative livelihood and conservation projects.

A drone shot of whale shark tourism, about 100 metres from shore. The small boats with one person are feeders. The longer boats are for the tourists swimming with face masks to see the whale sharks.
Luigi Borromeo

Destructive fishing

Illegal and destructive fishing, involving dynamite, cyanide, fish traps and drift gill nets, threatens endangered species and coral reefs throughout the Philippines.

Much of the rapidly growing population depend on fish as a key source of protein, and selling fish is an important part of many people’s income. As well as boats fishing illegally close to shore at night, fishermen use compressors and spears to dive for stingray, parrotfish and octopus. Even the smallest fish and crabs are taken. Catch is sold to tourist restaurants.

Despite legislation to protect whale sharks, they are still poached and finned alive, and caught as bycatch in trawl fisheries. “We have laws to protect whale sharks but they are still killed and slaughtered,” said the mayor of Oslob.

“Finning” is a particularly cruel practice: sharks’ fins are cut off and the shark is thrown back into the ocean, often alive, to die of suffocation. Fins are sold illegally to Taiwan for distribution in Southeast Asia. Big fins are highly prized for display outside shops and restaurants that sell shark fin products.

Whale sharks come close to the coast to feed on krill.
Andre Snoopy Montenegro, Author provided

To protect the whale sharks on which people’s new tourism-based livelihoods depend, Oslob pays for sea patrols by volunteer sea wardens Bantay Dagat. Funding is also provided to manage five marine reserves and enforce fishery laws to stop destructive fishing along the 42km coastline. Villagers patrol the shore. “The enforcement of laws is very strict now,” said fisherman Bobong Lagaiho.

Destructive fishing has declined. Fish stocks and catch have increased and species such as mackerel are being caught for the first time in Tan-awan, the marine reserve where the whale sharks congregate.

The decline in destructive fishing, which in the Philippines can involve dynamite and cyanide, has also meant there are more non-endangered fish species for other fishers to catch.

Strong profits means strong conservation

The project in Oslob was designed by fishermen to provide an alternative to fishing at a time when they couldn’t catch enough to feed their families three meals a day, educate their children, or build houses strong enough to withstand typhoons.

“Now, our daughters go to school and we have concrete houses, so if there’s a typhoon we are no longer afraid. We are happy. We can treat our children to good food, unlike before,” said Carissa Jumaud, a fisherman’s wife.

Creating new forms of income is an essential part of reducing destructive fishing and overfishing in less developed countries. Conservation donors have invested hundreds of millions of dollars in various projects, however research has found they rarely work once funding and technical expertise are withdrawn and can even have negative effects. In one example, micro-loans to fishermen in Indonesia, designed to finance new businesses, were used instead to buy more fishing equipment.

Former fisherman Jesson Jumaud with his daughter Kheny May, who now goes to school. The profits of whale shark tourism mean they now have a brick house, and Jesson was able to buy a motor bike. He can feed their family three times a day with good food.
Judi Lowe, Author provided

In contrast, Oslob earned US$18.4 million from ticket sales between 2012 and 2016, with 751,046 visitors. Fishermen went from earning around US$512 a year to, on average, US$22,699 each.

Now, they only fish in their spare time. These incredible results are the driving force behind protecting whale sharks and coral reefs. “Once you protect our whale sharks, it follows that we an have obligation to protect our coral reefs because whale sharks are dependant on them,” said the mayor.

Feeding whale sharks is controversial, and some western environmentalists have lobbied to shut Oslob down. However, a recent review of various studies on Oslob found there is little robust evidence that feeding small amount of krill harms the whale sharks or significantly changes their behaviour.




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Are sharks being attacked by killer whales off Cape Town’s coast?


Oslob is that rare thing that conservation donors strive to achieve – a sustainable livelihoods project that actually changes the behaviour of fishermen. Their work now protects whale sharks, reduces reliance on fishing for income, reduces destructive fishing, and increases fish stocks – all while lifting fishermen and their families out of poverty. Oslob is a win-win for fishermen, whale sharks and coral reefs.The Conversation

Judi Lowe, PhD Candidate, Southern Cross University

This article is republished from The Conversation under a Creative Commons license. Read the original article.