The Emissions Trading Scheme FAQ

Research Note
30 March, 2021

The Emissions Trading Scheme (ETS) uses prices to lower emissions. The scheme launched in New Zealand in 2008 and it is now one of the best-designed schemes in the world.

But there are still a lot of misconceptions about how the ETS works.

In this paper, Senior Economist Matt Burgess answers some frequently asked questions with engaging and easy-to-understand content. The four main areas covered are:

  1. A defence of the Emissions Trading Scheme (ETS)
  2. An overview (and a simple example) of the ETS
  3. Evidence for the effectiveness of the ETS
  4. Objections to the ETS

Additional information

To further complement key points in the paper, Matt has also recorded short audio clips listed below. 

ETS FAQ #1: Explaining what 'consumer mistakes' mean (refer to pg. 4)

ETS FAQ #2: Explaining net vs. gross emissions, ETS targets, and the Paris Agreement (refer to pg. 4)

ETS FAQ #3: Who is in the Emissions Trading Scheme? (refer to pg. 4) 

ETS FAQ #4: How come you never see the ETS? (refer to pg. 5)

ETS FAQ #5: Scepticism about doing both policy and the ETS (refer to pg. 6)

ETS FAQ #6: Why customers usually decide how and where emissions fall (refer to pg. 7)

ETS FAQ #7: Changing behaviour to reduce emissions (refer to pg. 7)

ETS FAQ #8: The ETS doesn't know how and where emissions are cut (refer to pg. 10)

ETS FAQ #9: How to buy New Zealand Units (refer to pg. 12)

ETS FAQ #10: How forestry works within the ETS (refer to pg. 12)

ETS FAQ #11: How does NZ's ETS compare with overseas schemes? (refer to pg. 16)

ETS FAQ #12: Explaining the credibility of the ETS (refer to pg. 18)

ETS FAQ #13: Why the ETS will work if people continue to drive petrol and diesel vehicles (refer pg. 18)

ETS FAQ #14: Does policy have an advantage over the ETS? (refer to pg. 20)

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