Association Webinars: The Role of Fundamentals and Policy in New Zealand's Carbon Prices



The New Zealand Emission Trading Scheme (NZ ETS) is the second oldest national ETS in the world and 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 a switch from allowing unlimited importation of units to becoming completely autarkic. In this context, we analyse NZU pricing dynamics driven by the interaction between allowances supply and demand during the period of July 1st, 2010 to December 31st, 2019 and for two sets of subperiods divided by the official and actual de-link dates. Having controlled structural break effects associated with two policy events in our models, we identified a significant relationship between the supply drivers and NZU price returns over different horizons. Namely, our empirical models find that international offset negatively affected NZU returns before the actual de-link date, domestic supply after the official de-link date, and banked units between the official and actual de-link dates, and that green offsets, surprisingly, positively affected NZU returns before the actual de-link date. Our results also highlight that from a demand perspective, sectoral effects had significant relationships with NZU returns with different dynamics. Namely, manufacturing and construction activities shifted to negatively affect NZU returns after the official de-link date, implying that fixed allocative baselines have resulted in over-allocation over time. Stationary energy sector activities shifted from negatively to positively affecting NZU returns after the official de-link date probably due to their exploitation of unlimited international offset during the linking period.

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Ivan Diaz-Rainey is the Director, Climate and Energy Finance Group (CEFGroup) at the University of Otago, New Zealand. He is Associate Editor of the Journal of Financial Regulation and Compliance and Journal of Sustainable Finance & Investment, and has previously held academic positions at the University of East Anglia (Norwich, UK), the European University Institute (Florence, Italy), where he was a Jean Monnet Fellow, and the Higher Colleges of Technology (Abu Dhabi, UAE). He has conducted research, policy and consultancy work for a number of organisations, including the Ministry for the Environment (MfE), OECD, E.ON UK plc, the European Capital Markets Institute (ECMI) and the Asian Development Bank Institute (ADBI). His research expertise includes climate finance, carbon markets, energy finance, banking, financial regulation, and energy and environmental policy. He is Principal Investigator on a Marsden Fund project on climate-change risks to property values and the related implications for financial stability funded by Royal Society of New Zealand and undertaken in collaboration with GNS Science, Bodeker Scientific and the Reserve Bank of New Zealand (RBNZ). 

Ling Liao is currently a PhD candidate at the Climate and Energy Finance Group (CEFGroup), University of Otago, New Zealand. She recently completed a research M.Com in Finance at the University of Otago that explored the determinants of carbon prices in the New Zealand Emissions Trading Scheme. Her current research interests include asset pricing, carbon pricing, climate finance, carbon markets and energy finance. Prior to joining the University of Otago, she worked for utility, healthcare and financial services firms in the United States.

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Event Date: October 6, 2021

Event Time: 4:00 - 5:00 PM Eastern Time

Topic: The Role of Fundamentals and Policy in New Zealand's Carbon Prices

Speakers: Ivan Diaz-Rainey and Ling Liao

Price: FREE

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