Economic and land use impacts of net zero-emission target in New Zealand

Abstract

ABSTRACT In this study, we examine the economic impacts of net zero-emission target in New Zealand, applying an integrated forest-computable general equilibrium model. The model is set to simulate equilibrium carbon permit price and sectoral output levels given the emission trading market, which is also endogenously determined within the model. When the agricultural sector is subject to a legally binding target, an equilibrium carbon permit price is estimated to be NZ$85/tCO2e (US$60/tCO2e) and this results in a 1.4% loss of gross domestic product from the baseline level and a 22% reduction of greenhouse gas emissions. Exclusion of the agricultural sector, however, would reduce the permit price to NZ$68/tCO2e (US$48/tCO2e) and lead to a 1.2% loss of gross domestic product and a 5% emissions reduction. This result suggests that the inclusion of the agriculture sector in the emissions trading scheme requires costs for policy compliance but can be cost-effective. It drives up compliance costs by 17%, but leads to 4.4 times the absolute emissions reduction expected when the agriculture sector is excluded.