Emissions Trading and Climate Change Mitigation

Dr Suzi Kerr collaborates with researchers, business and government to build environmental markets that work

Dr Suzi Kerr is recognised as one of the world’s leading environmental economists. She is widely respected within New Zealand as well as internationally for her work on emissions trading systems (ETS) and climate change policy. She significantly influenced the design of the ETS in New Zealand, and has contributed to design of the Kyoto Protocol and thinking on climate policy in the United States, Europe, Costa Rica, Chile and Colombia as well as in China and Korea.

The hallmark of Dr Kerr’s work is her rigorous use of economic theory and econometric methods, combined with sensitive and deep understanding of political and social frameworks in which environmental policy operates. This has led to multiple instances where her analysis has helped formulate policies to ensure that social and environmental objectives are met in cost-effective ways. During her PhD at Harvard, Suzi completed the world’s first econometric assessment of environmental markets (for lead in gasoline), and examined bilateral and trading mechanisms to enhance global cooperation around ozone depletion. The rest of Suzi’s career has continued this work, using economic concepts and theories to address significant global commons problems through domestic policy instruments. A key focus in her work is climate change and, in particular, managing greenhouse gas emissions.

Managing greenhouse gas emissions

Suzi was first involved in New Zealand’s interagency collaboration on domestic climate change policy in 1995 during the lead up to the Kyoto Protocol. Her contribution focused on the potential design of emissions pricing instruments, taxes and emissions trading.

Emissions trading can be a powerful tool for helping to reduce greenhouse gas emissions. An ETS transforms a regulatory limit on emissions into an emissions price set by the marketplace, making lower-emission alternatives more attractive and feasible for producers, consumers and investors.

Post PhD she worked in the US and later New Zealand on the design of climate policy with a focus on emissions trading. Key to this research was analysis of the Kyoto flexibility mechanisms and the use of international dialogue between scientists, academics, industry and government to evolve thinking on them. She also explored how an ETS could play out in land sectors, forestry and agriculture. The work was one key driver of the inclusion of forestry in New Zealand’s ETS.

Suzi collaborates with natural scientists and other experts to create trading systems that work. She has run five policy “dialogue” processes bringing together industry, academia and government experts to work through complex issues. Her first experience running such a dialogue occurred in April 2007, when the New Zealand Government established an Emissions Trading Group to design an ETS.

Suzi created a dialogue group for industry and consultants resulting in a series of papers for industry and the media that addressed practical implementation of an ETS. Suzi was also appointed as a science expert on the Climate Change Leadership Forum and Maori Reference Group, where she ran a subgroup charged with working through allocation and leakage issues. This group made a big contribution to the understanding of trade exposed, leakage prone industries, with particular impact on stationary energy and industrial processes. It also helped interpret general equilibrium modelling results so they could inform all participants rather than being used in an adversarial manner. It also ensured that allocation issues, which are always contentious, were solved in acceptable and efficient ways that limited free allocation to situations of strong concern. This made the NZ ETS the first in the world to use output-based allocation. This contentious issue has not really raised its head in NZ since, in contrast to ongoing debate in many other markets.

Suzi also supported the Agricultural Technical Advisory Group. Unfortunately, the administrative and political challenges of bringing agriculture into an ETS in a primary industry-based economy are extremely complex. The advisory group wound up agreeing that agriculture should be included in the future, but without recommending specific mechanisms.

The NZ ETS passed through legislation in September 2008 and worked well through mid-2011. The core of the system is sound and it avoided many traps that have emerged in other ETS markets. Nevertheless, the global financial crisis, and broad disengagement with climate change issues has meant that ETS markets collapsed globally from mid-2011. It was clear that something was wrong with carbon markets worldwide, but interest in climate change policy and New Zealand funding for ETS research also collapsed so Suzi has redirected her attention internationally, and toward climate-related environmental issues.

From 2010 through 2013, Suzi worked mostly on land use, deforestation and water quality, focusing on issues where climate mitigation is a co-benefit. While a Visiting Professor at Stanford she showed how a different approach to providing finance to avoid deforestation could be more effective than use of then popular ‘offsets’. She also began to work in Colombia, engaging in workshops with industry, government and academics in order to build capability to design an ETS for Colombia, an engagement that has continued to grow. In 2011 she led a team that created a roadmap towards an ETS for the Chilean government and World Bank.

In 2014, there was a groundswell of public and political re-engagement with climate change. Political and business leaders joined with scientists and environmentalists around the world in collaborations that led to a shift in the thinking around international agreements. As part of this resurgence in climate mitigation awareness, Suzi and her team at Motu received funding from the Aotearoa Foundation for a new programme to work on New Zealand climate change policy. The aim is to make, once again, the NZ ETS effective. Concurrent with this low emission future programme, Suzi co-led an international ETS consortium for the World Bank. The resulting publication, produced in 2016, is the first-ever handbook designed to help any country in the world design an emissions trading system to suit their locally specific needs. It is already in use by decision makers, policy practitioners, and stakeholders in many countries. The Handbook is a key resource for the World Bank, which supports the development of ETS and other market mechanisms in more than 20 of the largest emerging economies (incl. China).

About Suzi Kerr

Dr Kerr is currently a Senior Fellow at Motu Economic and Public Policy Research, Adjunct Professor at Victoria University, and Principal Investigator for Te Pūnaha Matatini Centre of Research Excellence. She received her PhD in Economics from Harvard University in 1995. She spent 1995-1998 at the University of Maryland, and then returned to New Zealand, where she founded Motu and served as Director until 2009. She has participated in Scientific Steering Committees for the International Geosphere/Biosphere Programme and science leadership groups in New Zealand, and was a member of the European Commission’s ‘High-level network of leading economists’.

The calibre of Dr Kerr’s work is demonstrated by the fact that Motu is ranked 14th in the world among climate change think tanks, even though she is the only one of Motu’s Senior Fellows working in this area. Dr Kerr’s papers have received approximately 1600 cumulative citations and she has held visiting positions at Resources for the Future, the Joint Center for the Science and Policy of Global Change at MIT, Stanford University and the University of the Andes in Bogotá, Colombia.

Find out more about Suzi's work and research affiliations:

Motu Economics and Public Policy Research

Te Pūnaha Matatini Centre of Research Excellence

Read more about the Fellows of the Economics & Science Group

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