Analysing the impacts of the net zero-emission policy on New Zealand’s carbon trading and land use

In this paper, we investigate the impact of net zero-emission policy on New Zealand’s macroeconomy, including carbon permit pricing and land use change under two scenarios. Both scenarios base on domestic forestry being the only source of permits and assume net zero emission. One scenario includes agriculture whereas another excludes this domestic largest emission contributor. We developed an integrated model, forest-CGE, to derive an equilibrium carbon permit price subject to an endogenous forest rotation age. Various mechanism of carbon permit allocation is also considered. Our results estimate an equilibrium carbon permit price of NZ$81 and NZ$74 per tonne carbon dioxide equivalent in each scenario respectively to meet the zero net emission target by 2050. Also, it shows that the New Zealand Emissions Trading Scheme with agriculture included contributes to a 14% reduction in the nation’s total emissions, approximately half of New Zealand’s 2030 goal. The forestry sector increases by 75% and 57% of land use coming from other sectors in each scenario. The GDP declines due to reduced production in most sectors with emerging emission cost, leading to decreased exports. Household income is negatively affected by decreased factor price but compensated by providing renewable resources. Whether including agriculture in the existing emissions trading scheme generates a different impact on the macro-economy. Key words: carbon price, land use, CGE, NZ ETS, and forestry. JEL classification: Q23; Q24; Q54; Q68