New Zealand's Emissions Trading Scheme is complex. Your brain is likely to overload trying to understand how it works, and it's difficult to trust anyone who makes any claims about it.

Yet it's central to the current election debates on how we plan to meet our climate change obligations and reduce carbon emissions.

The ETS was set up in the last days of the Helen Clark government. The basic idea is to put a price on carbon emissions through the creation of what are essentially "units of pollution" equal to one tonne of carbon. These "units" can then be bought and sold on the market.

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If you pollute carbon you must purchase these "units". If you're doing something that takes carbon out of the atmosphere, like planting trees, then you can earn carbon credits.

The polluters must buy "units of pollution" from those who have the credits. This is a cost to the polluters, a source of profit for forest owners.

To encourage the use of new technologies or the move away from high polluting industries the price of carbon needs to be high.

This is where the National Government enters the picture. Since taking over the scheme it has deliberately sought to keep the price of carbon low.

It offered "two for one" specials to major industrial polluters, flooded the market with government issued units, and allowed New Zealand polluters to buy cheap carbon credits overseas, including from a fraudulent Russian scheme.

The price for carbon collapsed to 35 cents, rendering it impossible to make profits under the scheme from planting trees, which is why hardly any marginal land has been forested.

It's not surprising that New Zealand's carbon emissions have continued to increase. We are nowhere near meeting the international reduction targets we've supposedly signed up to.

And what's worse, because the carbon price was low for so long many major polluters bought up large (around 140 million units). This will allow them to keep polluting for years, slowing any meaningful progress on cutting emissions.

You'd think the sensible thing to do would be to just trash the ETS and introduce a carbon tax imposed at different rates on different industries. This is the conclusion the Green Party has reached.


A carbon tax is easy for everyone to understand, it's transparent, and certainly not open to market manipulation and speculative profits.

Jacinda Ardern, however, has confirmed Labour's commitment to the ETS.

Part of the reason I'm sure is that in government it doesn't want to be liable to all the companies and speculators who've invested in carbon units.

Scrapping the ETS could lead to a massive compensation bill.

So Labour's going to stick with it and plans to bring farmers into the scheme slowly.

It will probably look at putting in place a price floor and limit the issuing of units to push the carbon price higher, so that it starts to have an impact on business behaviour and land use.

How fast carbon emissions are reduced will depend on the political will a Labour-led government has to facedown stern opposition from New Zealand's main polluting industries.

While another three years of National would likely see a lower carbon price, more hot air and little meaningful action.

These are our choices it seems.