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Prior to COVID, the global aviation industry was growing rapidly. Growth has now resumed and is predicted to continue for at least the next three decades. Aotearoa New Zealand has particularly high aviation emissions and has been on a very rapid growth path that is incompatible with the Paris Agreement on climate change. Government, intergovernmental, nongovernmental, academic and industry sources have proposed technological innovations to address aviation emissions. These include sustainable aviation fuels, electric and hydrogen powered aircraft, and increases in efficiency. We review these and assess that none of them will lead to a significant reduction in emissions in the short to medium term. In addition, we demonstrate that even very aggressive uptake of new technology results in the New Zealand aviation sector exceeding its share of the carbon budget as determined by the Paris Agreement. Therefore, we examine the fundamental drivers of growth in aviation: the tourism and airport industries, emissions pricing and substitutes, and the distribution of air travel. Governance of this sector is challenging, but it is changing rapidly. We conclude that a national aviation action plan needs to be developed and implemented based on the 'Avoid/Shift/Improve' framework in use in other areas of transportation planning. [ABSTRACT FROM AUTHOR]

The New Zealand Emissions Trading Scheme (NZ ETS) presents an opportunity to compare the theory of linked emissions trading with practice. From 2009 until October 2012 New Zealand was linked to the market under the 1997 Kyoto Protocol and there was no indication that this link would be broken. A series of events starting in late 2012 cast doubt on the future eligibility of Kyoto units in the NZ ETS, made the future of linking in New Zealand uncertain, and may have contributed to price divergence between offshore and domestic units. Delinking was officially confirmed by the New Zealand government in December 2013 to take effect from 31 May 2015. This raises the question of what the effect of delinking and announcements had on the carbon market. To study this effect, we used daily price data in a difference-in-differences model over the period 1 January 2011 to 1 January 2016. From this model, we found evidence that, even with differing pre- and post-time specifications, the government announcements in 2012 caused prices in the two markets – for New Zealand units (NZUs) and Kyoto units – to decouple and NZUs traded at a premium based on their projected scarcity. This is further backed up by the behaviour of the raw price data and the change in the types of units surrendered over this time period. The NZU price reaction to the government announcements (rather than delinking itself) shows strong evidence of a well-functioning market. Key policy insights The NZU price reaction to the delinking announcement shows strong evidence of the New Zealand carbon market reacting in the present to news about the future: a property of any well-functioning market. The long period of price divergence between the New Zealand and Kyoto markets has led to a large privately held bank that is a liability to the New Zealand Government and reduces the government's ability to auction NZUs. If the NZ ETS had delinked earlier from the Kyoto market it could have avoided a protracted period of arbitrage which significantly inflated the NZU bank. [ABSTRACT FROM AUTHOR]