Enhancing New Zealand's emissions trading scheme: A comprehensive sector-level assessment for a stronger regulatory framework

Certain nations have opted for stimulus-based regulations to curtail emissions, build a liveable, environmentally friendly setting, and work towards aspirational mitigation targets. New Zealand (NZ) prefers an Emission Trading Scheme (ETS) to taxation, mitigating emissions on one hand while retaining incentives for economic growth on the other. As a result, NZ has initiated a legal framework since 2008 to allow its economic sectors to engage in ETS and minimize emissions. Yet, selecting the appropriate sectors and effectively adjusting sector-specific regulations remain critical and complex challenges in the global design of ETS since both excessive and insufficient intervention can lead to inefficiencies in the system's functioning. Therefore, this study begins validating the NZ ETS's abatement potential regarding sectoral carbon intensity by executing the double machine learning techniques, consolidating the ETS efficacy that has robustly mitigated sectoral carbon intensity in NZ during 2006–2020. However, this conclusion seems invalid at the disaggregated level when focusing on forward-backward linkages, where NZ's input-output tables furnish a compelling scenario of sectoral dependencies and the products (residuals) they provide. Altogether, the regulatory requirements are either too strict or too lax, leaving out five of the 24 (as a whole) key sectors. Rather, the ETS could be powerful, providing these five key sectors are well tackled, necessitating a reformulation of the ongoing ETS regulatory regime. •NZ ETS robustly cut sectoral emission intensity at the aggregate level.•The causal effect is verified using a double machine learning model.•The NZ ETS singled out five key sectors.•NZ ETS regulatory system is invalid at the disaggregated level.•The ecological-economic Input-Output table is built to conduct analysis.