KEY POINTS:
Chief executives may be looking at the prospect of emissions trading and a carbon-constrained world with a sinking feeling, even dread.
If so Mark Franklin, the former Vector chief executive who now heads NZX's carbon market venture TZ1, sympathises.
"If I was running a very large company again I'm not sure I wouldn't deep down want this to happen on someone else's watch," he said.
It will be an upheaval.
It is about getting to grips with a global market, already large but still in its infancy, where clarity and certainty are scarce commodities.
But Franklin is convinced emissions trading is the way the world is going.
"There isn't a developed country in the world which isn't either looking at an emissions trading scheme or has one already."
To try to stand outside that process and say "it is all nonsense and it will be the ruin of you" would be a massive risk.
"If it is going to happen to us anyway, we might as well take the decisions ourselves."
Concerns about impact of carbon pricing on international competitiveness are inevitable and appropriate - but hardly unique to New Zealand.
"Everyone in the world is discussing leakage right now," he said. Leakage is the shorthand term for the risk that emissions-intensive industries will migrate for countries where it incurs a cost to those where it does not, delivering no benefit to the global environment.
The political response in Europe and the United States might well include some kind of tariff or anti-dumping measures against countries seen as free-loading.
"Competitiveness isn't an issue if someone says we are not going to take your product anyway."
The idea that New Zealand is leading the world in this area, which seems to have some currency, is strange when Europe has had an ETS up and running for more than three years, Australia is developing one and all three contenders for the US presidency favour a similar approach.
"I guess it comes from the all sectors, all gases nature of the New Zealand scheme."
But that reflects New Zealand's unusual emissions profile, with half of the country's emissions made up of methane and nitrous oxide from pastoral farming.
Other countries are rightly focused on carbon dioxide emissions from their energy and transport sectors. New Zealand has to put more attention on agriculture, forestry and land use change.
It is a challenge, but also an opportunity - to develop climate-friendly technologies and processes which will also be relevant to countries in South America, for example.
Franklin does not share the view that we need to wait and see what Australia will do.
It also has an emissions-intensive economy but in its case it is all about fossil fuels.
"That is what their ETS is going to revolve around. We are the opposite." Most of New Zealand's electricity, for example, comes from renewables source.
New Zealand should be talking to the Australians and it is.
"But I'm an Australian and I'm pretty sure they won't be taking New Zealand's emissions profile into account in designing their scheme."
The "TZ" in TZ1 is an allusion to time zones, a belief that as global carbon trading develops and deepens there will need to be a trading hub operating a time of the day when London and New York (or Chicago) are not.
The ASX is not blind to that possibility either and has the advantages of being in a much larger financial centre and already operating a futures exchange. "They may or may not be direct competitors, depending on what they choose to do and we choose to do," Franklin said.
"What we are looking at is whether we can design something in this time zone which is relevant to the rest of the world as well. We are discussing that with global players right now."
One message coming through clearly from the big investment banks, as he told the finance and expenditure select committee, is not to design a price cap into the scheme. Some business submitters, fearful of excessive volatility, have called for one.
"The investment banks have said to us absolutely they would not be interested if there was a price cap, because if there is everything trends towards the cap and you just end up with a tax."
In fact the carbon market is not all that volatile, he said, and certainly not compared with the New Zealand electricity market.
The MPs have also indicated some concerns about the fungibility, or international exchangeability, of the New Zealand units (NZUs) which would be traded in the scheme.
The concern is that if the scheme is too idiosyncratic or too broad in what it will allow to be traded, the market's liquidity will be impaired.
For example, officials have suggested allowing assigned amount units or AAUs to be fully interchangeable with NZUs. AAUs are the units allocated to governments equivalent to their target under the Kyoto Protocol.
But some potential buyers are unwilling to buy AAUs from countries like Russia and Ukraine. Their allocation, like everyone else, reflected their emissions in 1990, Kyoto's year zero. Since then the Soviet-era economy has collapsed and a lot of their chimneys have gone cold, leaving a potentially large excess of AAUs to sell.
Franklin says he was at first among those who opposed allowing New Zealand emitters to buy them - should they become available - to meet their obligations. "I thought the New Zealand scheme should be absolutely pure."
But he has come to sympathise with eastern European resentment at fastidiousness about the environmental validity of these units.
Likewise, he believes the Europeans will eventually abandon their refusal to allow into their internal market emissions units arising from afforestation.
But, because in the eyes of potential buyers not all emissions units are created equal, registries will need to be able to identify the source and provenance of the parcels of units they transfer. For TZ1, as it looks to set up a market infrastructure, that is the most important thing.
Another concern people have about the international linkages of the New Zealand market is whether the supply of CERs (certified emissions reductions arising from UN-approved climate-friendly projects in developing countries) will keep pace with demand.
The logic behind the process of the Kyoto Protocol which set up that market remains sound, Franklin said.
"If you can prove that you are doing something to reduce emissions that you would not have done anyway, that is a good thing and you should get credit for it."
The same holds good for domestic projects, he argues. The debate is too much focused, he believes, on cost and issues of policy design and not enough on what areas New Zealand should be investing its efforts in which would really make a difference.
"I don't see people looking for ways of making this really work."
Franklin is reticent about the political turbulence around the process of setting up an ETS.
"I'm focused on how New Zealand can address this issue at least risk and at least cost. That is what I came into TZ1 to do."
The aim is to provide a way for people to see what the price of carbon would be, and to trade it.
It is not something that can be accomplished in a matter of months.
"In terms of the politics at the moment, it's a shame there is an election in the middle of this, because the process would probably work if there wasn't."
But Franklin's horizons are not parochial. It is about participating in a global market, potentially a huge one, which addresses a problem that is planetary and inter-generational in scale.
"Sometimes you would like to be more in control," he said.
"But I am used to dealing with ambiguity."
MARK FRANKLIN
* Age: 48
* Married with three children.
* Born: Australia.
* Trained as an engineer.
* Came to New Zealand in 2003 to be chief executive of Vector, operator of electricity and gas networks.
* Previously ran energy and technology companies in Australia and elsewhere.
* Current challenge: To set up TZ1 to provide a market infrastructure for trading carbon emission rights under the aegis of NZX.
