The Government, it says, should neither fully shelter emitters from the cost of their emissions, nor fully expose the domestic economy to the international emissions price, particularly sectors exposed to competition from developing countries or developed countries that do not ratify.
But Mr Baker struggles to see how the goal can be reconciled with the principles, also laid out in the document, that policies need to be "consistent with a growing and sustainable economy", recognise the importance of the competitiveness of New Zealand industries and avoid distorting investment.
"How does it work?" asks Mr Baker. "Wait until April and we'll tell you," is the official response.
Mr Baker says, "We need to get to 2012 [the end of the protocol's first commitment period] unharmed, because anything we do before then is something we would be doing ahead of most of our trading partners or competitors."
The national interest analysis lays out, for parliamentary scrutiny, what the Government sees as the advantages and disadvantages of ratifying the treaty.
The advantages it cites include:
Contributing to reducing the long-term risks of climate change for New Zealand's climate-dependant economy.
Allowing New Zealand to make a gradual transition towards becoming a low-emitting economy, rather than facing more abrupt adjustment in the future if action is delayed.
Avoiding the risks of being seen internationally as a free-rider and undermining the country's clean, green image.
Enabling the country to cash in on the credits arising under Kyoto's rules for the carbon dioxide taken out of the atmosphere by growing trees.
In the first commitment period, 2008 to 2012, on a business-as-usual basis New Zealand is projected to emit 50 to 75 million tonnes more than it is allowed under the protocol. But the forest sink credits are estimated to amount to 110 million tonnes, which would make New Zealand a net seller into the international carbon credit market and be positive for gross national income.
The analysis notes, however, that the amount of the benefit would depend on planting, replanting and harvesting plans, and on how much scrub land has regenerated since 1990.
The disadvantages of ratification include:
Under some policies, slower economic growth, affecting incomes and jobs.
Again, under some policies, exporting or import-competing firms could be hurt.
Discouraging investment, if there is uncertainty about the policy design.
The analysis points out that the adjustment of markets, both in New Zealand and globally, in response to Kyoto will provide opportunities as well as costs.
It cites a New Zealand-developed gasifier that generates electricity from manure and which is being marketed in Britain, France and the United States, and a wind turbine being developed in Canterbury.
The largest single source of greenhouse gas emissions in New Zealand is the methane released by sheep and cattle, but that gas arises from less than 100 per cent feed conversion efficiency.
"Some products already on the market for improving dairy productivity could also reduce methane emissions by 20 per cent."
Fonterra in its submission to the Government last year argued that Kyoto obligations could undermine New Zealand's competitive advantage as the lowest-cost milk producer.
The next cheapest producers are Australia, whose willingness to ratify Kyoto is in doubt, and Argentina,which has no obligations under Kyoto until at least 2012.
"At risk is our economic welfare and social well-being," Fonterra said.
"In every respect New Zealand will be a loser if this Government proceeds to ratification without ensuring certain safeguards are in place, particularly that key international competitors such as the European Union and Australia have ratified and made clear their implementation strategies. The US must rejoin the ratification process."
New Zealand should wait until there was an assurance that potential competitors like Argentina would be part of subsequent commitment periods, beyond 2012.
Delaying ratification did not mean doing nothing about the core problem, Fonterra said.
"The dairy industry overall has a strong record in improving energy efficiency in its processing and transport activities ... On-farm emissions are a form of wasted energy and we are keen to find ways to reduce that waste."
But Fonterra said it would resist targets or policies that distorted its international competitiveness.
The dairy industry might take some comfort from the fact that the national interest analysis, in outlining the results of economic modelling it commissioned from Australian forecaster ABARE, identifies three of the policy scenarios likely to conform with the principles the Cabinet has agreed. All three exempt from a carbon tax agricultural emissions of methane, and nitrous oxide from the soil.
nzherald.co.nz/climate
Intergovernmental Panel on Climate Change (IPCC)
United Nations Environment Program
World Meteorological Organisation
Framework Convention on Climate Change
Executive summary: Climate change impacts on NZ
IPCC Summary: Climate Change 2001
