KEY POINTS:
A domestic emissions trading system designed to help New Zealand meet its Kyoto Protocol targets will be phased in from next year, Climate Change Minister David Parker strongly indicated yesterday.
Mr Parker said final decisions on the trading system would not be made until September, but it is clearly the Government's preferred option after its early preference for a universal carbon tax fell over through lack of support.
Mr Parker believed the emissions trading would involve less than 100 companies in major emissions areas such as transport, energy, deforestation and agriculture.
Each is to be given a limit on its allowable emissions - yet to be worked out.
Permits to emit are created within the cap, and large businesses within it are assigned a certain volume of permits.
A company that emits below its permitted entitlement is able to sell its excess permit to a company that goes over its limit.
The company that goes over its limit might find it cheaper to earn permits in another area, by, say, preventing a forester cutting down trees.
The market would determine the price.
Mr Parker yesterday compared the "cap and trade" system to the fishing quota system.
The Government sets a limit on the allowable catch, and rights for that catch are traded among fishing companies.
But a lot has not been decided for emissions trading. This includes where the cap will be set for different emitters, which industries will have their allocation handed to them and which will have to buy into the system, and how long industries will have to make the transition.
It is expected that for agriculture, which accounts for just under half of New Zealand's greenhouse gas emissions, the trading entity would be dairy companies rather than individual farmers.
Mr Parker said he would continue to talk about the system to other political parties, including National, which support emissions trading.
Greens co-leader Jeanette Fitzsimons welcomed Mr Parker's statements, but said the hard decision on how to allocate emissions permits had not been made.
"If they are given to those who currently emit carbon, it will give a windfall to the worst polluters and stifle innovation."
National climate change spokesman Nick Smith said National remained open to talks on the issue with the Government, but with the Kyoto Protocol coming into effect on January 1 next year, climate change policy "remains in a vacuum".
Prime Minister Helen Clark is in no rush to put a target-year on when New Zealand should reach the goal of "carbon neutrality" as Norway has done by setting a date of 2050.
She said she would like New Zealand to achieve carbon neutrality before Norway.
"I'd like to see the policy path leading us to say a date that is feasible rather than plucking something out of the air."
HOW THE TRADING SYSTEM WORKS
What is an emissions trading system?
A market designed to put a price on pollution, to act as a disincentive to pollute and an incentive to be more energy efficient.
Is an emissions trading system compulsory under the Kyoto Protocol?
No. But it is seen as the most effective and acceptable mechanism to cut New Zealand's emissions.
What is the Kyoto Protocol?
An international agreement that New Zealand has ratified to reduce greenhouse gas emissions in a bid to tackle climate change.
What has New Zealand agreed to?
It has agreed to cut its average net emissions of greenhouse gases to 1990 levels between 2008, when the protocol takes effect, and 2012.
Does that look likely?
Not really, considering that New Zealand's emissions have increased by 24.7 per cent since 1990, but something like this would go a long way towards it.
How does it work?
Big polluting sections of the economy such as transport are given varying limits - or caps - for total allowable emissions. The allowable limits are broken into permits that are bought and sold (it's called a cap and trade system). The Government has not yet approved the details.
How does the trading part work?
A company that emits less than its cap allows can sell its excess whereas one that overshoots its emissions limit would have to buy a permit.
Would those caps be permanent?
Probably not. They could be reduced gradually over time to reduce the allowable emissions.
What sectors would have to be part of a trading system?
Almost certainly transport, energy, agriculture and forestry, the main contributors to carbon debits.
Does it not affect the ordinary consumer, then?
Yes it will, but indirectly. If buying permits causes a steep rise in costs, some of the increase is bound to be passed on to customers in the form of higher consumer prices.
What will it do to the economy?
Treasury advises the Government that the effect on GDP will be negligible.
What stage is the market at in New Zealand?
Work is going on to set up the market but a final decisions will not be made until September. There seems to be broad support for such a system in Parliament.
