KEY POINTS:
What is an emissions trading system?
It is a market-driven mechanism that puts makes major carbon-emitting sectors pay for the right to emit carbon, acting as an incentive to emit less.
What sectors are involved in the New Zealand system?
Forestry, liquid fossil fuels (mainly transport);
stationary energy (coal, gas geothermal power stations), heavy industry, and agriculture - but not til much later. In all the Government expects up to 200 businesses will be involved in trading carbon credits, as well as forest owners.
What is a carbon credit?
It is a unit for measuring carbon emissions and other greenhouse gases. One unit, to be known as a New Zealand Unit, will be equal to one tonne of emissions and that will be to an international measure, to be known as a Kyoto Unit.
How does it work?
Differently for different sectors. Forest owners next year will be allocated tradeable carbon credits to trade. Oil companies from the following year will have to start paying for the emission that their products produce downstream, eg driving cars. They will have to buy units from New Zealand foresters or from Kyoto-approved units of the same value in the international market.
What eventually happens to the New Zealand Units?
The companies that are captured by the scheme must surrender their right-to-emit units to the Government.
Is there any other incentive for energy efficiency?
Heavy industry that emits less carbon it is permitted to emit can sell its surplus.
How is the ordinary household likely to be affected.
The price of carbon-emissions will become embedded in the price of most goods as industry passes on the new cost of their carbon credits to consumer.
What about the agriculture sector?
They won't have to join the scheme until 2013 but are expected to step up research in the meantime on reducing their emissions which comprise about half of New Zealand's emissions. Meantime their emissions will still count but they won't have to pay.
How does the scheme relate to the Kyoto Protocol?
New Zealand agreed to cap emissions at 1990 levels under the protocol and the reductions gained under this scheme will go some way towards meeting those targets.
What will happen if, as expected, New Zealand fails meet to its goals at the end of the first Kyoto period 2008 - 2012?
It will have to purchase extra carbon-credit units approved under Kyoto to meet its liability. The more New Zealand cuts its emissions as aresult of this trading the less liability under Kyoto.