Key Points:

The Green Party is on the verge of pulling its support for a key climate change policy after a Government backdown on two planks of its emissions trading scheme.

Prime Minister Helen Clark yesterday announced the Government would delay bringing transport fuels into the emissions trading scheme from 2009 and 2011.

The delay - made in response to calls for help from spiralling petrol, food and mortgage costs - will ensure car owners are not hit by the extra five to eight cents per litre for petrol from January next year.

The Government has also softened the rules for heavy-emitting industries by delaying the start date for the phase-out of "free" allocations of emissions from 2013 to 2018.

The Prime Minister said there was leeway to delay the introduction of fuel to the scheme because higher petrol prices were already doing the job of forcing people to use less petrol.

The Green Party has threatened to pull its support from the scheme, saying it was a panicked "gutless" reaction to lobbying from business groups and other political parties which would render the scheme useless.

Co-leader Jeanette Fitzsimons said the party was "very, very close to pulling our support", potentially leaving Labour to rely on National's support to push it through.

"The bottom line is we won't support this unless it makes a reasonable reduction in carbon emissions soon. This would mean another two years of people buying larger cars than they need and using them when there are alternatives like public transport, car pooling, biking and walking. It would weaken our credibility internationally and our sustainable brand."

Prime Minister Helen Clark defended the backdowns, saying other political parties were concerned about the impact the scheme would have on householders' wallets.

"I would be concerned that the bill would not pass without a move like this, because clearly Labour is not the only party which is concerned about the impact of a spike on fuel to households."

National leader John Key said he supported the delay to the fuel charges, but said the backdowns were an embarrassment for Helen Clark and left her credibility on climate change "in tatters".

He said National still believed a trading scheme was the best method to tackle climate change. His party would continue to work with the Government and in select committee on a solution which balanced out environmental and economic issues.

United Future Peter Dunne said the delay for petrol was welcome, but he was yet to decide on his party's ongoing support for the scheme.

Helen Clark also released new projections which showed a dramatic drop in New Zealand's liability in the first commitment period of the Kyoto Protocol from 2008 and 2012.

Figures for March, released last week showed liability had slipped over the $1 billion mark - but the May figures, due for release with the Budget, radically lower New Zealand's projected liability from $1 billion in March to under $500 million.

Helen Clark said the drop was the result of the expected impact of the emissions trading scheme, investment in cleaner energy and transport, and slower growth in petrol use.