The Government has kicked for touch with the Caygill report on the emissions trading scheme (ETS), sending it back to the review panel for updating in light of Australia's carbon tax scheme.

The Australian scheme was announced a couple of weeks after the review panel delivered its report to the Government in late June.

The move is liable to be seen either as a delaying tactic - given the panel, chaired by David Caygill, is unlikely to have any more information about the Australian scheme than the Government already has - or as a sign the Government is unhappy with the review's recommendations.

Climate Change Minister Nick Smith, speaking to the annual Australia New Zealand climate change and business conference in Wellington yesterday, said that in deciding how fast the ETS progressed, the Government would be mindful of what New Zealand's trading partners did, particularly Australia, the impact on households, and the international competitiveness of trade-exposed industries, including agriculture.

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"I expect to be able to announce the outcome of the review and the future direction of the scheme next month," he said.

Smith also released the first annual report of the ETS yesterday.

It shows that of the 8.3 million emission permits surrendered to the Government in May - the first six months of the scheme for power companies, oil companies and big industrial emitters - 64 per cent were units which had been bought from forest owners.

So far, the owners of just under 200,000ha of pre-1989 or "Kyoto" forests have opted into the scheme - a third of the eligible area.

Receiving credits for the carbon the trees absorb as they grow comes with a liability for the carbon deemed to be emitted when the trees are harvested.

More Kyoto forest owners may yet take up credits before the deadline at the end of next year.

Also, only about half the units available to be allocated to owners of pre-1990 forests have been claimed so far, though applications are open until the end of November.

The next largest source of units surrendered under the scheme, 31 per cent of the total, was those allocated free to trade-exposed industrial emitters to limit their exposure to carbon pricing.

Less than 2 per cent of surrendered units were imported from international Kyoto markets.

That ought to silence critics who saw the scheme as a large transfer of money out of the New Zealand economy, Smith said. The ETS was working well, he said, pointing to declines in national emissions last year and 2009, after they had risen an average of 3 per cent a year between 2000 and 2008.

The decline had been aided by recession and a "wet" year for electricity in 2010, which saw renewable sources meet 79 per cent of electricity demand - a 12-year high.

But industrial emissions were also lower than forecast (25 per cent) and overall emissions from the energy, transport and industrial sectors were 13 per cent lower than forecast.

The real success of the ETS lay in how it was influencing investment decisions, Smith said.

"The record 40,000ha of deforestation between 2005 and 2008 has been reversed with increases in afforestation every year since the ETS has been in place. New Zealand's forest area grew by 4700ha in 2010 and is projected to increase by 5700ha in 2011 and 7700ha in 2012."

But while the trend was in the right direction, new planting remained low compared with afforestation rates in the 1990s.

Eleven new renewable power stations had been consented in the past year, most of them wind - an all-time high and five times the annual average of the past decade.

FOREST GROWTH
* 40,000ha was chopped down between 2005 and 2008.

Since the introduction of the ETS:

* Forest area grew by 4700ha in 2010.
* It is projected to increase by 5700ha in 2011.
* It is projected to increase by 7700ha in 2012.