The soft start to New Zealand's carbon pricing regime is set to get softer still.
The Government yesterday released a review of the emissions trading scheme chaired by David Caygill and its own preliminary response to it.
The review had generally endorsed the choice of an ETS as the most effective policy for reducing emissions at least cost to households and businesses, Climate Change Minister Nick Smith said, and also the Government's moves in 2009 to slow down its introduction.
It had called for a further slowing by phasing out the current "buy one, get one free" provision for firms with obligations under the scheme, when the current law would end that "transitional" arrangement by the end of next year, 2 years after its introduction.
Oil and power companies, as proxies for domestic energy consumers, and industrial emitters are required only to buy and surrender to the Government one tonne's worth of carbon credits for every two tonnes of emissions.
Smith indicated yesterday that the Government is inclined to accept the review panel's recommendation that this measure instead be phased out in three steps in 2013, 2014 and 2015.
He said this was unlikely to make much difference to New Zealand's emissions, however, because of the multi-year lead times involved in investments in electricity generation or industrial plant.
The Government is also pushing out into manana territory the extension of the scheme to emissions arising from the bodily functions of ruminants, which make up nearly half of the national total.
Under the current legislation agriculture is due to come into the scheme in 2015.
The panel recommended that that timetable stand.
But Smith said that even after 2015 "agricultural emissions will only be included if practical technologies are available to enable farmers to reduce their emissions and more progress is made by our trading partners on measures to reduce emissions".
The Government has signalled this stance for some time.
It is at odds with the whole rationale for emissions trading, which requires emitters to take financial responsibility for their emissions (above some high exempt level, if they are, like farmers, exposed to international competition) and buy credits representing reductions in emissions by someone else if that is easier or cheaper than reducing their own.
However, Smith said the Government's primary objective was to drive investment into more efficient production from an emissions point of view.
Such options exist in the case of electricity but not yet for agriculture.
"We are not interested in including agriculture just to impose a cost when there are no practical opportunities for farmers to reduce emissions."
The review recommended that the Government urgently consider banning, as the Europeans plan to from 2013, the ability for emitters to use international carbon credits generated by the destruction of an industrial gas, hydrofluorocarbon-23, which are widely considered to be of dubious environmental integrity.
The panel noted the concerns of some submitters that if these units are excluded from the EU scheme but remain eligible under New Zealand's there is a risk they will flood the local market and drive down the price of New Zealand units.
This would weaken incentives to reduce emissions and to invest in forestry and would harm the reputation and integrity of the ETS, it said.
Smith said the Government would decide about excluding them before the election.