The Government has confirmed it plans to delay the extension of the emissions trading scheme to agriculture.

In a consultation paper released yesterday it outlines its response to last year's review of the ETS chaired by David Caygill.

The review recommended bringing agriculture into the scheme in 2015 as the current legislation requires.

But the Climate Change Minister at the time, Nick Smith, said agricultural emissions, which make up nearly half the national total, would be included only if practical technologies were available to enable farmers to reduce livestock emissions and if enough progress were made by New Zealand's trading partners to reduce their emissions.


The discussion document reiterated those conditions and said a review would be undertaken, to report in 2014 on whether they had been met.

"To enable the results of this review to be implemented the Government proposes to include the power to defer the entry of these agricultural gases [methane and nitrous oxide] by up to three years."

As it has previously indicated, it is accepting Caygill's recommendation that the "transitional" buy one, get one free provision for firms with obligations under the scheme be phased out between 2013 and 2015, rather than terminating at the end of this year, as the law requires.

In another emitter-friendly move, it will not proceed with Caygill's recommendation that the present price cap of $25 a tonne be increased by $5 a year. Currently carbon is trading at less than $8 a tonne.

And it proposes to give itself more explicit powers to auction New Zealand units. This should not be seen as a revenue-raising exercise, it insists, as any unit sold would leave the Government with one less unit in the kitty to meet its international obligations.

It also proposes to further restrict the range of international carbon units which emitters can use to meet their obligations under the ETS.

This would be consistent with moves by the Europeans and Australians - facilitating linkage between the schemes down the track - and it would encourage emitters to buy units from it at auction rather than offshore.

Companies looking for the lowest compliance cost are likely to oppose that.

Resistance can also be expected to another proposed change, affecting owners of pre-1990 plantation forests.

One of the forestry-related rule changes agreed at the United Nations' Durban conference late last year permits "offsetting", where the owners of pre-1990 forests can avoid a deforestation liability by replacing a forest harvested by another which will sequester the same amount of carbon but not necessarily on the same land.

The sting in the tail of that increased land use flexibility is a proposal to review the second tranche of allocation of carbon credits to pre-1990 foresters to compensate them for the fact that they have a contingent deforestation liability but receive no credits for their trees as they grow.

It has offered three options for changing the second tranche.

Many of the forests affected are Maori-owned and some have been set aside for Treaty settlements.

Climate Change Minster Tim Groser, speaking to the Iwi Leaders Group national hui yesterday, acknowledged that that would give rise to some sensitive issues.

"We understand this, and we will work through those issues very carefully with you," he said.

Preferences for changing areas of the policy would vary a lot depending on what assumptions were made about the future carbon price, Groser said.

"If you think it will remain at the current low levels, you will reach one set of conclusions. Take a different view of the trajectory of the carbon price - and above all, this is a long game we are playing - and you may reach quite different conclusions."

Consultations on the discussion document close on May 11.

Government's consultation paper on the ETS recommends:

* Defer the entry of these agricultural gases by up to three years.
* Not to increase the current price cap of $25 a tonne.
* More explicit powers to auction New Zealand carbon units.
* Review the allocation of carbon credits to pre-1990 foresters.