Pressure mounts for a rethink after Australia puts scheme off till 2013

The Government said yesterday it would probably ditch the rest of the emissions trading scheme as scheduled beyond 2013 if its major trading partners did not have schemes as well.

The scheme, already passed into law, is supposed to be a comprehensive "all sectors, all gases" scheme with a phased-in entry for different sectors.

But the confirmation by Australian Prime Minister Kevin Rudd on Tuesday that he would shelve his proposed scheme until at least 2013 has forced the New Zealand Government to hedge its commitment to a full scheme.

The Act Party, business groups and the farming lobby have pointedly reminded National that it promised not to be a leader in the ETS but a fast-follower.

They argue that the scheme would impose costs on New Zealand businesses that its competitors did not have.

The New Zealand scheme has a built-in review of the ETS in 2011 - no details of when - and in 2014.

Environment Minister Nick Smith said yesterday "New Zealand would be unlikely to proceed with the full obligations for the energy, transport and industrial sectors and to add additional sectors to the emissions trading scheme in New Zealand if there was not progress in other countries, particularly of trading partners like Australia, Japan and the United States."

Dr Smith said it was never intended as a "one-off big bang" but a scheme that evolved.

"International developments have to be a key part of decisions in that."

Prime Minister John Key was equivocal in his commitment to the ETS, saying "at this stage we are continuing with the rest of it".

The ETS is a market-driven mechanism that makes major carbon-emitting sectors pay for the right to emit carbon, acting as an incentive to emit less.

Forestry entered the scheme in 2008 and Dr Smith was adamant there would be no changes to it because of the incentives to reforest it had established.

Three other sectors due to come into effect on July 1 are transport fuels, electricity production and industrial processes. Synthetic gases and the waste sector are due to enter the scheme on January 1, 2013 and agriculture is the last sector, on January 1, 2015.

National amended Labour's scheme, softening the effect of petrol and electricity price rises, and giving the farming sector an extension to the original 2013 entry date.

"It is a steady, sensible approach to a very challenging issue but we do need to get flexible so if there are international changes, then New Zealand can respond to that."

Dr Smith said the Australian Government announcement was no surprise and that it was not the only important market.

He said of 38 countries with obligations under the Kyoto Protocol, 29 had an ETS in place.

In fact only two of them, Norway and Switzerland, of the 29 are not members of the European Union scheme. The United States has not passed an ETS either.

Labour leader Phil Goff called for the scheme to be implemented.

New Zealand had obligations under the Kyoto Protocol and someone would pay, the taxpayer or the polluter. He would prefer it was the polluter.

As a former Trade Minister, he knew it would hurt New Zealand if it was seen to do nothing.