KEY POINTS:
The cornerstone of this Government's effort to fight global warming could be law by the end of this week.
An emissions trading scheme will be created by legislation that is now supported by Labour, New Zealand First and the Greens. It is expected the bill will pass its
final stage either late this week or early next.
The scheme creates a new market where permits will be traded which allow businesses to emit greenhouse gases. Effectively, the legislation will put a price on carbon - if a business emits too much of the greenhouse gas it will have to pay for the right to keep doing so.
The effects of the scheme are far reaching, not only for businesses but also for consumers. Here is how they will affect you:
Electricity
Power bills will rise when the emissions trading scheme takes effect in the electricity sector in 2010.
By how much bills will increase is not yet clear, but estimates suggest it will be around 5 to 10 per cent. Some groups have predicted a much bigger increase, but the Government has dismissed talk of rises as high as 50 per cent.
Bills will go up because power companies which burn coal or natural gas will need to buy credits in the carbon market to cover their emissions.
They will pass this cost on.
Other power companies could also be affected because the spot market price will be impacted by the higher costs carried by the big coal and gas generators.
To help people manage the power-price rise, the political parties backing the legislation have agreed there will be a one-off electricity rebate to all households in 2010. Its size hasn't been revealed yet.
A one-off cash payment will also be given to families who receive benefits, superannuation and Working for Families tax credits.
One billion dollars over 15 years will be set aside to help households improve insulation and heating so that they can become more energy efficient. This money will be targeted according to income and/or energy needs.
Petrol/diesel
Transport fuels will also rise in price when the emissions trading scheme affects them in 2011. Again, it is not clear by how much prices will go up - but it could be around 6c to 8c a litre for petrol.
There are wildly different predictions from various organisations and lobby groups.
Petrol, diesel and other transport fuels will increase in price because oil companies will have to buy emission rights to cover the carbon emitted when their fuels are burned. The companies will pass those costs on to consumers.
The Government has delayed the impact of these fuel-price increases by two years - the transport sector originally would have come into the scheme in 2009 - because of hefty rises at the pump earlier this year.
Drivers were already cutting back on their fuel use, so the higher price was already doing the work that the emissions trading scheme was intended to do.
When the scheme does eventually affect drivers and other fuel users in 2011, help for the fishing sector, in the form of a free allocation of units, will cover it over a three-year period.
Wider flow-on impacts
When power and petrol prices go up, so do prices of many other things.
Not only householders are affected by higher electricity and fuel costs - so too are retailers, trucking firms and a host of other businesses.
And when they are affected, they tend to pass on those costs to the consumer.
The indirect effects of the emissions trading scheme could potentially be half as large as the direct impacts.
A trip to the supermarket might see more expensive vegetables, because it costs the trucking firm more to transport them to the shop.
Your phone bill might go up because the company you're with is facing higher electricity costs at its offices.
A pair of jeans might cost more because the shop selling them has to pay more for its power to keep its doors open.
Eventually New Zealand's emissions trading scheme will be "all sectors, all gases", meaning every part of the economy will be affected.
