Key Points:

The new Government's decision to put the emissions trading scheme on hold pending a review came as a bolt from the blue.

Stakeholders had been led to expect that there would be some changes to the ETS but the proposal to pass legislation putting it on hold was completely unexpected.

The decision has thrown the emerging carbon market into disarray. It has undermined the recent launch of the New Zealand Stock Exchange's carbon trading platform, TZ1.

EcoSecurities, one of the largest promoters of emission reduction projects in the world, pulled out from the launch of its New Zealand business.

It has brought into doubt the forest sector's investment in large-scale carbon sequestration [storing carbon in forests].

According to one report it led an Asian investor to cancel a 25,000ha afforestation project. There are other indications that investment in new plantings has evaporated.

But more importantly, the decision does harm to New Zealand's clean green brand. It undermines our environmental integrity and makes us look silly on the international stage.

In a world sensitive to environmental performance, it may have consequences for marketing of our primary products and could well impact on our attractiveness as an international tourist destination. We really must walk the talk on environmental policy.

The Government should think again. Its pre-election commitment to review six areas of concern with the trading scheme is well understood and was properly signalled in advance. It is entirely appropriate to conduct that review via the proposed select committee process during 2009 with amending legislation (if required) passed before the end of that year.

Given that there are no sectors other than forestry actually in the emissions trading scheme until 2010 (when industrial processes and stationary energy join) there is therefore no need to put the scheme on hold. Doing so has no positive effects and, in addition to the negative ones signalled above, could drive up New Zealand's net emissions by deferring much-needed investment in tree planting.

We are already a long way from meeting our Kyoto targets. Further delay will increase the costs of meeting those obligations and that burden will be met by taxpayers.

The rest of the world has moved on and accepts the overwhelming evidence that human-induced climate change is happening and that the United Nations' International Panel on Climate Change is the authority on this issue.

As the counsel for EcoSecurities said recently in the Herald, "... to have come down here to launch a business and then to have to report to our directors that actually they are revisiting the science on climate change really doesn't help perceptions of New Zealand."

The suggestion that the emissions scheme could be replaced by a carbon tax is also unwelcome. A carbon tax was proposed earlier in the decade and opposed by many of the entities that are now supporting it.

It seems that some stakeholders will support any climate change policy so long as it's not the current one. Delay is clearly their objective which may reduce the costs of their transition but only by shifting it onto taxpayers.

A carbon tax is an arguably useful way of transitioning towards full-blown emissions trading. But New Zealand has moved past that point in its policy development. Emissions trading involving all sectors and all Kyoto gases is a more efficient way of finding least-cost emission reduction projects and giving a clear signal to investors.

Having carbon valued at the world price sets New Zealand up for later integration with other schemes in Australia, Europe and the United States.

It is noteworthy that President-elect Barack Obama said recently that he would support a cap-and-trade system - essentially an emissions trading scheme like New Zealand's. He would also establish strong annual targets to reduce emissions to their 1990 levels by 2020 and reduce them an additional 80 per cent by 2050.

Clearly we have important partners that see emissions trading as the preferred way to encourage the transition to a low carbon economy.

There is one other important point we wish to make. It is clear that New Zealand and much of the rest of the world is in or heading towards recession.

One way of getting out of that is for the Government to stimulate the economy by bringing forward infrastructure spending.

If we can bring some really smart thinking to the table, we can target that spending to projects that speed up New Zealand's emission reductions - things like retrofitting insulation in old housing stock; bringing forward geothermal and wind generation projects; electrifying commuter trains in Auckland; widely deploying emerging electric car technologies; improving the overall efficiency of the transport system and encouraging many other such investments in the private sector.

In our view the new Government needs to rethink its climate change policy. It is not in New Zealand Inc's interests to go down the pathway of further uncertainty.

This opinion piece reflects concurrence across business, the environment and forestry on the way ahead: Abandon the proposed legislative freeze. Allow the new emissions trading market to develop. And introduce a range of complementary policies to sit alongside and reinforce the emissions trading scheme.

* Peter Neilson is chief executive of the New Zealand Business Council for Sustainable Development. Gary Taylor is chairman of the Environmental Defence Society. Peter Clark is chief executive of P F Olsen Ltd.