New Zealand's emissions trading scheme, only the second national scheme outside Europe, moves up a gear on July 1 when sectors that emit about half of the nation's greenhouse gas pollution formally join.
Following are the main features of the scheme that was heavily revised by the current government and passed by parliament late last year.
Analysts and greens criticize the scheme as being too lenient on big emitters because it sets no cap on emissions and will give a large number of permits away for free.
Emissions from power stations, refineries, transport and industries such as steel and cement making and pulp and paper will come under the scheme from July 1, 2010.
Waste, representing about 2 percent of national emissions, starts 2013.
Agriculture, dominated by methane emissions from livestock, starts Jan 1, 2015. This sector produces 48 percent of national emissions.
The scheme will be reviewed every five years, with the first to be carried out in 2011.
ALLOCATION OF PERMITS
The scheme's currency is called 'New Zealand Units,' or NZUs, each of which represents a tonne of carbon dioxide-equivalent.
These pollution permits will be allocated, or given, to energy-intensive firms that export their goods to countries that do not have limits on emissions.
Companies in this category can apply for an allocation of free permits. Regulations covering the allocation formula to various sectors are still being worked out.
There will be no free allocations to firms in the power generation and transport sectors, which collectively emit about 30 percent of the nation's greenhouse gas pollution. The emissions obligations and cost of carbon for these firms is still being worked out.
Permits will be allocated based on an average of production across each industry, instead of an allocation based on 2005 emissions.
The percentage of free permits will start at 90 percent or 60 percent depending on whether firms are 'highly' or 'moderately' emissions intensive.
As an additional sweetener, between July 1, 2010 and Jan 1, 2013, emitters have the option of paying a fixed price of NZ$25 ($17.6) per tonne of carbon, and will only have to surrender one unit for every two units of emissions.
For companies receiving free permits, this level of assistance will be phased out at the rate of 1.3 percent a year from 2013.
The first date of permit surrendering is May 2011.
None as yet. The government has set a target of cutting greenhouse gas emissions by between 10 and 20 percent by 2020 from 1990 levels, depending on the outcome of U.N. climate talks.
Unlimited imports of U.N. offsets called certified emissions reductions (CERs), each of which represents a tonne of carbon dioxide-equivalent. These are sourced from U.N.-approved clean energy projects in developing countries and are priced in euros per tonne.
Exports of NZUs are prohibited during the transition phase except for the forestry sector. The forestry sector can sell their NZUs overseas but these must be converted in U.N. Kyoto Protocol sovereign instruments called Assigned Amount Units, or AAUs.
The government estimates the annual cost to households will be NZ$165 per year from NZ$330 under the old scheme during the transition period.
HOW MANY FIRMS WILL BE AFFECTED?
Climate change advisory firm Frazer Lindstrom estimates about 80 firms in the energy and transport sectors will have ETS trading obligations and about 35 for agriculture. It also estimates there will be between 3,000 and 10,000 forestry participants, depending on the final number opting in to the scheme.