Emissions trading schemes (ETS) are becoming the vehicle-of-choice for Governments to address their obligations under the Kyoto Protocol, but to date no such scheme has included all the factors which should properly make up a holistic carbon-assessment (and subsequent trading) regime.

And, where attempts are being made to do so, these schemes are coming under intense pressure from big business and farming interests to exclude -- or at best delay implementing inclusion of -- many of the worst emitters.

New Zealand's much-vaunted ETS is a case in point. Already partly introduced though yet to be made law, it has been heralded as the first in the world to fully include the agricultural sector in its gamut -- although apparently Estonia may beat them to it -- but as of May, the bill has begun to be tampered with at the behest of business, with a two-year delay (to 2011) put on including liquid fuels into the scheme and a further five-year delay (as far out as 2030 for phase-out of free credit allocations; that is, full cost to polluters) of the requirement for business to pay for exceeding targets.

Add to that that the main opposition National Party, which leads the governing Labour Party by more than 20 percent in the polls going into elections later this year, has broken an assumed pan-party accord and suddenly signalled it will delay implementing the scheme altogether and you begin to appreciate the uphill battle environmentalists face in trying to get their governments to rationally and fairly deal with what is the major issue of our times: climate change and how to ameliorate it.

Apart from the diehards -- and they are everywhere, including NZ -- who would have us ignore or disbelieve the fact that human-related emissions are the cause of much of the problem, the management of greenhouse-gas emissions is the key to effectively combating climate change.

The Kyoto Protocol, to which virtually all nations (notably excepting the USA) are signatories, attempted to introduce some enforcement around such management by defining limits for 2012 from a baseline of 1990 emissions. (See this backgrounder on Celsias.) Countries exceeding their limit come deadline will have to pay a price per ton of carbon equivalent emitted; countries under the limit will benefit from such payments. There are also offset mechanisms for "green" projects promoted by industrialized countries in developing countries.

Essentially an ETS is a mechanism to shift the costs of complying with Kyoto and reducing emissions from taxpayers (ie, central government) to the emitters. Most major economies either already have one (European Union) or are working on one (Japan, Australia, and even the USA, despite it not being part of Kyoto). And there are a plethora of "private" or managed-fund-backed schemes around too, offering various options for trading in "alternative" markets.

Arguably the proposed New Zealand ETS, despite being the broadest of them all, was already flawed because it looked to phase-in emissions caps for various sectors over various lengths of time instead of adopting a harder-hitting and more timely regime that would see all major polluters quickly starting to pay their way. Moreover it is based on capping present (ie, at time of sector phase-in) emissions rather than on reduction, though corollary measures such as a moratorium on new base-load fossil-fuel-based power generation have been welcomed.

However it does at least envisage bringing both forestry (already trading, as from January 1) and agriculture (as from 2013) within its scope, which is a step forward from other schemes such as the European Union example which have yet to address inclusion of agricultural emissions. The latest delays however give forest owners in particular a problem: how to exchange their credits if no-one else is in the scheme -- or even whether to plant more trees (thus earning more credits) if there's no-one with whom to trade.

Including agriculture was a bold but necessary step for New Zealand, considering that a very significant proportion of total emissions (around 50%) are agriculturally based, mainly as a result of methane and nitrous oxide from intensive livestock farming and fertilisers. Because of that prominence, without including agriculture the country cannot reasonably expect to go anywhere near meeting its Kyoto Protocol targets. (In fact, regardless, NZ currently looks like being some 25% over its limit come 2012 -- not a good look for a country which sells itself on being "natural". Contrast that with Britain, which looks like being around 15% under its target limit, and you can appreciate that a low level of industrialisation does not presume compliance -- or vice versa.)

There is an argument that food production -- in this case, livestock farming, but other crops can also have large impacts -- should be treated differently by applying special criteria that recognise their life-sustaining value in offset to their greenhouse-gas production. Certainly that would benefit countries like New Zealand and, given the current crisis in food management globally, doubtless help sustain world-wide supplies. It may well be that as this crisis deepens greater appreciation of this point of view may emerge.

Meanwhile, in the absence of such acknowledgement, NZ's proposal is particularly laudable. In contrast, the EU's refusal, so far, to address agricultural emissions when these are a relatively small fraction of their total merely illustrates the entrenched protectionism surrounding the farming sector in the Union's member countries. Ditto in the USA and elsewhere.

There is also the whole debate around biofuels and whether, even regardless of what they might replace (eg, rainforest), their carbon footprint is larger over their whole production cycle than using fossil fuels. An accurate assessment of such impacts is urgently needed before countries can claim any "benefit" from moving to biofuel production.

The EU has been far bolder in addressing its industrial emissions, not only bringing in an ETS in 2005 that caps these but setting tough reduction targets as well -- and moving not to relax them but to toughen them further as more data backs the need to do so.

That New Zealand should belie its "clean green" image by caving-in and allowing major polluters more opportunity to keep polluting in a last-ditch attempt to retain the present government in power demonstrates the intense pressures single countries (and their ruling parties) can be put under by big business, and is a good argument for regional -- indeed, global -- trading schemes that can use collective might to rebut such pressures.

The lack of a well-set-up global market, and the fact New Zealand is first amongst most of its major trading partners to propose an ETS, is one of the primary arguments raised against it, particularly for farmers who will "take a cost hit" which they will not be able to pass on to consumers -- because currently 90% of NZ's farm produce is exported to countries which lack a carbon trading scheme.

Nevertheless the global carbon market is already big and projected to get much bigger -- from $US30 billion to over $US1 trillion, according to green investment brokers GreenChip. Investors would do well to remain somewhat leery of the terms of trade however until such time as all the major economies have implemented more-or-less-inclusive schemes -- and it becomes clear exactly what credits or debits are owed or owing to whom. (Try this good in-depth look at the markets as provided by Norwegian firm Point Carbon for the NZ government.) The early carbon bird may get a fat green worm, but could then end up with a rather flatulent gut.

Further Reading:

• Carbon Trading: Pushing the Snooze Button on Climate Change? (centralises many of our carbon trading posts)