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The Emissions Trading Scheme (ETS) is to be reviewed next year and Climate Change Minister Nick Smith says he wants to make sure it is achieving its goals of reducing emissions with the least possible cost to consumers and businesses.
The ETS makes industries pay for some of their emissions and it is being introduced in a stages.
Dr Smith announced today the review panel would be headed by former Labour cabinet minister David Caygill and would consider future design settings for the ETS.
Transport fuels, electricity production and industrial processes came under the regime in July this year. Agriculture is due to come under it in 2015.
"We are encouraged by the results of the last six months that have seen a shift in investment, particularly in the electricity and forestry sectors," Dr Smith told NZPA.
"There has been more resource consents for renewable electricity than in any six-month period in New Zealand's history and there has been a switch from deforestation over to a small amount of afforestation this year."
Dr Smith said the review panel would consider whether the ETS should continue to be scaled up to full obligation.
"When we introduced it on July 1 we only provided for half obligation - that means they only have to pay for one in two tonnes of emissions that they put out," he said.
"That halved the cost to consumers, which is why we did it, but the current legislation moves to full obligation - meaning that 50 percent discount comes off - in January 2013."
Another issue for the panel would be whether the waste and refrigerant gas sectors came under the scheme on that date as well, which is due to happen under the legislation.
Dr Smith said there would be "some debate" around agriculture but he didn't think it would be the most contentious issue because there would be another review in 2014 - before it is due to come under the scheme.
"The key issue in introducing agriculture is whether the scientists have by that time developed affordable and practical technologies that will allow farmers to reduce their emissions," he said.
"The purpose of the ETS isn't just to impose a price, but to encourage the implementation of technologies that will reduce emissions."
The review panel will be taking a careful look at progress other countries are making with their climate change policies.
"We need to keep a close eye on international developments and how the ETS is working in New Zealand to ensure we keep doing our fair share on climate change at least cost to consumers and businesses," Dr Smith said.
Other members of the panel are chartered accountant Julia Hoare who specialises in carbon markets; Chris Karamea Insley, a company director with forestry and Treaty of Waitangi knowledge; dairy farmer and chancellor of Lincoln University Tom Lambie, former Consumer's Institute boss David Russell; lawyer Geoff Thompson, and former diplomat Dr John Wood who is Canterbury University's pro-chancellor.
The public will be able to make submissions to the panel.