WELLINGTON/CANBERRA - New Zealand's revised emissions trading plan passed into law on Wednesday, while neighboring Australia moved a step closer to ending a deadlock stalling its carbon-trade legislation ahead of a vote this week.

Australia and New Zealand are not big greenhouse gas emitters in total, but passage of their carbon reduction schemes will give U.N. climate talks in Copenhagen in December a boost.

It is a critical and important first step in our nation's effort to do our fair share in combating climate change, New Zealand Climate Change Minister Nick Smith told parliament after the carbon-trade scheme became law.

The scheme is only the second to pass into law after Europe's began in 2005. It will start in July 2010, but for a two-and-half-year period industry will only have to meet 50 percent of their targets with a slow phase-out of assistance after that.

In Australia, the Senate rejected a move to delay a vote on the government's carbon-trade scheme, suggesting the once defeated legislation should gain final approval this week.

The scheme is scheduled to start in July 2011, covering 1,000 of Australia's biggest polluters and become the world's most comprehensive outside of the European scheme. It aims to put a price on every tonne of carbon dioxide emissions, giving industry an incentive to become more efficient.

Australian Prime Minister Kevin Rudd, who will play a key negotiating role at Copenhagen, says passage of his carbon-trade laws will send a message to world leaders to curb greenhouse gases which are driving climate change.

No country needs to send the message more than Australia, Treasurer Wayne Swan told parliament, echoing Rudd's stance. We are one of the hottest and driest continents. We are hit hardest, and we are hit fastest by dangerous climate change.

The United States, the world's number two emitter of greenhouse gases after China, will be eyeing developments in both nations as its lawmakers make slow progress on a climate bill in the Senate.

NZ, AUSTRALIA COMPENSATE POLLUTERS

Australia's carbon-trade plan aims to cut emissions by at least 5 percent from 2000 levels by 2020, or up to 25 percent if nations agree on an ambitious climate pact during U.N. negotiations.

New Zealand has a reduction target of between 10 and 20 percent by 2020 on 1990 levels, depending on the outcome from Copenhagen.

The U.S. House of Representatives has passed a bill that sets a 17 percent reduction target for emissions by 2020 from 2005 levels. A Senate version is shooting for a 20 percent cut.

Big emitters such as China are watching Washington for its position.

In a boost to the Copenhagen meeting, the United States said this week it will propose an emissions reduction target with an eye toward winning support from U.S. lawmakers who must agree to put it into law.

New Zealand and Australia have had to substantially increase compensation to big emitters, coal companies and electricity generators to gain backing for their schemes.
Australia will give its coal industry A$1.5 billion in compensation over five years, while its electricity sector will receive A$7.3 billion. The country is the world's biggest coal exporter and coal generates about 84 percent of its electricity.

New Zealand said it increased compensation to big emitters as it wanted its scheme to be closely aligned to Australia's.

Both nations are major agricultural exporters. Canberra has excluded the sector from its scheme, while Wellington has delayed the entry of agriculture, which accounts for about half of its emissions, until 2015.

Green groups and carbon market experts are critical of both schemes, saying they give too much compensation to big polluters and would do little to reduce emissions.

It's a very poor mechanism to reduce emissions and ensuring a price on carbon. Why are we handing over billions of dollars to industry? It's just another form of subsidy, said Paul Winn, forest and climate campaigner for Greenpeace Australia, referring to the changes to the Australian scheme.

An independent adviser on environmental issues to the New Zealand parliament said the changes to that country's scheme gave too many free carbon permits and removed incentive to move to low-carbon technology.

It's virtually certain our emissions will grow and the burden on the taxpayer will be uncurbed, Jan Wright told Radio NZ on Wednesday.

Wayne King of advisory firm Carbon Market Solutions agreed the amended NZ scheme would not do much to reduce emissions initially, but said it would give certainty to business.

He also expected it would take some time for a liquid carbon trading market to evolve in New Zealand given the large amount of free carbon pollution permits being given to industry.

In Australia, groups critical of the carbon-trade scheme urged for its passage into law, hoping that once in place the government might be persuaded to increase reduction targets.

Now is the time to move on and ensure this legislation is a springboard for ambitious global action, said John Connor, CEO of independent think-tank The Climate Institute.

(Writing by Michael Perry; Editing by David Fogarty)

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