New Zealand's emissions scheme faces a turbulent road before it starts in 2009, bedevilled by hundreds of last-minute amendments, fierce criticism from industry and a national election within less than a month. But one of the country's top carbon traders and advisers says the scheme will get off the ground, in part because New Zealand must meet its emissions commitments under the Kyoto Protocol. "I'm sure there's going to be a lot of controversy still but I think the mechanics, and the key framework, are in place," Wayne King, director of Carbon Market Solutions, said on Tuesday. "Everyone is getting used to the idea of an emissions scheme." Under the United Nations climate pact, New Zealand is committed to zero emissions growth by 2012 from 1990 levels. Yet the government's latest figures, covering the period from 1990 to 2006, show total greenhouse gas emissions in 2006 were 26 per cent over the 1990 level, and in contrast to the government's aim to be carbon neutral in the total energy sector by 2040. Adding to the uncertainty, New Zealand goes to the polls on Nov 8 and the opposition National Party has pledged to make major changes in the emissions trading scheme if it wins. King believes National would make major changes in the regulatory framework. But National has seen its large lead over the ruling Labour Party slashed, a new poll indicated last week. "Once we've got the election out of the way, there are definitely going to be amendments, there are definitely going to be teething problems," King told Reuters from Hamilton in New Zealand. One of the main uncertainties is the change in a rule that previously allowed unlimited amounts of Kyoto offsets called Assignment Amount Units to flow into the New Zealand scheme to help companies meet their compliance obligations. Companies can now only use what are called "greened" AAUs and the government has not fully defined what it means by this. "Until the government actually accepts some sort of definition or comes up with one, there will not be any AAU transactions," said King, a climate veteran who was closely involved in international negotiations for the Kyoto Protocol. The change was among about 1,000 amendments to the emissions Act before it was passed last month. AAUs are a part of a country's allocation of offsets under Kyoto. They are not generated by an emissions-reduction project other than an obligation or allocation under Kyoto. Many Eastern European countries, such as Russia, Ukraine and Bulgaria have large amounts of AAUs to sell and market players want AAUs as a source of cheaper offsets and extra liquidity. NOT EASY BEING GREEN The units sell for about 12 to 13 euros, compared to the 20 euros for offsets called CERs under Kyoto's Clean Development Mechanism, which allows rich nations to invest in clean-energy projects in the developing world in return for tradeable CERs. Some environmental groups argue Eastern European countries should establish green investment schemes in which money from selling AAUs is ploughed back into clean-energy projects. "I suspect two things will happen. The price will remain pretty strong and the demand will exceed supply," King said of the confusion over AAUs. He believed emissions units from forestry would still yield a large number of offsets to trade in the domestic market initially. He said about 21 million offset units would become available by late next year, priced at about NZ$20-$25. The market would determine the price, with less than 20 of the country's top emitters participating at the start of the scheme. He felt pricing would more likely be in the upper end, adding, "NZ$25 to NZ$30-plus would be the reality". Europe, rather than neighbouring Australia's developing emissions scheme, would provide the main carbon pricing signal, he added. The New Zealand emission scheme phases in industries, with forestry first, followed by stationary energy and industrial emissions in 2010, liquid fossil fuels in 2011 and agricultural waste and all other emissions from 2013. But the country's peak business group, Business NZ, has criticised the plan, particularly the decision to back each New Zealand emissions unit (NZU) with a Kyoto AAU to help link the scheme internationally. "The linking of NZUs and AAUs has not been introduced in any existing scheme and does not appear to be contemplated for any schemes in development," Business NZ told Reuters in a statement. "The impact is likely to be the closure of a number of our large and medium sized industries and the consequent loss of tens of thousands of jobs together with a lack of investment by new and existing industries." (NZ$=62.1 cents; Euro=$1.365) (Editing by Clarence Fernandez) Story by David Fogarty, Climate Change Correspondent, Asia