OPINION: She's a hard road finding the perfect carbon reduction scheme, and the decisions announced this week on the emissions trading scheme by Climate Change Minister Tim Groser show just how hard it is.

Global progress on a deal to replace the Kyoto Protocol is sclerotic, and the only other functioning emissions trading scheme in the world – in Europe – is mired in its own contradictions. The Government's indefinite postponement of any further action here is understandable.

It is also deeply depressing, for two main reasons.

First, it's depressing because the world needs to price carbon sooner rather than later if the technologies to cap rising global temperatures at somewhere between 2 and 4 degrees Celsius are to be adopted.

As the deputy chief executive of the International Energy Agency, Ambassador Richard Jones, outlined in a presentation last week in Wellington, there is a chasm between the world's current efforts to arrest accelerating average global temperatures and what actually needs to happen.

Across the spectrum of initiatives, from carbon capture and storage through to the uptake of renewables and energy efficiency, the failure to get a price on carbon is the single biggest impediment to the rise of "green growth".

New Zealand's decisions this week show such efforts are, if anything, slowing down.

For the army of lurking climate change sceptics, this is all great news. If climate change isn't real, then the latest climb-down reduces the costs of a worthless exercise.

But it's worse than that. Climate change is happening and New Zealand's ETS is now the equivalent of a hot rod with no wheels – a costly exercise that achieves no impact on climate change, despite being intended to do so.

This is the second reason this week's decisions are so depressing: they pole-axe the economic incentives of taking action in New Zealand that would actually reduce carbon emissions, rather than simply offsetting them with credits from offshore.

Carbon farming using plantation forests was a shaky proposition before this week, thanks to the collapse in the global carbon price caused by the European glut of carbon credits. As of this week, the coffin is nailed shut for the next four years, if not longer.

The natural instinct of the Government's critics is to slip on the good old Kiwi hair shirt and claim variously that these decisions will harm our clean, green image; are a failure of our international leadership obligations; that we are loading costs on to future generations; and that this will do nothing for green growth.

The first two claims are fanciful. They assume that anyone in the world actually cares what New Zealand does about climate change and that this country's entrenched "story" as a clean place faces any kind of real threat.

It's important that New Zealanders care, but it would take an environmental disaster of apocalyptic proportions to dent global perceptions of this country's relative purity.

The second two charges, however, have weight. Unless New Zealand starts reducing its own emissions actively, it risks a near-certain multibillion-dollar costs bill within the next decade, which real taxpayers will really have to fund with real money. You won't see that in the Budget forecasts yet, but the obligations exist and are building up.

And since the economic signal to invest in cleaner technologies is all but neutered by leaving the ETS as it is, the likelihood of such mitigating action is reduced.

Still, perhaps it's not such a bad thing that our first attempt at a trading market for carbon emissions takes a holiday. From a financial markets information perspective, Monday's announcements were sloppy.

Groser's press statement landed haphazardly in carbon traders' dealing rooms and lacked detail for anyone needing to adjust their positions in response to the biggest news on the ETS in ages. Two days later, that information was still not available. If this happened in the currency markets or the stock exchange, there'd be an outcry, an inquiry, and scalps taken.

IF AND when the New Zealand carbon market revives, and especially if it involves government dominance by virtue of a proposed auction system, it will need a framework that makes the market institutionally credible.

For all that, the Government's political logic is hard to fault, even if its decisions bear the heavy imprint of BusinessNZ and Federated Farmers lobbying. Who knows if this package would have flown if blue-green Nick Smith had still been environment minister.

In a sputtering economy, with global consensus on climate-change policy absent, the judgment is that New Zealand is doing enough just by having an ETS at all, and helping where it can in global forums and research.

Groser is depending on that message drowning out the inconvenient truth that we just took a step back from acting on the planet's biggest problem.

- BusinessDesk