UPDATE 1-NZ govt committee backs carbon trading scheme

* NZ parliamentary report recommends carbon trading scheme

* Says it should cover all sectors, link with other schemes

* Carbon trading preferable to a carbon tax, report says

WELLINGTON, Aug 31 - New Zealand should retain an emissions trading scheme which includes all sectors of the economy as a credible means of fighting climate change, a parliamentary report said on Monday.

The report of the Emissions Trading Scheme review committee said carbon trading was preferable to a carbon tax as the best way to fight climate change.

The report gives very few specifics and is more of a broad guide for the government. But the document says a short-term case can be made for having caps on the price of emissions while the market is developing.

"I think the report advances and clarifies the thinking around issues such as what New Zealand's response to climate change should be," committee Chairman Peter Dunne said in a statement.

The committee had been reviewing the largely stalled emissions trading scheme (ETS) as part of a deal struck when the centre-right National Party came to power following a general election in November 2008.

At the time, the new government said the existing scheme was too expensive and ambitious, suspending its implementation except for the forestry sector.

The report is designed to lay a platform for the government's next steps, Dunne said, as it seeks to develop its negotiation position for a U.N. climate change conference in Copenhagen in December.

The final decision on any changes to the scheme rest with the government and Climate Change Minister Nick Smith.

The report also said international linkages with other schemes under the U.N.'s Kyoto Protocol would help ensure liquidity and the efficient functioning of the New Zealand scheme.

HARMONY

Smith has consistently said he wants a scheme which is in harmony with the system still to be approved by Australia, New Zealand's largest trading partner.

The committee's report was not a majority view and each of the other four parties on the committee issued their own minority views on various issues.

On Aug. 10, Smith said New Zealand would aim to cut carbon emissions by between 10 and 20 percent below 1990 levels by 2020, with an emissions trading scheme one of the key tools in meeting the target.

The Labour-led government, which lost the November election, had implemented the initial cap-and-trade scheme, which involved the gradual introduction of various industries and wanted New Zealand to become carbon neutral by mid-century.

Despite indications the government does not intend sweeping changes, investors in sectors such as forestry had criticised the lack of certainty after the scheme was put under review.

The National Party campaigned on a less onerous scheme, saying the country should balance its environmental and economic interests.

On Aug. 14, Australia's parliament rejected an emissions trading scheme, although the government has pledged to try to push through the legislation before the end of the year.

Under the Kyoto Protocol, New Zealand's emissions are meant to show no increase from 1990 levels between 2008 and 2012, the pact's first commitment period. But Smith has previously said emissions rose by 24 percent between 1990 and 2008.