Under the scheme, major industries will be allocated a cap on emissions of greenhouse gases. To exceed the cap, polluters will have to buy credits from others who are below their limits or from those planting forests, which absorb carbon dioxide.

"Climate change is one of the most important global issues facing us. It affects us all and our way of life," Prime Minister Helen Clark said.

"It is important that we put a price on greenhouse gas pollution to encourage businesses and households to become more energy efficient."

Under the Kyoto Protocol on reducing greenhouse gases, New Zealand has agreed to reduce emissions to 1990 levels by 2012.

But Energy Minister David Parker said under current projections, New Zealand would exceed this by 45.5 million tonnes (50.2 million short tons) of gases blamed for climate change.

The trading scheme, covering gases including carbon dioxide and methane, should see this figure fall to 25 million tonnes by 2012, Parker said.

"If we don't introduce an emissions trading scheme, emissions will increase further -- to a deficit of around 65 million tonnes," he warned.

Industries will be progressively brought under the scheme.

Forestry owners will be able to get credits for planting from next year, with the aim of increasing forests by 250,000 hectares (617,763 acres) by 2020.

Liquid fossil fuels, mainly for transport, will come under the scheme in 2009, while coal, gas and geothermal energy used for electricity generation will be included the following year.

Other industries will be included from 2010 and agriculture from 2013.

Agriculture accounts for almost half of the country's greenhouse emissions because of methane and nitrous oxide produced by cows and sheep.

Parker said the scheme will mean consumers will pay four cents more for a litre of petrol and power bills will be five percent higher.

He added the initiative would shave an estimated 0.1 percent off economic growth.

Among the long-term goals, New Zealand aims to generate 90 per cent of electricity from renewable sources by 2025 and to halve transport emissions by 2040.

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