Kyoto? In a greenhouse north of Auckland, the offices of capsicum exporter Southern Paprika, Hamish Alexander turns around to one of his staff and calls out the question about the firm's carbon credits. He thinks the business gets about $80,000 worth a year, but "buggered" if he really knows. Since the disappointments of Durban, the market price of carbon has crashed from about $21 a tonne to barely $8. So should he be buying or selling to strengthen his position? Again, "buggered" if he can say. "We're just growers, not carbon traders," Alexander admits. Southern Paprika has been in the vanguard of New Zealand's commitments to Kyoto since 2004, when it won a first-round grant of carbon credits for a plan to convert its heating furnace to a bio-energy plant fuelled by waste sawdust and bark shavings. Once just another market gardener, Alexander has developed a slick, hi-tech, export joint venture on his 10-hectare block near Warkworth. In partnership with a Dutch firm, he grows capsicums mainly for Japan, supplying the market in the northern off-season. His glasshouses are computer climate-controlled, the plants individually tube-fed and watered. Sensors pump in extra nutrients if the day turns cloudy. The wood-waste heating system was never installed. A smarter idea was to switch to natural gas because the CO2 produced in the gas-fired boiler is clean enough to trickle-feed to the plants, speeding their growth. A clever trick just like the other world-leading efficiency measures, such as the expensive roll-down thermal curtains which save 40 per cent of his fuel bills on cold nights. Alexander still gets carbon credits from the Government. In a complex deal, it subsidises about half the carbon costs he has to pay under the country's existing Kyoto commitments. New Zealand's Emissions Trading Scheme (ETS) became official in 2008, but it was only in July 2010 that businesses like his greenhouses actually had to start paying to pollute. "It's all pretty new." Anyway, his gas company just whacks the carbon costs on his monthly bill, so he has not really been keeping track. Besides, he adds, with Kyoto becoming a voluntary commitment after 2012, how long is it going to last? "If I read in the paper tomorrow that it'd been dropped, it wouldn't surprise me." Since July 2010, all Kiwis have in fact finally starting bearing the cost of Kyoto. We have been paying something like an extra 3c a litre for fuel and 1c a kilowatt-hour for electricity. The cost of food and everything else has also gone up a touch because of the freight charges or because the industrial processes involved are now carbon-taxed. Yet this increase is so slight, so buried, that people are not reacting much to its existence. It was neither a vote-killer at the last general election, nor are too many people economising on their personal use of carbon. There is also that feeling that as soon as it starts to hurt, it will get dropped. Anyone paying attention to the events at Durban would have noted how Canada pulled out of Kyoto a year early to dodge an $18 billion carbon bill, which would have otherwise resulted from its enthusiastic move into unconventional tar sand oil production. The lesson was if you don't like it, just walk away. Under the Kyoto Protocol - drafted in 1997, but only coming into force in 2008 - signatory nations agreed to ration their carbon use during the course of a series of five-year commitment periods, first pegging their emissions back to 1990 levels, then eventually considerably below. The generally expressed goal was to reach something like half the original 1990 levels of carbon by 2020, or failing that, by 2050. And in an ideal world, countries would aim to become carbon neutral - adding no more greenhouse gases than they took out of the atmosphere. The Kyoto Protocol left it up to individual nations how they achieved their promises. Governments could simply regulate. Or they might create a carbon tax. That was first proposed in New Zealand in 1994, and several more times following. But a straight carbon tax proved too politically unpopular. Or at least industry- sponsored lobbyists such as the Greenhouse Policy Coalition did a good job of battering it down. Instead, New Zealand eventually plumped for the idea of "cap and trade", the ETS route of using market mechanisms to price carbon into the economy. Under ETS, a national cap is set on emissions. For New Zealand to wind back the clock to 1990, the cap would be 60 million tonnes of carbon a year for instance. Then emitters would be allowed to trade ETS credits to reach this goal in the way that most suited them. Polluters could pay for efficiency measures or buy credits to cover their continued emissions. The idea then was that others would create the credits to sell, either by freeing up some of their own quota through energy efficiency, or providing carbon sinks like forestry projects. Liabilities would be traded back and forth to hit the total target and the system would be self- regulating, the cost per tonne of emissions rising rapidly as limits were reached to make further pollution unprofitable. Supporters said it was like a tax, but the scheme was flexible. There were two ways to pay, yet with the same overall outcome. The introduction of New Zealand's ETS regime got delayed until halfway though the first Kyoto period. The incoming National Government put it on ice for a year while ministers had another good think. But it now exists. And it is linked to others, like the European Union's ETS, allowing credits to be traded internationally. So the idea is operating. Stuart Frazer, of Wellington ETS consultant Frazer Lindstrom, says the implementation of the administrative systems has gone surprisingly smoothly. "It has been pretty good and straightforward." Although there is not much actual trading being seen as yet. "It's not a liquid market." It appears then, at least in global terms, New Zealand is doing its bit. It has signed up to Kyoto and created a price signal on national carbon use. Surely, to use the title of the latest Government-commissioned review of the ETS, we are "doing our fair share"? Certainly the official accounts appear glowing. In the first five years of Kyoto 1, New Zealand had to limit itself to 310Mt of emissions to return to 1990 levels. We look like not only hitting that target, but even ending up 21Mt in profit. The books are well in the black. So why the bad marks from climate action observers at home and abroad? Why are people talking about our ETS as some kind of elaborate and dangerous con? It was supposed to be simple, but it got corrupted, claims Simon Terry, of the New Zealand Sustainability Council. Terry analysed the realities of New Zealand's ETS policies in a study, The Carbon Challenge, co- authored with Institute of Policy Studies economist Geoff Bertram. "Our conclusion at the end was it seemed a system that could never deliver on the promises, because of its lack of transparency and the ease with which political favours could be exercised to help out the big polluters." Terry claims to understand what is going on, you have to start with a few critical blunders in New Zealand's wangling over how it was going to meet its climate change commitments. And the question of whether there has ever been a serious intent to cut emissions. New Zealand has an odd emissions profile. We are a high per capita emissions nation, near top of the league. Partly this is because we are a long and skinny country that relies on cars and trucks to get about. But mostly this is because we are an a