The New Zealand conservative government has released its first annual report on its emissions trading scheme, and the general assessment is: it's working well.

In a foreword to the 20-page report, released Monday, New Zealand's climate change minister Nick Smith says he is pleased with how smoothly the scheme is progressing, in achieving its goals of reducing greenhouse gas emissions and driving new investment in forestry and renewable electricity.

"This report shows the ETS is working as intended, that the implementation has gone smoothly, and that New Zealand is now on target to meet its Kyoto obligations," says Smith.

In forestry – the first sector of the New Zealand economy to join the ETS, on January 1 2008 – the report shows that New Zealand's record 40,000 hectares of deforestation between 2005 and 2008 has been reversed, with increases in afforestation every year since the ETS was put in place.

The report says New Zealand's forest area grew by 4700 hectares in 2010 and is projected to increase by 5700 hectares in 2011 and 7700 hectares in 2012; a change, says Smith, that has had "a dramatic impact" on NZ’s net emissions – down for two consecutive years after a 23 per cent increase between 2000 and 2008 – and that will be essential to meeting its Kyoto obligations over 2008-2012.

"We are on target to comfortably meet our Kyoto target with a projected 21.9 million tonne surplus. Without the ETS we would be exceeding our target by 19.5 million units and face international costs of $485 million," Smith said.

Smith also praises the achievements towards another of the scheme's key objectives: "to alter New Zealand’s path of electricity emissions that have grown 130 per cent since 1990, the largest increase of any sector."

The energy sector, along with NZ's industry and transport sectors, was brought into the scheme on July 1 2010 – bringing the total amount of business activities covered in the scheme to 38 – and all three faced an obligation to surrender units according to the level of their emissions.

"The price incentives of the ETS helped renewable electricity hit a 12-year high of 79 per cent in 2010," said Smith. "Eleven new renewable power stations totalling 1340MW of capacity have been consented in the past year – 59 per cent wind, 26 per cent geothermal, 13 per cent hydro, 2 per cent tidal. This is an all time high, is five times the annual average of the past decade, and contrasts with most new capacity over the last decade being fossil fuelled."

But the "real success" of the scheme so far, said Smith, was the influence it has had on investment decisions.

"The report shows 98 per cent of emitters used forestry and other New Zealand units to meet their ETS obligations, with very few using overseas units or the fixed price option," he said. "This dispels concerns New Zealanders through the ETS would be paying money overseas and the fixed price option would excessively distort the market."

The report also reveals a marked increase in business support of the scheme, with submissions to the review panel showing 63 per cent were now in favour of it, compared to 78 per cent being opposed to the scheme two years ago.

It also shows that actual allocations to trade-exposed businesses totalled 1.76 million tonnes, which Smith says is 25 per cent less than forecast. The number of businesses eligible for support was nearly 300 – three times greater than forecast.

"This reflects a large number of smaller businesses, principally export horticulturists, being eligible for support but for relatively small amounts. The lower overall levels of allocations reflect a smaller number of big industries meeting the 1 or 2 per cent cost of turnover test for support," the report says.

The report concludes: "There are encouraging signs that a price on carbon is gradually being introduced into New Zealand’s economy, and that this price is beginning to work its way towards the Government’s goals of reducing emissions and managing the cost of New Zealand’s international climate change obligations."

Meanwhile, the release of the NZ report turns out to be a bit of well-timed good news for Australia's Gillard government, which is still struggling to sell its carbon pricing package, on which it released draft legislation last week.

While some Australian businesses and industry groups have thrown their support behind the proposed scheme, some remain strongly opposed.

Last week, the Australian Trade and Industry Alliance – backed by the Australian Chamber of Commerce and Industry, the Minerals Council of Australia and the Australian Coal Association – launched a $10 million ad campaign to build public opposition to the carbon tax in the hope that it will either be substantially modified or fail to pass through Parliament.

But John Connor, CEO of the Climate Institute, says the New Zealand report shows how quickly this sentiment can change.

"What this report clearly demonstrates is that support for carbon pricing grows once it is experienced in action," Connor said.

"Most in business have turned around their opposition and some are grasping the low carbon opportunities to invest, create jobs and create profits while cutting pollution. The gloom and doom predictions have begun to melt away."