The government of New Zealand today provided further detail on its planned carbon tax, first announced in 2002.

The carbon tax will be set at NZ$15 (US$11) per tonne and introduced in April 2007. As outlined in 2002, this will add around NZ$0.01 (US$0.007) to the cost of a unit of electricity, about NZ$0.04 (US$0.03) to a liter of gasoline, NZ$0.46 (US$0.34) to a 9kg bottle of LPG and NZ$0.68 (US$0.50) to a 20kg bag of coal.

The government estimates a weekly financial impact on the typical New Zealand household of about NZ$4 (US$2.90) per week for electricity, gasoline, and other fuels.

The carbon tax is expected to raise approximately NZ$360 million (US$263 million) per year. New Zealand is designing the tax to be revenue-neutral—net proceeds from the tax will be used for tax changes elsewhere. The Government will announce how this revenue gets recycled back into the economy as part of the business tax package in its 2005 Budget.

The government also announced that NZ$4.45 million (US$3.26 million) in grants will be available over the next three years to help energy-intensive small- and medium-size enterprises take up energy saving technologies to offset the impact of the carbon tax.

...it is worth recalling the two main reasons for a carbon tax.

The first is that if we are going to tackle climate change, we need to start taking the environment into account in the economic choices we all make. This is what the carbon tax does. It begins to affect prices, so that environmentally friendlier technologies become relatively cheaper, and vice-versa. It lines up our environmental interests with our economic ones. Of course at $4 per week per household, this will only lead to pretty modest shifts in consumer choices initially. At the margins however, investment will begin to change, and Dr Cullen’s Budget tax package in two weeks will augment that change.

The second is that the world is moving to a future where limits will increasingly be put on greenhouse gas emissions, and rights to emit will be traded. Emissions now have a price. We’ve designed the carbon tax such that we can move to full emissions trading once international markets begin to mature. We have also designed it for simplicity, so that the perfect does not become the enemy of the good.

As emissions limits become more challenging after 2012 and energy costs rise, those countries that have begun the process of change by integrating a price for emissions into their economies will be in a position to adjust smoothly, and will see an increasing competitive advantage. Others will be left behind.

This initiative is not just about caring for the environment. It also represents prudent economic management—anticipating change and making provision now to position the New Zealand economy to best advantage.

—Hon Pete Hodgson, Convenor of the Ministerial Group on Climate Change

Resources:

• New Zealand Climate Change Office

• Implementing the Carbon Tax