## New Zealand Scuttles Carbon Tax

##### 20 December 2005
 New Zealand’s GHG mix is heavier on methane than many Kyoto nations.

New Zealand Minister Responsible for Climate Change Issues David Parker announced the government is not proceeding with its proposed carbon tax (earlier post) and will instead consider other ways to ensure New Zealand meets its commitments to cut greenhouse gas emissions.

The decision not to implement the carbon tax follows a whole of government review of climate change policy, which the government called for in June. The government has asked officials to undertake further policy work. This report is due to ministers in March.

The carbon tax would have been set at NZ$15 (US$11) per tonne and introduced in April 2007. As outlined in 2002, this would have added 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 government has decided not to implement a carbon tax, or any other broad based tax, in the first commitment period under the Kyoto Protocol. Officials now advise that the proposed carbon tax would not cut emissions enough to justify its introduction.

... The government takes seriously the threat that human-induced climate change poses to our environment, economy, and way of life. We have an obligation to do something about it, and we will.

It is important that we modify climate change policies in light of [the booming of the New Zealand economy since 1990]. They need to be fair to everyone, from residential consumers and small businesses to major energy users and power generators.

—David Parker

Other policies linked to the carbon tax, such as Negotiated Greenhouse Agreements for major energy users and emitters, are likely to be retained in some form.

The composition and the concentration of New Zealand’s greenhouse emissions differs from those of other Kyoto Annex I countries, and this affects the feasibility of the range of available mitigation options, according to the review panel.

Methane emissions from enteric fermentation, combined with nitrous oxide emissions from agricultural soils, account for more than half of New Zealand’s total gross emissions. The comparable figure for the European Union is just 12%.

Agriculture alone contributes around 4.5% of GDP, and total primary-sector produce accounts for around two-thirds of New Zealand total exports. The significance of these emissions presents a particular challenge, as cost-effective mitigation options for agriculture are currently limited.

 The CO2 component of GHG emissions for select countries.

For most Annex I countries, carbon dioxide accounts for over 75% of gross emissions. In New Zealand, it accounts for just 46%. This also reflects the contribution of renewable energy sources (in particular, hydro) to New Zealand electricity generation.

The review panel worried that while the contribution of new renewables (in particular, wind) is projected to increase, the fact that the country’s electricity supply is already relatively low in emissions intensity by world standards means that the scope for mitigation from fuel switching is more limited than for many other countries.

Furthermore,

In regard to our Kyoto obligations, these challenges are compounded by the 1990 baseline. In 1990, New Zealand was emerging from a period of low growth, associated with significant economic reforms and restructuring. Since then, our growth has been higher than many other Annex I countries, and indeed higher than expected when we ratified the Kyoto Protocol. The 1990 baseline therefore means we begin at a trough and span a period of strong growth—from New Zealand’s perspective, an unfortunate confluence of factors.

Areas on which officials will report back on in March include:

• Incentivizing investment in renewable energy

• Encouraging new tree planting and reducing deforestation

• Improving fuel efficiency of the transport fleet

• Assessing options for a narrow-based carbon tax on major energy users and emitters who do not meet world best practice

• Improving energy efficiency and conservation.

Parker said the agriculture sector, which accounts for approximately 50% of New Zealand’s emissions, would be protected from any broad-based price measure. It is anticipated that some of the money saved by the sector will be reinvested in research and development.

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