Government adds detail to 2002 carbon tax policy

  • Pete Hodgson
Climate Change Issues

The government today gave further detail on its carbon tax policy, first announced in 2002, and released a consultation paper on technical implementation design.

"Climate change is a direct threat to the New Zealand environment, economy, and way of life. This government takes that threat seriously and is acting responsibly to protect New Zealand’s interests,” says Convenor, Ministerial Group on Climate Change, Pete Hodgson. "We stand by commitments made by successive governments to act. We are proud to be one of 150 nations that have ratified the Kyoto Protocol."

The carbon tax will be set at $15 per tonne and introduced in April 2007. As outlined in 2002, this will add around one cent to the cost of a unit of electricity, about 4 cents to a litre of petrol, 46 cents to a 9kg bottle of LPG and 68 cents to a 20kg bag of coal. The impact on the typical Kiwi household will total about $4 per week for electricity, petrol, and other fuels. It has been designed to allow for a future transition to emissions trading.

"If we are going to tackle climate change, we need to start taking environmental costs into account in the economic choices we make. The carbon tax introduces a price differential between clean and polluting energy sources that reflects their environmental costs, so individuals and businesses can make informed choices.”

The carbon tax will not lead to an increase in government revenue. Net proceeds from the tax will be used for tax changes elsewhere. These will be announced as part of the business tax package in the budget.

"As tax tends to dissuade consumption it makes sense to shift it onto those things we want less of such as greenhouse gases. If the revenue raised is used to reduce tax on those things we want more of, such as investment in new technology to make our economy more productive, we can start to make a difference to both.

“The world economy is changing. It is vital for the future of New Zealand that our economy keeps pace with that change, realises that emissions now have a price and that emissions trading is coming. By introducing a carbon tax now, albeit at a modest level, we can begin to make a smooth transition. This government is not prepared to gamble with the future of New Zealand's environment, way of life and economy by failing to take action."

Notes to editors

A consultation paper released today seeks feedback on how the carbon tax will apply to specific industries that are directly affected, such as fossil fuel producers and importers. The closing date for submissions is 8 July. The paper, ‘Implementing the carbon tax’, is published at

Work carried out by the Energy Efficiency and Conservation Authority (EECA) and the Ministry for the Environment (MfE) shows that many households, motorists and non-energy intensive businesses can implement no and low cost energy efficiency measures that could more than offset the effect of the carbon tax on energy costs.

Comprehensive advice on energy efficiency measures is available to all households and motorists from EECA.

Overall, estimates of the macroeconomic impact of the carbon tax vary, although a small but negative impact on economic activity (measured by GDP) is expected. Depending on the international emissions price, GDP in 2010 is likely to be in the order of 0.03 per cent lower than it would otherwise have been.

Two weeks ago the government announced a streamlining of the process to obtain Negotiated Greenhouse Agreements (NGAs). Firms with NGAs can gain exemptions from the carbon tax in return for moving to world's best practice in emissions management. They are available to firms whose international competitiveness would otherwise be at risk.

Three weeks ago the government announced a pilot grants package through which firms in energy intensive sectors can apply for funding to introduce and demonstrate energy efficient technologies relevant to each sector. The package also includes moves to encourage training and education initiatives.

More detail of how the revenue the government will receive from the carbon tax will be used to make changes elsewhere in the tax system (so that the government does not see a net increase in tax revenue as a result of the introduction of the carbon tax) will be given in the business tax package in the budget on 19 May.

Business leaders have already said they see depreciation rates on capital equipment as being a key tax measure that would enable businesses to a make their own choices on how best to invest in a more energy efficient future.

Timeline: New Zealand Government & Climate Change 1992-2005

1992 – National Government signs United Nations Framework Convention on Climate Change (UNFCCC) at the Rio Earth Summit, which sets up voluntary commitments for reducing greenhouse gases.

1994 – National Government sets target of returning New Zealand’s emissions to 1990 levels by 2000, and agrees to introduce a carbon charge in 1997 if emissions reductions are not on track to meet this target.

1995 – International meeting of parties to the UNFCCC concludes that existing voluntary agreements are inadequate, and that further measures are necessary.

1996 – National Government releases consultation paper on economic instruments (carbon taxes and emissions trading).

March 1997 National Government defers decision on carbon charge, given impending international negotiations on binding targets.

December 1997 Kyoto Protocol negotiated by Environment Minister Simon Upton.

February 1999 – National Government consults on options for meeting New Zealand’s Kyoto obligations, including emissions trading from 2008 and a carbon charge.

October 1999 – National Government confirms their preferred policy as domestic emissions trading from 2008.

September 2001 - Labour Government decides that a formal decision to ratify the Kyoto Protocol should be taken after further consultation and development of domestic policy options.

October-December 2001 – Consultation on intention to ratify the Kyoto Protocol and on domestic policy options.

May 2002 Release of a Preferred Policy Package (including a carbon tax) for further consultation.

October 2002 Government announces confirmed Policy Package.

December 2002 – New Zealand ratifies the Kyoto Protocol - the 101st country to do so.

May 2005 - Announcement of start rate for carbon tax, release of consultation document on implementation detail. Tax designed to allow for future transition to emissions trading.

April 2007 – Proposed start date for carbon tax.