Ministerial Climate Change Convenor and former energy minister Pete Hodgson announced the tax today, saying climate change was 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,” Hodgson said.
Hodgson said the carbon tax would be introduced in April 2007 and apply until 2012. It would be set at NZ$15 per tonne unless international carbon charges diverged “substantially from this on a sustained basis”.
A small, negative impact on economic activity was expected and, depending on the international emissions price, New Zealand GDP in 2010 was likely to be about 0.03% lower than it would otherwise have been, according to Hodgson.
The carbon tax would 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 household would total about NZ$4 per week.
Industry reaction to the long-awaited announcement was swift, with Meridian Energy, the country’s largest renewable electricity generator and listed giant Contact Energy both welcoming the tax.
Meridian chief executive Keith Turner said the tax make New Zealand’s renewable energy resources more valuable than ever and would bring greater certainty into new electricity generation planning.
“It is clear that the tax will introduce a price differential which will favour clean, non-polluting energy sources and it demonstrates the wisdom of Meridian’s move to focus solely on development of renewable electricity resources such as wind, hydro and biomass,” Turner said.
“New Zealand has a tremendous advantage internationally in its renewable energy resources. Our untapped wind and hydro resources have the potential to meet the increases in this country’s energy needs for the next 15 years or so.
“We don’t have to rush into developing any carbon-emitting electricity generation. We have the luxury of leaving it to other countries who will be pressured by carbon taxes into developing and proving new technologies to clean up carbon emissions in coal or gas-fired generation plants.”
Contact boss Steve Barrett said confirmation of the level of the future tax clarified an important factor in planning for New Zealand’s future energy needs.
“The actual impact of the carbon tax on electricity prices will not become clear until it is introduced,” Barrett said.
“Competitive and market factors, as well as today’s announced level of the carbon tax, will be important factors on the actual price impact at that time.”
He also welcomed the government’s intention that the carbon tax regime would lead in to a emissions trading scheme.
“An emissions trading scheme is a preferable long term approach because it will provide a more transparent and economically efficient mechanism for rewarding the reduction of greenhouse gas emissions than a one-size-fits-all carbon tax,” Barrett said.
The addition of a carbon charge, which could raise about NZ$570 a year, would be fiscally neutral for the government, as carbon revenue would be “recycled” through other changes in the tax system to be announced later this month, according to Hodgson.
But he conceded the effect of the tax on some energy-intensive businesses, even at NZ$15 per tonne, could be detrimental. So, the government was also introducing a NZ$4.45m package of pilot grants, training and education 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.
“The world economy is changing [and] it is vital for the future of New Zealand that our economy keeps pace with that change,” Hodgson said.
“Emissions now have a price and emissions trading is coming. By introducing a carbon tax now, albeit at a modest level, we can begin to make a smooth transition.”
