The household cost of responding to climate change

Although predicting the international carbon price was difficult, it was generally accepted it would rise before and throughout the 2020s. Photo / iStock

The cost to New Zealand households of responding to climate change could be $6 a week in petrol and electricity bills, a paper by the Ministry for the Environment shows.

The Government's main policy for combating climate change, the Emissions Trading Scheme (ETS), is being reviewed. The scheme requires all sectors except agriculture to pay for each tonne of carbon they emit, and these costs are usually passed on to consumers.

As part of the review, the Ministry has estimated the potential impacts of a stronger ETS and a higher price on carbon.

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A discussion paper out this week said businesses and consumers needed to prepare for a rising carbon price.

Although predicting the international carbon price was difficult, it was generally accepted it would rise before and throughout the 2020s.

At present, the effective carbon price in New Zealand was $3.50 a tonne, which translated to an annual cost to households of $21 in petrol and electricity bills.

The European Union was preparing for a carbon price of $25 a tonne in 2020 and $57 a tonne in 2030. To reach the goal of limiting global temperature rises to 2C this century, the price needs to be between $90 and $178.

The Ministry's paper showed the cost to New Zealand households of greater climate change commitments would be modest.

The Ministry estimated that if the carbon price rose to $20 a tonne, petrol costs for the average New Zealand household would rise by around $48 a year and power bills would rise by around $53 a year.

If the carbon price rose to $50 a tonne, petrol and electricity prices would rise by $6 a week.

The discussion paper said the carbon price would rise more quickly if one of the main proposals in the ETS review was adopted.

A measure which allowed some industries to effectively pay half-price for their emissions could be scrapped.

The discount was introduced in 2009 to provide relief to some sectors -- liquid fossil fuels, industrial processes, waste and stationary energy -- after the global financial crisis.

"There is now a strong rationale for [these sectors] to take full responsibility for their emissions, as circumstances have now changed," the discussion paper said, noting that the New Zealand economy had recovered and was now growing.

The Ministry said getting rid of the discount on carbon units would increase the incentives to reduce emissions, and would give businesses more certainty when making investment decisions. It would also double their emissions costs and lead to higher bills for consumers.

Adding up - Estimated annual Emissions Trading Scheme costs passed through to households:

• Carbon price of $3.50 (current)

Petrol: $10

Electricity: $11

• Carbon price of $20

Petrol: $58

Electricity: $64

• Carbon price of $50

Petrol: $145

Electricity: $161