Carbon tax: Fuel rise off, power hike on

David Parker

The Government has scrapped plans for a tax on the carbon content of fossil fuel that would have added 4c a litre to petrol and diesel from April 2007.

But fuel-burning power stations are still likely to face some form of the carbon tax, which would have added around 1c a unit to the price of electricity, increasing the average residential consumer's power bill by about 6 per cent.

And the Government is looking at restrictions on used-car imports, to lower the age of the national vehicle fleet and increase its fuel efficiency.

Climate Change Minister David Parker denied that the backdown was a result of the difficulty the Government would have faced mustering the numbers in Parliament to pass a carbon tax. It is opposed by National, United Future, New Zealand First and Act.

Mr Parker said the decision not to proceed with the tax in its present form arose from the results of a Government review begun in June last year, which had concluded that the expected gains - a cut in emissions of about 13 million tonnes of carbon dioxide between 2008 and 2012, representing only 3 per cent of the country's expected emissions - were not worth it.

The effect on transport use of an extra 4c a litre on petrol would be negligible compared with the impact of the rise in petrol prices which has already occurred as a result of higher world oil prices.

"But a narrower carbon tax is still on the drawing board in particular in the area where I can't see any alternative, electricity generation," Mr Parker said.

Had the review concluded that a broad-based carbon tax would do more good, the Government would have done its utmost to muster the parliamentary numbers for one.

Agricultural emissions - about half the national total - continue to be exempt from any price-based measures. But now that farmers will also escape a tax on diesel and petrol, Mr Parker said he hoped they would contribute more to research on how to reduce on-farm emissions.

He said something would "probably" be done to encourage tree planting on land not previously forested, which under the rules of the Kyoto Protocol gives rise to credits New Zealand can offset against its liabilities from emissions of the greenhouse gases blamed for global warming.

Scrapping of the carbon tax was welcomed by business lobby groups and panned by environmental ones.

National Party leader Don Brash called for the Government to consult National before locking in any new climate change measures to avoid having policy that chopped and changed with changes of Government.

Greens leader Jeanette Fitzsimons said the Government had given up on its goal of reducing New Zealand's carbon emissions and capitulated to the anti-Kyoto lobby.

But Mr Parker said he was confident the new set of policies - more details of which should be available from April next year - would deliver larger emission reductions than would the carbon tax as originally designed.

"The cost may well increase in the future but those costs pale into insignificance compared with the costs of climate change itself if we do nothing about it," he said.