Carbon tax to push petrol up 4c a litre

The Government is set to announce details of a new tax today which will add to the costs of fuel and power.

The tax on the carbon content of fossil fuels is expected to add 4c a litre to the price of petrol and diesel from 2007 and push up domestic power bills by 4 per cent.

These estimates would apply if the tax is imposed at the level signalled and uses previous Government estimates of the impact.

The carbon tax is the central plank of a polluter-pays policy to curb emissions of the greenhouse gases widely blamed for global warming, particularly carbon dioxide from the combustion of fuel.

Although the tax is not due to come into effect for two years, the Government has been under pressure to firm up the details, as uncertainty about the level of the tax and how it will be applied has been making planning difficult for businesses.

When it first announced the policy three years ago the Government said the level of the tax would be no more than $25 a tonne of carbon dioxide, which would equate to 6c a litre for petrol, 7c for diesel and a 6 per cent rise in average residential electricity bills.

More recently ministers have dropped several hints that the level is likely to be closer to $15 a tonne, in line with prices prevailing on the European market for tradeable rights to emit greenhouse gases - at least until they started climbing two months ago.

As well as the direct effect felt by consumers at the pump, a tax on fuels will push up the price of goods which have to be transported.

The Treasury has estimated that a carbon tax at the maximum $25 a tonne level would increase food prices by 1.3 per cent and the cost of public transport by 1.4 per cent.

Tax of one kind or another already adds about 60c a litre to the price of petrol, including the 5c petrol tax introduced on April 1 to pay for more roads. A further increase is expected next year to pay for increased oil storage capacity.

The price of electricity has risen nearly 10 per cent over the past year.

The National Party has pledged to scrap the tax.

New Zealand's largest source of greenhouse gas emissions, belching cattle and sheep, are exempt from the tax.