New Zealand First to Levy Carbon Tax

New Zealanders will pay an extra NZ$2.90 (£1.11) a week for electricity, petrol and gas when the country becomes the first in the world to introduce a carbon tax to address global warming.

It is expected to add about 6% to household energy prices and 9% for most businesses but will help the economy in the long run, according to Pete Hodgson, the minister responsible for climate change policy.

Mr Hodgson set the tax yesterday at NZ$11 a metric tonne of carbon emitted. It will come into effect in two years. "If we are going to tackle climate change, we need to start taking environmental costs into account in the economic choices we make," he said.

The tax, planned after New Zealand signed up to the Kyoto protocol, would make polluting energy sources like coal and oil more expensive than cleaner ones like hydro, wind and solar, he added.

The experiment will be watched closely by bigger countries who are also committed to reducing carbon emissions but are failing to reduce energy demand.

The government estimates the tax will raise about NZ$360m a year but has said it will not increase revenues.

"It will be balanced by other tax changes so there is no net increase in government revenue", a government spokesman said yesterday.

The most energy-intensive businesses will be exempted so they are not forced to shut or relocate. In return companies such as Comalco, which uses 15% of the country's power, and Carter Holt Harvey Ltd, the country's biggest saw mill, must commit to reducing carbon emissions.

New Zealand, which produces about 29% of its electricity from gas or coal-fired power stations, has a record of introducing the idea of green taxes but then dropping them.

In 2003 the government planned to impose a methane tax on farmers because flatulence of cows and sheep was responsible for more than half of New Zealand's total greenhouse gas emissions. But that was abandoned after criticism from angry farmers, who labelled it a "fart tax".

Reaction to the carbon tax was mixed yesterday. "It's good to see there are no surprises," said Tom Campbell, the managing director of Comalco's aluminum smelting operations.

A government spokesman said the tax would have long term benefits for the economy: "If New Zealand does nothing ... our emissions will continue to rise as will the future cost of reducing them.

"If we can curb our growth in greenhouse gas emissions now, we will be better placed to make a smooth transition to more challenging commitments after 2012."

Other countries, especially in Europe, have energy taxes which are weighted against producers but New Zealand is believed to be the first to ask the public to pay directly for the costs of reducing global warming. Proposals for a Europe-wide carbon tax were abandoned in the 1990s.