New Zealand’s Global Warming Tax

May 9, 2005

Can we tax our way out of global warming? We’ll soon find out thanks to what The Guardian describes as a “tax experiment” in New Zealand:

New Zealanders will pay an extra NZ$2.90 (US$2.12) 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.

The tax goes into effect April 2007. The Labour government estimates it will cost consumers US$150 per year (though that figure is disputed). The tax makes New Zealand the first country to begin writing guidelines set out in the Kyoto protocol into its tax code.

Unsurprisingly, PricewaterhouseCoopers immediately issued a statement warning about economic harm from the tax:

The carbon tax will affect New Zealand’s international competitiveness, especially since major trade competitors such as China and Australia are not constrained by the Kyoto Protocol.

“The reality is that this tax makes New Zealand less attractive as a destination for investment,” said Julia Hoare, leader of the PricewaterhouseCoopers Climate Change Services team.

For more on how non-neutral tax policy affects global competitiveness, check out our International Tax pages, especially “The Economics of International Taxation”.


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