1 October 2008

Tax Cuts Eaten Into By Emissions Trading Costs

The executive director of the Greenhouse Policy Coalition, Catherine Beard, says the much needed tax cuts will unfortunately be eaten into significantly by the increased costs households will face from the emissions trading scheme.

"If the full impact of the ETS is costed against the tax cuts that start today, then up to $30% of the tax cut householders receive will be needed to meet higher costs arising from the emissions trading scheme. As tax cuts increase by 2011, the fraction gets lower, but as much as 15% of the tax cuts could still be going towards higher costs associated with the ETS if carbon is priced at $50/tonne of CO2, which is very likely since we are close to that price today."

Catherine Beard says the price of carbon in the next four years is a big unknown, but carbon market analysts are predicting it could get very high, which will have a big impact on energy prices throughout the economy.

"By exposing 100% of our economy to the international carbon market, which is driven by political decisions made in Europe and what is happening with the oil and gas prices, New Zealand is taking a big economic gamble."

"At a time when European countries are looking hard at ways to lessen the impact of emissions trading on their economies ( EU lawmakers plan to make climate goals cheaper; EU panel urges more CO2 offsets, no east-west deal; EU eastern states fear carbon plan empowers Russia) New Zealand is trying to lead the world."

Estimates for the ETS costs per household, the net impact is as follows:
Tax reduction benefit and ETS cost per household per annum
Tax change implemented
First
Final
1-Oct-08
1-Apr-11
Tax reduction benefit per household pa
2,223
4,397
Assuming $25/t CO2
ETS costs per household pa
170
330
170
330
Tax benefit less ETS cost
2,053
1,893
4,227
4,067
Fraction of tax benefit needed to meet ETS cost
8%
15%
4%
8%
Assuming $50/t CO2
ETS costs per household pa
330
660
330
660
Tax benefit less ETS cost
1,893
1,563
4,067
3,737
Fraction of tax benefit needed to meet ETS cost
15%
30%
8%
15%

ENDS

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