Cablegate: New Zealand Scraps Plans for Carbon Tax

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DE RUEHWL #0991 3560355
ZNR UUUUU ZZH
R 220355Z DEC 05
FM AMEMBASSY WELLINGTON
TO RUEHC/SECSTATE WASHDC 2178
INFO RUEHBY/AMEMBASSY CANBERRA 4250
RUCPDOC/USDOC WASHDC 0016
RHMCSUU/DEPT OF ENERGY WASHINGTON DC

UNCLAS WELLINGTON 000991

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STATE FOR EAP/ANP - DRICCI AND OES/EGC - SYOFFE
COMMERCE FOR 4530/ITA/MAC/AP/OSAO/ABENAISSA

E.O. 12958: N/A
TAGS: SENV ENRG NZ
SUBJECT: NEW ZEALAND SCRAPS PLANS FOR CARBON TAX

REF: WELLINGTON 603

1. (U) The New Zealand government has scrapped its plan to
levy a tax on the carbon content of petrol and diesel fuel,
which it had hoped would help New Zealand meet its emission
targets under the Kyoto Protocol. However, the government
still will consider a carbon tax on fuel-burning power
stations and other measures to reduce the country's
carbon-dioxide emissions.

2. (U) Climate Change Minister David Parker announced
December 21 that a government review initiated in June 2005
showed that the carbon tax would not cut emissions enough to
justify its introduction. Parker said a new set of policies,
due in March 2006 -- would deliver larger emissions
reductions. The tax had been expected to cut by 3 percent
the country's emissions during the first Kyoto commitment
period from 2008 to 2012. Due to go into effect in April
2007, the tax would have added approximately NZ 4 cents per
liter (US 10.6 cents per gallon) to gasoline, considered
negligible when compared to the rise in gas prices resulting
from higher world oil prices.

3. (SBU) Although Parker denied the move was forced by
political reality, the Labour government lacked sufficient
votes to pass the carbon tax legislation. Two of Labour's
partners in government, United Future and New Zealand First,
had opposed the carbon tax, as had the National and ACT
parties. The only strong support for the carbon tax came
from the Green Party, whose leader Jeanette Fitzsimons
criticized the government for "giving up on its goal to
reduce New Zealand's carbon emissions," capitulating to the
anti-Kyoto lobby, and abandoning a carbon tax plan 10 years
in the making.

4. (SBU) While the carbon tax might not have made much of a
dent in New Zealand's carbon emissions, its cancellation
exacerbates the government's budgetary pressure by creating a
shortfall of NZ$ 350 million (US$ 245 million) per year,
which already had been earmarked for tax reductions. Finance
Minister Michael Cullen said that the loss in expected
revenue may require the government to adjust its plans to
increase personal income tax thresholds beginning in April
2008.

5. (SBU) At the same time, the cost to New Zealand for its
commitment to the Kyoto Protocol is getting bigger,
considering the cost of the extra emissions that the carbon
tax had been expected to prevent. In June 2004, the
government announced for the first time that New Zealand's
estimate of its greenhouse gas emissions would exceed targets
set under the Kyoto Protocol. It is still estimating a
liability of hundreds of millions of dollars (reftel).
Burnett

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