7. Greenhouse Gas Charge
A greenhouse gas charge is an environmental charge applied on the greenhouse gas emissions associated with emitting activities such as the production and/or consumption of fossil fuels. The carbon charge (later renamed the carbon tax) developed in the government’s 2002 climate change policy package was intended to reduce emissions by placing a price signal on the use of carbon-based fuels, including transport fuels and electricity generation, as well as on the carbon dioxide-equivalent emissions from industrial processes. Development of that carbon tax was halted at a stage where officials were considering public submissions on an implementation issues consultation document. Nonetheless, many technical matters had been resolved and could be applied in a new greenhouse gas charge regime. These include issues such as emission factors (particularly for coal types, natural gas streams and geothermal energy), definition of points of obligation, treatment of fugitive emissions and administrative issues.
Examples of international carbon charges
Several examples of carbon charges operate overseas, apart from the plethora of energy taxes used for reasons other than to incentivise greenhouse emission reductions. As mentioned above, the UK has a climate change levy applied to energy use in specific sectors. This levy runs alongside a negotiated agreements programme, a domestic emissions trading system and the European Union Emissions Trading System. Sweden, Norway and Denmark have carbon charges with varied scopes, rates and methodologies. Switzerland has an industry-levied “Climate Cent” programme on transport fuels with revenue recycled to fund mitigation projects at home and abroad. This is in addition to the national CO2 levy on stationary fuels primarily used in industrial processes and domestic heating.
For more on Switzerland’s Climate Cent, see this website:
http://www.stiftungklimarappen.ch/klimarappen/shop/store/navi30/index.asp?l=4
The IEA has a useful policies and measures database that can be searched for energy and carbon tax regimes: http://www.iea.org/textbase/pamsdb/search.aspx?mode=cc
A broad-based greenhouse gas charge, along with broad-based emissions trading, could potentially be applied across all sources of emissions in the economy, including the energy, transport, agriculture, forestry and waste sectors. Changing absolute and relative prices could influence investment and behavioural decisions, as well as giving incentives to develop and use new technologies. The rate of the charge and the use of associated revenue would influence the amount of emissions reduced by the charge.
There are likely to be issues involving measuring and reporting emissions within the agriculture, forestry and potentially the waste sectors with any broadly applied greenhouse gas charge.
The rate of a broad greenhouse gas charge could be set at a low level to seek minimal competitiveness and potential macroeconomic or sectoral economic impacts. However, a low rate might have only a small impact on emission growth and technology development and uptake, particularly in the transport sector, where demand is less responsive to small price changes. The rate could be linked to an international price of greenhouse gas emissions if there was a readily identifiable market for emission allowances. It could also be set at a relatively high level on certain fuels should large improvements in energy efficiency and substantial emission reductions be sought from sectors known to be slow to react to a lower price.
A greenhouse gas charge could be combined with trading aspects to make a hybrid mechanism. For example, firms subject to a charge could retain an option to surrender tradable emission allowances in place of the charge to cover their emissions. This would provide some level of price certainty to firms while enabling them to build capacity with emissions trading.
Questions for discussion
17) Would a broad greenhouse gas charge be an effective policy option for reducing emissions in New Zealand post-2012?
18) How should the rate of any broad-based greenhouse gas charge be set? Should it vary by sector, and if so, on what basis (the relative ease of mitigating emissions, the availability of alternative technology or the effect on emitters’ decisions)?
