Reducing carbon emissions? The relative effectiveness of different types of environmental tax: the case of New Zealand

Concerns about the impact of human activities on the environment have encouraged policy makers in New Zealand, and other nations, to reassess the relative effectiveness and efficiency of environmental taxes. Countries’ experience with environmental taxation differ and discussions in New Zealand coincide with announcements by the government of new carbon and energy taxes to be introduced before the first commitment period of the Kyoto Protocol. With this in mind, it is timely to ask questions as to the relative effectiveness and efficiency of alternative environmental taxes. A computable general equilibrium (CGE) model is used to address some of the important questions related to environmental taxation, in particular carbon, energy and petroleum taxes. The model is developed within a theoretical structure that focuses on the energy sector and allows for substitution between various sources of energy and between energy and capital. The paper provides preliminary simulation results that show the impact of alternative carbon, energy and petroleum taxes on the New Zealand economy and the competitiveness of industry sectors including energy intensive industries.