Carbon Taxation, Prices and Household Welfare in New Zealand

New Zealand Treasury Working Paper 04/23

Published December 2004

Authors: John Creedy and Catherine Sleeman

Abstract

This paper examines the effects on consumer prices of a range of carbon taxes in New Zealand, using information about inter-industry transactions and the use of fossil fuels by industries. The resulting effects on the welfare of different household types and total expenditure levels are examined. The excess burdens of the carbon tax are computed for the different household types. Finally, overall measures of inequality are reported.

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Abstract Table of Contents List of Tables List of Figures 1 Introduction 2 A Carbon Tax and Prices 2.1 Carbon Intensities 2.2 Effective Tax Rates 3 Application to New Zealand 3.1 Fuel use and carbon content 3.2 Household Demands 3.3 Taxes and Prices 4 Welfare Analysis of a Carbon Tax 4.1 Welfare Changes 4.2 Inequality Measures 5 Conclusions Appendix A: The Data Appendix B: Welfare Changes and Demand Elasticities Equivalent Variations Money Metric Utility Total Expenditure Elasticities Demand Elasticities Price Changes References	twp04-23.pdf (327 KB) pp. 1–40
List of Tables Table 1 – Carbon Dioxide Emission Factors: Tonnes / PJ Table 2 – Household Categories Table 3 – Commodity Groups and Tax Rates Table 4 – Effective Carbon Tax Rates () and New Effective Ad Valorem Tax Rates () Table 5 – Welfare Changes for Smoking Households Table 6 – Welfare Changes for Non-Smoking Households Table 7 – Welfare Changes using Mean Expenditures for the $25 Carbon Tax Table 8 – Inequality Measures for the Carbon Tax of $7 per tonne of Carbon Dioxide Table 9 – Inequality Measures for the Carbon Tax of $15 per tonne of Carbon Dioxide Table 10 – Inequality Measures for the Carbon Tax of $25 per tonne of Carbon Dioxide Appendix Table 1 – Translation Between the Energy Account Industry Classification (EAIC) and the 49 Industry Group Classification (IGC) Appendix Table 2 – Fuel Demands by Industry Group Classification (IGC) for the Year Ended March 1996 (Gross PJ) Appendix Table 3 – Carbon Dioxide Intensities by Industry Group Classification (IGC) for the Year Ended March 1996 Appendix Table 4 – Translation Between the 22 HES Group Classification and the 49 Industry Group Classification List of Figures Figure 1 – Budget Share Allocated to Petrol by Household Type 10 Figure 2 – Budget Share Allocated to Food by Household Type 10 Figure 3 – Budget Share Allocated to Domestic Fuel and Power by Household Type 10 Figure 4 – Marginal Excess Burdens: The Addition of a Child Figure 5 – Marginal Excess Burdens: Single versus Multi-Adult Households< Figure 6 – Marginal Excess Burdens: The Presence of a 65+ Adult

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Abstract

List of Tables

List of Figures

1 Introduction

2 A Carbon Tax and Prices

2.1 Carbon Intensities
2.2 Effective Tax Rates

3 Application to New Zealand

3.1 Fuel use and carbon content
3.2 Household Demands
3.3 Taxes and Prices

4 Welfare Analysis of a Carbon Tax

4.1 Welfare Changes
4.2 Inequality Measures

5 Conclusions

Appendix A: The Data

Appendix B: Welfare Changes and Demand Elasticities

Equivalent Variations
Money Metric Utility
Total Expenditure Elasticities
Demand Elasticities
Price Changes

References

twp04-23.pdf (327 KB) pp. 1–40

List of Tables

List of Figures

Acknowledgements

We should like to thank Statistics New Zealand, in particular Jeremy Webb, for making available its monetary and physical estimates of fuel use by industry. This information is from the Statistics New Zealand Energy Flow Account report that will be published in March 2004. We are also grateful to Iris Claus for help with the Input-Output data, and Peter Wilson for comments on an earlier version.

Disclaimer

The views, opinions, findings, and conclusions or recommendations expressed in this Working Paper are strictly those of the authors. They do not necessarily reflect the views of the New Zealand Treasury. The New Zealand Treasury takes no responsibility for any errors or omissions in, or for the correctness of, the information contained in this Working Paper. The paper is presented not as policy, but to inform and stimulate wider debate.

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Publication Details

Carbon Taxation, Prices and Household Welfare in New Zealand

Abstract

Contents

Abstract

Table of Contents

List of Tables

List of Figures

1 Introduction

2 A Carbon Tax and Prices

3 Application to New Zealand

4 Welfare Analysis of a Carbon Tax

5 Conclusions

Appendix A: The Data

Appendix B: Welfare Changes and Demand Elasticities

References

List of Tables

List of Figures

Acknowledgements

Disclaimer