New Zealand is well-endowed with fossil-fuel resources for a country of its size. The country is a net exporter of coal, but imports most of its oil. It imports no natural gas. Net production of natural gas has decreased in recent years, and was about 20% lower in 2021 than in 2016. Consumption of natural gas in power plants has been declining, while that used by industrial users, particularly the chemicals industry, has been increasing. Owing to its location straddling the Pacific “Ring of Fire”, New Zealand has the second-largest share of geothermal energy in the OECD after Iceland. Geothermal share in electricity generation is relatively high as well, at 19% in 2021.
OECD Inventory of Support Measures for Fossil Fuels: Country Notes
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New Zealand
Energy resources and market structure
Source: IEA (2022), "World energy statistics", IEA World Energy Statistics and Balances (database).
The New Zealand Government started liberalising the country’s energy market in the 1980s. The State has continued to play an important role, however, notably in coal and electricity production. State-owned Solid Energy is the main producer of coal in New Zealand. In August 2015 Solid Energy declared insolvency; and has subsequently sold its assets to three companies based in New Zealand. In 2018, the government passed a legislation banning the issuance of new offshore oil exploration permits as part of its policy efforts to tackle climate change. Similarly, the natural-gas market has undergone deregulation, though the government still holds an interest in downstream retailers through two state-owned enterprises (SOEs), namely Genesis Energy and Mighty River Power.
State-owned Meridian Energy, along with Contact Energy, Genesis, Mighty River, and Trust Power together hold the bulk of power-generating capacity. Transpower, another SOE, is responsible for transmission. About 30 companies own and operate local distribution networks. Most of the distribution companies are owned by trusts. The retail market is contestable with distribution and retailing completely unbundled. However, almost all retail sales remain controlled by the five main generators.
Energy prices and taxes
Prices for energy products and services sold in New Zealand are set freely by the market. A goods and services tax (GST) is levied at a uniform rate of 15% (rate since 2010) on all fuel and energy services. Gasoline, LPG, and compressed natural gas are all subject to excise taxes and various special levies. Diesel vehicles are subject to distance-based road-user charges and other fees. An Energy Resources Levy is applied to natural gas produced from fields discovered before 1986 and on some open-cast coal production. Safety-related regulatory activities are funded through special levies on natural gas and electricity. The government does not subsidise natural gas or electricity for low-income users.
Figure 2. Total tax rebates and support for fossil fuels in New Zealand
1. Fiscal cost of support measures for fossil fuels are based on information reported by countries through official documentation (e.g. budget reports). Support measures for which such information is not available are excluded from the aggregate amount reported in this table. In addition, support measures in certain countries may not have been exhaustively identified.
2. Tax expenditures are estimates of revenue that is foregone due to a particular feature of the tax system that reduces or postpones tax payments (relative to a jurisdiction’s benchmark tax system) to the benefit of fossil fuels’ producers or users. Hence, (i) tax expenditures estimates can increase either because of greater concessions (relative to the benchmark tax system) or because of an increase in the benchmark itself; (ii) cross-country comparisons of tax expenditures can be misleading due to country-specific benchmark tax systems.
3. Support measures for fossil fuels are included in the Inventory without reference to their economic or environmental effects. No judgment is therefore made as to whether such measures are inefficient or ought to be reformed.
4. Data are expressed in nominal local currency. Data for 2022 are on a preliminary basis.
Source: OECD Inventory of support measures for fossil fuels (2023).
Recent developments and trends in support
The New Zealand Government provides some incentives for fossil-fuel production by allowing certain exploration and development expenditures to be amortised for tax purposes over a shorter period than the productive life of the asset. This measure can result in an asymmetry of treatment compared with other industries, but its impact appears to be minor. On the consumer side, off-road users of gasoline, LPG, and compressed natural gas (e.g. in the farming sector) can obtain refunds for payments under New Zealand’s motor-spirits excise duty. This is because all revenue from the excise duty is directed towards road construction and maintenance. In 2019, majority of support for the oil industry was withdrawn together with the banning of new offshore oil exploration permits enacted in 2018.
In March 2022, in response to the spiking in energy prices as economies re-opened and further exacerbated by the Ukraine war, the Government has decided to temporarily reduce fuel excise taxes and road user charges by NZD 0.25 per litre up until July 2022. This excise tax reduction is estimated to cost up to around NZD 585 million. A simultaneous measure halving public transport fares was also announced, to be in effect for three months with an estimate cost of around NZD 160 million.1
The fiscal cost of support measures for fossil fuels in New Zealand was estimated at NZD 1200.66 million in 2022 (Table 1). Ninety-eight per cent (98%) was directed at end user beneficiaries, as opposed to 1% directed to firms. Support was mainly given out in the form of tax expenditures (NZD 1185.66 million) accounting for 99% of the total fiscal cost of support measures. Direct transfers amounted to NZD 15.00 million.
The fiscal cost of support measures for fossil fuels has increased by 23350% since 2017. Since last year, tax expenditures have increased by 100869%, from NZD 0.45 million to NZD 1185.66 million and direct transfers increased by 19%, from NZD 10.66 million to NZD 15.00 million. All growth rate percentages above are expressed in terms of nominal national currency amounts.
Table 1. Fiscal cost of support measures for fossil fuels (in millions of national currency)
|
2017 |
2018 |
2019 |
2020 |
2021 |
2022 |
|
|---|---|---|---|---|---|---|
|
Tax expenditures |
1.595 |
1.269 |
1.240 |
1.175 |
0.450 |
1185.656 |
|
Direct transfers |
3.525 |
8.560 |
19.835 |
23.084 |
10.659 |
15.000 |
|
Total |
5.120 |
9.829 |
21.075 |
24.259 |
11.109 |
1200.656 |
1. Fiscal cost of support measures for fossil fuels are based on information reported by countries through official documentation (e.g. budget reports). Support measures for which such information is not available are excluded from the aggregate amount reported in this table. In addition, support measures in certain countries may not have been exhaustively identified.
2. Tax expenditures are estimates of revenue that is foregone due to a particular feature of the tax system that reduces or postpones tax payments (relative to a jurisdiction’s benchmark tax system) to the benefit of fossil fuels’ producers or users. Hence, (i) tax expenditures estimates can increase either because of greater concessions (relative to the benchmark tax system) or because of an increase in the benchmark itself; (ii) cross-country comparisons of tax expenditures can be misleading due to country-specific benchmark tax systems.
3. Support measures for fossil fuels are included in the Inventory without reference to their economic or environmental effects. No judgment is therefore made as to whether such measures are inefficient or ought to be reformed.
4. Data are expressed in nominal local currency. Data for 2022 are on a preliminary basis.
Source: OECD Inventory of support measures for fossil fuels (2023).
Table 2 highlights a selection of support measures associated with a large fiscal cost. A description of these measures is provided in Table 3.
Table 2. Selected support measures for fossil fuels with a large fiscal cost (in millions of national currency
|
Measures associated with large fiscal cost in 2022 |
2022 |
2017 |
Variation since 2017 |
|
|---|---|---|---|---|
|
Tax expenditures |
||||
|
Participation in the financing of the increase in energy costs for accommodation structures |
1182.500 |
(Started in 2022) |
1182.500 |
|
|
Exemption of Off-Road Vehicles from Road User Charges |
3.156 |
0.450 |
2.706 |
|
|
Direct transfers |
||||
|
Funding of international treaty obligations to hold oil stock (formerly Management of IEA Oil Stocks in previous editions) |
15.000 |
3.525 |
11.475 |
|
1. Fiscal cost of support measures for fossil fuels are based on information reported by countries through official documentation (e.g. budget reports).
2. Tax expenditures are estimates of revenue that is foregone due to a particular feature of the tax system that reduces or postpones tax payments (relative to a jurisdiction’s benchmark tax system) to the benefit of fossil fuels’ producers or users. Hence, (i) tax expenditures estimates can increase either because of greater concessions (relative to the benchmark tax system) or because of an increase in the benchmark itself; (ii) cross-country comparisons of tax expenditures can be misleading due to country-specific benchmark tax systems.
3. Support measures for fossil fuels are included in the Inventory without reference to their economic or environmental effects. No judgment is therefore made as to whether such measures are inefficient or ought to be reformed.
4. Data are expressed in nominal local currency. Data for 2022 are on a preliminary basis.
Source: OECD Inventory of support measures for fossil fuels (2023).
Table 3. Description of selected support measures for fossil fuels
|
Participation in the financing of the increase in energy costs for accommodation structures |
For the three months from 15 March 2022, fuel excise taxes and road user charges have been reduced by NZD 0.25 per litre (equivalent to 20-22% of current tax rates on road fuels). On 18 May, it was decided that this reduction will be extended for further two months. On 17 July, it was decided that these reductions would be extended to 31 January 2023. On 1 February 2023 it was announced that the discounts would be extended until the end of the financial year (30 June 2023). |
|
Exemption of Off-Road Vehicles from Road User Charges |
The maintenance of the New Zealand Road system is made possible through the levies collected from the price of some fuels or through Road User Charges (RUC). RUC was imposed in New Zealand as early as 1977 but the stipulating law was replaced in 2012 to accommodate a more efficient RUC system. The 2012 Act includes the exemption of vehicles that are unsuitable for regular road use from paying RUC such as tractors, forklifts, and bulldozers among others. Road user charges are collected by the New Zealand Transport Agency which in turn funds further road improvement and maintenance for public transport, road safety, walking, and cycling. |
|
Funding of international treaty obligations to hold oil stock (formerly Management of IEA Oil Stocks in previous editions) |
As part of its membership in the International Energy Agency (IEA), New Zealand is required to hold, at any one time, emergency reserve oil stocks equivalent to 90 days of market demand. The industry’s normal stockholding practices have in the past been relied on to meet this requirement, with no minimum stockholding obligations placed on the industry. In 2004, it became apparent that the requirement was no longer complied with. Consequently, since 2007, the government has been meeting the country’s overall minimum 90-day net import obligation by tendering for additional oil stocks using “ticket” contracts (an option to purchase stock in an IEA-declared emergency) with major oil companies overseas. The cost to the Government of procuring additional oil stocks to meet the IEA obligation is fully recovered via a levy on fuels manufactured or imported into New Zealand. |
|
Acquisition of Petroleum Exploration Data Research and Development Risk-Sharing Agreement with Genesis Energy |
As part of a suite of measures announced in June 2004, and in response to the downward revision of the Maui field in the early 2000s, the New Zealand Government committed NZD 15 million over three years (FY2004/05 to FY2006/07) to fund the acquisition and processing of high-quality 2D seismic data in New Zealand’s offshore basins. The programme is administered by New Zealand Petroleum & Minerals (formerly Crown Minerals) in close working relationship with the industry and GNS Science, who is contracted to process the seismic data collected. Seismic surveying is central to the government’s strategy of attracting oil majors to explore New Zealand’s petroleum potential. Before a new acreage area (block offer) is released, seismic data is collected, processed, and interpreted — then made freely available to companies interested in bidding for exploration permits. |
Data sources
Note on the Methodology
Aggregate numbers from the Inventory represent the fiscal cost of support measures for fossil fuels. They should not be interpreted as a level of support for fossil fuels, nor as an indicator of the extent to which the considered policies are favourable or unfavourable to climate mitigation.
The Inventory reports tax expenditures as estimates of revenue foregone due to measures that reduce or postpone tax payments relative to a jurisdiction’s benchmark tax systems to the benefit of fossil fuels producers or users. Tax expenditure estimates can thus increase over time due to either an increase in the offered concession (relative to benchmark tax systems) or an increase in the benchmark itself. Cross-country comparisons of tax expenditures can also be misleading due to differences in countries’ benchmark tax systems.