New Zealand introduces range of new quasi-taxes to combat climate change

Local contact

EY Global

13 Oct 2022
Subject Tax Alert
Categories Indirect Tax
Jurisdictions New Zealand
  • The New Zealand Government has proposed a number of environmental measures that impact a broad range of industries.

  • This Alert summarizes the various measures that include, among others, potential agricultural emissions levies to apply from 1 January 2025 and a potential container return scheme applicable to most single-use beverage containers which could be in place also from 2025.

  • In addition, there are various government grants targeting waste reduction and decarbonization, which are available now.

Executive summary

This Alert provides a summary of recent environmental measures proposed in New Zealand that impact a broad range of industries, including agriculture, retailers and automotive in the form of new levies or quasi-taxes.

Given the current Government’s given pledge to not introduce any “new taxes” under its current term, it is not surprising that many of these measures take the form of levies or quasi-taxes. The Government is also increasing funding available to support emissions reductions and sustainability focused research and innovation, particularly due to the availability of government grants.

Detailed discussion

New environmental levy for agricultural emissions

The New Zealand Government announced1 a proposal to introduce a world first pricing mechanism for agricultural emissions, separate from the Emissions Trading Scheme (ETS) that was introduced in New Zealand in 2008, to take effect from 1 January 2025.

In summary the proposals include:

  • Introduction of an emissions levy at the farm level, impacting approximately 22,000 farms in New Zealand. The levy is proposed to apply to farmers and growers who are Goods and Services Tax (GST) registered and meet certain livestock and fertilizer-use thresholds.

  • Increased reporting requiring farmers and growers to use farm area, livestock numbers and production, as well as nitrogen fertilizer use, as a basis for emissions calculations.

  • Introduction of a price review mechanism, with the levies set by the Government but reviewed annually or every three years.

  • Split level pricing for long-lived gases (being carbon dioxide and nitrous oxide) and biogenic methane, something that the ETS is not well equipped to address.

  • Potential introduction of a processor levy for importers and manufacturers of synthetic nitrogen fertilizer if a farm level pricing mechanism cannot be introduced by 2025.

Revenues raised through the scheme would be primarily recycled to fund incentive and sequestration payments, as well as research and development (R&D) into tools and technology to help lower on-farm emissions. Farmers that take up on-farm emissions reduction technologies and practices could become eligible for these incentive payments.

The Government is seeking feedback on these proposals, and public submissions will close on 18 November 2022. Final decisions are expected to be made in 2023, ahead of the 2025 application.

Container Return Scheme

Earlier this year it was proposed that a Container Return Scheme should be introduced from 2025. It is proposed that a 20-cent refundable deposit would apply to single-use beverage containers. The scheme would apply to containers made from one or more of the following frequently bought beverage container materials: 

  • Glass

  • Plastic

  • Metal

  • Liquid paperboard

To manage the impact of the cost of essential goods for consumers, it is proposed that fresh white milk is exempted. This includes cream but not beverages that are long-life or partially dairy based, (e.g., flavored milk, smoothies, drinkable yogurt and plant-based milk alternatives).

The Government will decide on whether to progress with the program later in 2022.

Clean Car Discount

New Zealand implemented a Clean Car Discount from 1 July 2021 which has received wide media coverage.

It seeks to encourage buyer demand for low-emission vehicles by providing rebates for consumers for zero and low-emission light vehicles (e.g., electric vehicles), and requiring a fee be paid by consumers for high-emission vehicles (e.g., diesel and petrol utility vehicles) registered in New Zealand for the first time. The rebates are based on the vehicle carbon emissions per kilometer.

For example, a maximum rebate of NZ$7,500 (excluding GST) can be obtained by consumers for new zero-omitting vehicles. In contrast, consumers will be charged a fee up to NZ$4,500 (excluding GST) for the new high omitting vehicles.

Clean Car Standard

The Clean Car Standard has received less media attention in comparison to the Clean Car Discount but may impact importers significantly as it imposes an additional charge for motor vehicle importers depending on their annual mix of lower emitting and higher emitting imported vehicles.

From 1 January 2023, vehicles with high emissions rating will incur a fee, the higher the emission rating the greater the fee. For vehicles that are below a set standard, the importer receives a credit that can be used to offset fees. The Clean Car Standard seeks to encourage importers to bring cleaner cars into New Zealand.

Congestion charging

Congestion also appears to be on the horizon for urban centers in New Zealand.

In May 2022, New Zealand’s first Emission Reduction Plan was published by the Minister of Climate Change.It contains a key initiative to look at congestion charging as tool to reduce transport emissions and the Government is considering progressing legislative changes to enable congestion charging. If the Government decides to progress, it will principally work with the Auckland Council to design such a regime but will also work with other councils in New Zealand at their request.

Grants and incentives

Finally, similar to the trend seen overseas, the New Zealand Government is continually releasing funding in the form of green grants and incentives. Many businesses are taking advantage of this funding.

The major grants currently available include:

  • The Government Investment in Decarbonizing Industry (GIDI) Process Heat Contestable Fund which supports large energy users to move away from high emitting fuel sources like coal and natural gas.

  • The Waste Minimization Fund which has been reconfigured to focus entirely on supporting projects that minimize organic waste to landfill including recyclable resources such as wood, food, cardboard and garden (green) waste.

It is anticipated that this trend will continue in the coming years as the New Zealand Government looks to promote R&D into sustainable practices that support New Zealand's net-zero targets.


For additional information with respect to this Alert, please contact the following:

Ernst & Young Limited (New Zealand), Auckland
  • Paul Smith, New Zealand Sustainability Taxes Leader
  • Sladjana Freakley, Tax Policy
  • Nicole van der Laak, New Zealand Grants Leader

For a full listing of contacts and email addresses, please click on the Tax News Update: Global Edition (GTNU) version of this Alert.