Fuel price rises eat into tax cuts

Petrol prices will rise tomorrow as the Government's emissions trading scheme hits households and businesses already facing rising costs that threaten to cancel out the gains from October's tax cuts.

The Emissions Trading Scheme (ETS) takes effect on transport, the energy sector and industry tomorrow, and the Government is predicting petrol prices will rise 3.1c a litre and diesel 3.3c a litre.

Climate Change Minister Nick Smith yesterday said it was up to fuel companies to decide when they passed on the cost of the ETS to customers, "but I would expect increases in the price from Thursday".

Fuel companies yesterday said prices were likely to rise immediately.

BP said it did not yet know how it would change its prices and would review the situation tomorrow, but Caltex said it would lift its petrol prices by 3c a litre and diesel by 4c.

Greenstone Energy, the New Zealand owner and operator of Shell, said it would lift prices immediately but did not know by how much.

The Government's estimate of 3c to 4c "should not be too far off", a spokesman said.

Mobil said its price increase would depend on "competitive responses".

Gull New Zealand general manager Dave Bodger said there was no need to act now.

"Gull talks to its customers and very few are aware that the new ETS legislation will increase fuel prices," he said.

"We will hold off any change until at least next week, giving our loyalsupporters the chance to make savings of around 4 to 5 cents a litre over the opposition."

Economists say fuel companies will have to buy up to $452 million of carbon credits in the first five years of the ETS and they will pass that on to motorists and transport operators.

But the introduction of the ETS tomorrow comes as international oil prices are falling.

At about US$78 a barrel, crude oil is down about 6.6 per cent over the past three months because of signs the economic recovery in developed countries is slowing.

Mark Stockdale, of AA Petrolwatch, said oil companies might be able to absorb the ETS increase because of the falling international price and recent gains in the exchange rate.

"Or they might want to pass it on to make it transparent, so people know the carbon charge has been applied from July 1."

The ETS will also add as much as 5 per cent to electricity prices and 0.4 per cent to inflation.

Prime Minister John Key and his ministers this week cautioned power companies against using the ETS as an excuse to raise prices unnecessarily.

Households and businesses also face other rising costs in the form of October's GST increase, and higher ACC levies and vehicle registration fees.

But Mr Key said taxpayers would still be ahead as wage increases were expected to outstrip overall inflation.