It is expected to add about 6 per cent to household energy prices and 9 per cent for most businesses but will help the economy in the long run, according to Pete Hodgson, the Minister responsible for climate change policy.

Mr Hodgson set the tax on Wednesday at $11 a metric tonne of carbon emitted. It will come into effect in two years. ``If we are going to tackle climate change, we need to start taking environmental costs into account in the economic choices we make,'' he said.

The tax, planned after New Zealand signed up to the Kyoto protocol, would make polluting energy sources such as coal and oil more expensive than cleaner ones such as hydro, wind and solar, he said.

The experiment will be watched closely by bigger countries which are also committed to reducing carbon emissions but are failing to reduce energy demand. The Government estimates the tax will raise about $360 million a year but has said it will not increase revenues.

``It will be balanced by other tax changes so there is no net increase in Government revenue,'' a spokesman said.

The most energy-intensive businesses will be exempted so they are not forced to shut or relocate. In return companies such as Comalco, which uses 15 per cent of the country's power, and Carter Holt Harvey, the country's biggest sawmill, must commit to reducing carbon emissions.

New Zealandhas a record of introducing the idea of green taxes but then not implementing them. —

© Guardian Newspapers Limited 2004