Energy Minister claims LNG 'levy' announced yesterday isn’t a levy as Labour attacks 'gas tax'

Author: Jamie Ensor,
Publish Date: Tue, 10 Feb 2026, 12:45pm

Energy Minister Simon Watts is claiming a self-described “levy” the Government announced less than 24 hours ago is actually not a levy “because it is a net benefit to New Zealand households”.

Watts said he didn’t believe the funding to help the construction of a liquified natural gas (LNG) import facility was either a tax or a levy on Kiwis.

“It is neither because it is a net benefit to New Zealand households. The reality of what we have announced yesterday is a net savings to New Zealand households in regards to energy bills,” Watts said.

He denied backtracking on the Government’s announcement yesterday, which included documentation mentioning a “levy”.

“We’re not. We’re simply saying the reality of it in terms of the impact on New Zealand households of this policy is a net savings and downward pressure on power bills.”

The levy is being called a “gas tax” by the Labour Party, with leader Chris Hipkins saying it is “farcical” to suggest it’s not a levy.

Finance Minister Nicola Willis said it is “absolutely wrong” to call the levy a tax, while Prime Minister Christopher Luxon said it was a “load of rubbish”.

Simon Watts and Christopher Luxon announced the new facility on Monday. Photo / Mark Mitchell

Pushed on the proposed charge, Luxon said the LNG policy was “about lowering power bills across New Zealand” and that without it, “New Zealanders will be paying more”.

The levy isn’t mentioned in the Government’s press release but is found in a document - called a “fact sheet” - provided alongside it.

It states the cost of the infrastructure will be incurred every year, regardless of whether the facility is used or not, and “will be paid for via a levy on electricity”.

“The levy for the infrastructure is paying for the insurance that LNG provides. It is therefore appropriate that the electricity system bears this cost.”

The Government is currently working through commercial proposals for constructing the facility, with the aim of signing a contract by mid-2026. The facility would then become operational by either next year or early 2028.

Due to those negotiations, the Government can’t specify how much the facility will cost – though it’s expected to be north of a billion dollars – or what the levy may end up being.

However, the Government’s documentation states: “An indicative estimate of the levy on electricity to pay for the LNG facility is between $2 & $4/MWh.” The Electricity Authority’s data shows average annual residential consumption ranges from just under 5MWh to over 8MWh.

The Government argues there will be a net saving to New Zealanders due to having a greater supply available during dry years. This is when hydro generation falls, and other electricity sources are needed to fill the gap.

According to the Government’s documentation, there is a dry-risk premium of $30-50/MWh due to the risk of shortages and security-of-supply deals. Having the LNG would “reduce this risk, pulling forward prices down”.

“LNG availability is expected to lower forward electricity prices by at least $10/MWh, regardless of whether LNG is used in any particular year or not, delivering upwards of $265 million savings per year [at least $400 million gross savings, estimated $90-$180 million per annum in infrastructure lease costs].

“Electricity generation that is fuelled by gas produced from LNG is expected to cost somewhere between $200 & $250/MWh, which will have the effect of reducing spot prices during dry years. This is well below the > $800/MWh experienced in August 2024.”

The expected price reduction in forward prices is estimated by the Government to be at least $10/MWh.

“Just having a reliable back-up is expected to save Kiwis around $265 million per annum by reducing price spikes and lowering the risk premium built into power bills that exist because of supply challenges, equivalent to around $50 per annum per household,” Watts said yesterday.

The Prime Minister said the net result would be lower power prices. Photo / Mark Mitchell

Luxon on Tuesday repeatedly stressed this point about the net result being lower power bills.

“This is about lowering power bills across New Zealand. There will be lower power. Without this, New Zealanders will have higher power bills. What I’m interested in is lowering Kiwis’ power bills, and this does exactly that. Without it, New Zealanders will pay higher power bills.”

He said the “levy will be charged to electricity companies and because of that facility being created, New Zealanders will have lower power bills, period”.

Willis hit back at Labour’s criticism, saying that the party “are the ones promoting a capital gains tax that will hit our entire economy”.

“Labour are standing next to the Greens who promote wealth taxes, inheritance taxes, increases to personal income taxes. This is a situation in which Labour are trying to deflect from their clear mistake, which was preventing gas exploration”.

Hipkins said Labour’s capital gains tax won’t be paid by the vast majority of New Zealanders.

Jamie Ensor is the NZ Herald’s Chief Political Reporter, based in the Press Gallery at Parliament. He was previously a TV reporter and digital producer in the Newshub press gallery office. He was a finalist in 2025 for Political Journalist of the Year at the Voyager Media Awards.