It would raise retail petrol prices by up to six percent, diesel by 12 percent, and gas and electricity prices by eight to nine percent, government papers showed.

Big losers would be coal users, whose costs would jump 19 percent.

"The policies...will enable New Zealand to meets its greenhouse gas emission targets under the Kyoto protocol while protecting the nation's economic interests," Energy Minister Pete Hodgson said, after the tax proposal was approved by the cabinet.

An as-yet-unknown amount of cash raised by the new tax would be offset by cuts to other taxes, he said.

The 1997 Kyoto protocol, which New Zealand expects to ratify this year, requires developed countries to reduce their greenhouse gas emissions by around five percent of 1990 levels on average between the first commitment period of 2008-12.

However the United States, the world's biggest air polluter, has refused to ratify the protocol which it sees as flawed because it does not similarly bind developing countries.

To take effect, the Kyoto pact must be approved by at least 55 states contributing at least 55 percent of the industrialised world's 1990 greenhouse gas emissions.

New Zealand produces between 70 million to 90 million tonnes of carbon dioxide a year, ranking it the fourth largest per capita producer after the United States, Australia, and Canada.

About half of its greenhouse gases come from the methane and carbon dioxide emissions of more than 50 million sheep and cattle, from which products earn around one third of New Zealand's export earnings.

Despite the U.S. refusal to adopt the protocol, New Zealand expects the agreement to come into force after ratification by the Russian Federation, probably next year.

New Zealand farmers will be exempt from the tax, which will approximate the global price of carbon estimated internationally at between NZ$10 and NZ$20 a tonne yet have little net effect on the government's finances.

"Revenue will not be used to improve the (government's) fiscal position but will be recycled, for example through the tax system and into climate changes projects," Hodgson said.

The government would retain carbon sink credits generated by forests, which absorb greenhouse gases from the atmosphere.

New Zealand has a large "green bank" to draw from in the shape of its vast forests, which act as a natural sponge for polluting emissions.

These credits, estimated at 55 million tonnes of carbon dioxide equivalent, can be sold to countries unable to meet their Kyoto standards and could earn New Zealand around NZ$1.4 billion.

New Zealand industry said that ratifying the protocol would harm growth and would be ineffective unless there was a global commitment.

"The protocol's mechanisms, and the non-participation of our main trading partners...significantly undermine New Zealand's attractiveness as an investment destination," said the Greenhouse Policy Coalition, which says it represents about two-fifths of New Zealand exporters.