The submission period was short and public information sessions around the country were well attended by landowners seeking to understand the implications of policy options presented by Government to drive a reduction in agricultural emissions.
The Government option, which builds on recommendations made by the Interim Climate Change Committee (ICCC) in its report to the Ministry for the Environment (see here), has been criticised by commentators from all sides. One criticism has been that it is a 'Kyoto era solution for a Paris era problem', referring to the urgent timeframes for reduction agreed at the most recent climate talks in Paris last year. Against this, primary sector leaders called for a different approach which would allow a longer run up for individual farmers to adapt before climate pricing is brought in, and would be largely industry-led. This is set out in the Primary Sector Climate Change Commitment (see here).
The Key Issues
The Government are backing the ICCC recommendations that putting a price on agricultural emissions is the most effective way to incentivise farmers to reduce them. A farm-level approach to livestock emissions is preferred by primary industry stakeholders on the basis that it would reward individual farmers for efforts to reduce emissions, and may incentivise behavioural change. On the other hand, a processor level price (as proposed for fertiliser) would be simpler to administer, but would be a blunt instrument which would not recognise individual efforts to achieve 'carbon efficiencies'.
The Government has committed to investigating a farm level system, but has left the door open for a processor level approach if it appears that a farm level approach is too complex to administer and regulate. In recognition of the significant resources and time required to establish systems and capability for farm level pricing, the Government has agreed that this approach would only take effect from 2025.
2021 to 2025: The Government's Interim Approach
Government is endorsing an 'interim option', where all agricultural emissions (livestock and fertiliser) would enter the Emissions Trading Scheme (the ETS) and be priced at processor level from 2021 until 2025.
The interim approach would mean that dairy processors, meat processors and fertiliser manufacturers and importers would need to reduce emissions, or purchase or surrender ETS units from 2021 to 2025 to offset emissions from products sold. Of note, farmers will be able to offset their own emissions at a farm level with forestry, and eligibility for other on-farm vegetation (such as riparian planting) is being considered.
Revenue raised by the ETS agricultural emission "tax" (estimated at $47 million per year) would be fed back into the agricultural sector to incentivise on-farm emissions reductions, and to fund implementation of the agricultural emissions programme.
The Government has committed to a 95% free allocation of agricultural emissions units included in the ETS, which is similar to the approach taken to industrial emitters. At the current NZU price of $25 per tonne, entry to the ETS is expected to cost 1 cent/kg of milk solids, 1 cent/kg of beef, 4 cents/kg of venison and 3 cents/kg of sheep meat and $2.92/tonne of Urea, and it will be interesting to see whether this would be passed on to farmers, or absorbed by the processors. The value of NZUs is expected to increase in a zero-carbon economy, which will increase the cost of participation in the ETS over time. However, the Government's commitment to the 95% discount has not been guaranteed beyond 2025.
From 2025: Livestock
From 2025, the Government has agreed that livestock emissions pricing would change to a farm level pricing scheme, but only if this could be effectively regulated and implemented. It is envisaged that pricing would either be through the ETS or as a levy/rebate scheme. Comments from the Climate Change Minister tend to suggest that the ETS is the Government's preferred approach in the long term.
From 2025: Fertiliser
From 2025, the Government proposes that fertiliser emissions would remain within the ETS, priced at a processor and importer level. The reason for the difference in approach is that currently the only recognised way to reduce emissions from fertiliser is to use less of it, and so there is no efficiency gain to be encouraged through farm level pricing.
The Industry Alternative
Primary sector leaders have expressed concern that the Government's interim option does not take the long-term view, and will not achieve the desired behavioural changes in the short-term. Their alternative proposal, in the form of a formal sector-government agreement with a longer lead up for pricing, would place ownership of delivering a price on emissions at industry level, and would rely on existing government funding, industry levies and commercial sponsorship. Farm Environment Plans addressing emissions reductions would be required for all farms.
While the industry's alternative option has not been ruled out, comments from the Government suggest that it prefers the ICCC's recommendations. It will be interesting to see whether the public voice changes this stance. Regardless of the outcome, it is clear that the task ahead is daunting; a system to report and account for farm emissions will be complex, especially given that the underlying technologies and capabilities still need to be developed.
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