If you own a car or a truck, you pay a price on the carbon dioxide emissions from its exhaust pipe. But if you own cows or sheep, the emissions of methane when they belch or nitrous oxide when they urinate are exempt under the emissions trading scheme.

The current review of the ETS, whose results we still await, rules out changing that.

New Zealand is, nonetheless, internationally accountable for all its emissions, including the 49 per cent represented by the two "agricultural" gases.

If the farmers who profit from those emissions do not pay, the rest of us must. It is a subsidy, in a sector that likes to think it was weaned off subsides in the 1980s.


Including plantation forestry in the ETS while excluding pastoral farming distorts land use decisions with, long-lasting effects on the country's emissions profile.

The Treasury, which sees the status quo as a fiscal risk, recommends a rethink.

And it is something of an article of faith among environmentalists that if you are going to address climate change through a cap-and-trade mechanism, it should include all sectors and all gases.

But a more nuanced view was put by Simon Upton to a conference in Nelson last week.

Upton was Environment Minister for most of the 1990s and a pioneer of climate policy in this country. He now heads the OECD's environment division.

It is important, he argues, to recognise that greenhouse gases differ both in how long-lived they are in the atmosphere and in their heat-trapping potency.

For the purposes of international carbon accounting, there is something akin to a system of fixed exchange rates, with carbon dioxide filling the role of the US dollar. The other greenhouse gases' "global warming potential" is expressed as a multiple of that. It reflects the average heat-trapping effect of a tonne of the gas concerned over an arbitrary period of 100 years.

Methane comprises 43 per cent of New Zealand's emissions, including emissions from landfills as well as ruminant livestock. It is a relatively short-lived gas, which breaks down into CO2 and water.


A tonne of methane emitted is counted as 25 tonnes of CO2 equivalent. Its heat-trapping effect is greater than that when first emitted, but has almost entirely dissipated 100 years later.

Upton says the trouble with choosing this metric is that CO2 emitted to the atmosphere has not been removed from the system in 100 years. "Some of it will still be around in thousands of years. It accumulates. "

Nitrous oxide, 11 per cent of New Zealand's emissions, is another long-lived gas.

Upton's conclusions are that cap-and-trade is a pretty sensible way of dealing with emissions from the transport and energy sectors, so long as the cap is progressively reduced to zero.

"An unfortunate consequence of the [global warming potential] metric is that it led lay policymakers like me to believe that these gases were entirely fungible, and that you could tackle the flow of them in any order," Upton said.

A focus on managing flows of greenhouse gases into and out of the atmosphere misses the point that it is the growing stock of carbon in the atmosphere that is the problem.

"This has led some researchers to suggest that we need to move away from the approach reflected in the Kyoto Protocol where [greenhouse gases] are tradable with one another, and instead have two baskets of gases ... long-lived accumulating gases like CO₂ and nitrous oxide, which have to go to net zero (or be mitigated by negative emissions technologies) and shorter-lived gases - like methane - for which we need to establish a sustainable ongoing rate of emissions. One basket would not be tradable against the other."

But Upton argues that if there is a case for treating methane differently from the long-lived gases, we also need to recognise the short-lived character of offsets provided by the removal of CO2 from the atmosphere by an expanding forest estate.

In any case, the potential to store more carbon in that way, compared to business as usual emissions, is rather small, Upton says.

"If there was ever a short-term case to offset a permanent increase in atmospheric carbon with forest sinks (whose permanence cannot be guaranteed) it has long since vanished. Trading forest sinks against fossil fuels sends the wrong signal in a world that needs to reduce fossil fuel emissions to net zero."

With methane, the aim should be to minimise it. Apart from anything else, it represents a waste of grass.

What including forestry in the ETS does usefully do, if the price is high enough, is provide an incentive to replant commercial forests after harvest.

As the "wall of wood" - echoing the surge in afforestation in the 1990s - approaches, plantation forests are about to flip from being a net sink to a net source, adding to the emissions we are accountable for instead of subtracting from them. The Government now wants to change the international carbon accounting rules in a way that would mitigate the fiscal cost of that - a strategy likely to be seen as self-serving by other countries and reinforcing concerns about the transitory effects of forestry offsets.

Upton's conclusions are that cap-and-trade is a pretty sensible way of dealing with emissions from the transport and energy sectors, so long as the cap is progressively reduced to zero.

The "agricultural gases" methane and nitrous oxide should not be lumped together for policy purposes; N20 could be included with CO2 in the ETS or managed through a tax or regulatory measures.

With methane, the aim should be to minimise it. Apart from anything else, it represents a waste of grass.

"[With] all the extra people that need to be fed in this world, the methane emissions from animals, rice paddies and so on will have to be reduced to fit within whatever flow of emissions we can afford and still stay within two degrees," he said.

"I've suggested that forestry sinks don't belong in the same basket as CO2 emissions. But they might be an appropriate offset for methane since here we are talking about buffering the heating associated with a short-lived gas."

Plenty to ruminate on there.

Read Upton's full address here: