After years of discussion – and two decades of debate – emissions pricing will become a reality for Kiwi farmers in 2025. Why is this a big deal? Jamie Morton explains.
What's the background here?
Accounting for nearly half of New Zealand's gross greenhouse gas emissions - but excluded from our main mechanism to tackle them - agriculture has long cut a cow-shaped hole in our climate policy.
Its emissions mainly come through methane – burped out by ruminant livestock like cattle, sheep and deer – but also from nitrous oxide, stemming from sources like fertiliser and cow urine.
For years, environmentalists have argued for the sector to also be pulled into the Emissions Trading Scheme (ETS), where it would pay for its emissions through units, as other polluting industries do.
While the sector has long resisted joining the ETS, an impasse over emissions pricing – stretching right back to furore over the misleadingly labelled "fart tax" that Helen Clark's Labour government floated in 2003 – reached a breakthrough in 2019.
That was when sector leaders, representing some 20,000 to 30,000 small farm businesses, broadly signalled support for a new pricing system, but one outside the ETS – with the partnership He Waka Eke Noa set up to develop the detail.
The initially proposed arrangement – in which a 95 per cent discount on emissions would have seen the average dairy farm incur pricing of just $0.01c per kg of milk solids – was inevitably branded a sweetheart deal by critics.
The likes of Greenpeace have also been critical of agriculture being able to draw on a $710m for emissions reductions efforts, despite not being a part of the ETS that funds it.
As well, measures to reduce agriculture's climate footprint were largely missing from the Emissions Reduction Plan unveiled by the Government back in May, leaving that piece of the pie for what's been finally announced today.
So what has been announced?
In its just-issued consultation document, the Government has proposed separate levy prices for long-lived gases and biogenic methane, in line with the "split-gas" approach it's taken under its Zero Carbon Act.
Introducing these new levies, it says, would be enough to meet its target of bringing biogenic methane emissions down to 10 per cent below 2017 levels by 2030 (later to be scaled up to a 24 to 47 per cent reduction by 2050).
While long-lived gas prices will be set annually and linked to that of New Zealand Units within the ETS, these would be discounted and phased down over time.
The levy price for biogenic methane, meanwhile, would be a unique one based on progress toward domestic methane targets – and the Government is consulting on whether this should be reviewed every three years.
The price itself was another question: in its own proposals put forward in June, He Waka Eke Noa recommended one of 11 cents per kilogram of biogenic methane.
That's equivalent to about $3.93 per tonne of carbon dioxide equivalent (CO2-e) – and much lower than prices prevailing in the NZ ETS, currently roughly $85 per tonne CO2-e.
While that was in contrast to what our independent Climate Change Commission suggested – a high-price model, but one with structured assistance – the Government saw He Waka Eke Noa's overall pricing approach as the best one.
It said a final decision on pricing, however, would be informed by advice from the Climate Change Commission and set following consultation with iwi, Māori and the sector itself.
Farmers and growers would meet the threshold for pricing if they had at least 50 dairy cattle or 550 stock units (inclusive of sheep, cattle or deer), or applied more than 40 tonnes of nitrogen through synthetic nitrogen fertiliser.
Revenue from the pricing system would mostly go toward funding "incentive and sequestration payments" to support farmers taking mitigation measures to slash their emissions, with the rest paying for its administration.
The Government is also looking at two options to price emissions sourced from synthetic nitrogen fertiliser: pricing them at farm level and including them within a farmer's emissions bill, or requiring manufacturers and importers to pay for emissions through the ETS.
In its document, it said implementing a farm-level pricing system within three years would require a "significant amount of work, relying on a tightly sequenced series of events" - and was concerned about the sector not being ready in time.
A delay in introducing a price, however, could make it tougher and costlier to hit those 2030 methane targets – and as such, the Government has proposed a "backstop" interim processor-level levy if a farm-level levy wasn't operational by 2025.
Under a separate option, the Government is also looking at agricultural processors for fertilisers, meat and milk paying for emissions through the ETS, by the start of 2025.
While processors have been reporting agricultural emissions through the ETS since 2011, they haven't been required to actually pay for them through units.
Over the long term, the Government also proposed that sequestration through planting on farms should be recognised through the ETS.
What's the immediate response been?
Despite the Government picking up many of He Waka Eke Noa's main recommendations, sector groups haven't exactly greeted today's announcements with glowing enthusiasm.
Federated Farmers argued the plans would "rip the guts out of small town New Zealand, putting trees where farms used to be".
It accused the Government of throwing out the years of work the sector put into finding a solution – and said it was "deeply unimpressed" with its take on what He Waka Eke Noa put forward.
"We didn't sign up for this," national president Andrew Hoggard said.
"It's gut-wrenching to think we now have this proposal from government which rips the heart out of the work we did."
DairyNZ aired its own concerns, calling the announcement "another step" toward a new system, but adding work was needed to "get it right" and make it fair and practical for farmers.
In particular, the lobby group disagreed with some of the changes made to limit the recognition and reward farmers would get for their planting, by removing classes of sequestration like shelterbelts, woodlots and scattered trees.
It was also disappointed the Government appeared to have removed the ability for farmers to form collectives to work together to report, reduce or offset their emissions – a mechanism it argued would drive the change that is needed.
"These are material changes that will be of real concern to most farmers, and we will be raising them directly with the Government on farmers' behalf over the coming weeks," its chair Jim van der Poel said.
Beef and Lamb New Zealand was similarly worried the Government had proposed to reduce the categories of sequestration recognised.
"New Zealand sheep and beef farmers have more than 1.4 million hectares of native forest on their land which is absorbing carbon and it's only fair this is appropriately recognised in any framework from day one," its chairman Andrew Morrison said.
Greenpeace was far from pleased, too, arguing the proposals would fail to cut the sector's emissions.
While it backed the decision not to allow the industry to price its own emissions, it was sceptical about the system that had been put forward – going as far as calling it "greenwash".
It argued processor-level pricing should begin immediately, with manufacturers and importers of synthetic nitrogen fertiliser paying through the ETS.
Government consultation is now open and will run for six weeks, with final proposals to go to ministers for approval in 2023.