Climate change farming emissions: Government reveals much-anticipated plan for pricing by 2025

The Government has proposed a plan to price agricultural emissions by the end of 2025 - five years before National's plan. Photo / Brett Phibbs

The Labour-majority Government has revealed its much-anticipated plan to price farming emissions, pushing the deadline out from the start to the end of 2025, but still five years before National’s plan kicks in.

It has also sought to push out the “ETS backstop” - the date on which agricultural emissions would come under the Emissions Trading Scheme if there was no agreement on a different pricing mechanism - by two years to 2026.

But no legislation will be introduced before Parliament ends on August 31, meaning its fate will be determined entirely by the October election.

It appears to be a compromise between competing sectors, with the Green Party saying it does not go far enough while parts of the agriculture sector say it will be far too restrictive.

Climate Change Minister and Green Party co-leader James Shaw said he opposed the plan, passed by Cabinet of which he is not a part, in that it contained no total cap on agriculture emissions - and therefore no guarantee that emissions would actually decline.

The plan has also drawn criticism from parts of the farming sector, with lobby group Beef and Lamb again questioning why New Zealand wanted to be the first country in the world to price agricultural emissions saying it could see goods produced here become uncompetitive.

The group also called for the Government to account for the heating component of methane and nitrogen - the main livestock emissions - rather than gross levels as they differed to carbon dioxide.

The Government had originally planned to have legislation passed before the election, but strong pushback from the sector, a change in Prime Minister and catastrophic weather events are understood to have pushed out that timeframe.

Agriculture Minister Damien O’Connor said they had worked with farming leaders over concerns raised when the Government unveiled a draft plan at the end of last year.

In December, the Government responded to outcry from farmers at an earlier proposal to price agricultural emissions and said final decisions would be made and legislation introduced by the middle of this year. That policy was drawn up on the back of the He Waka Eke Noa sector-led agricultural emissions pricing proposal.

The latest plan ensured the system would measure and price agricultural emissions at the farm level with a “split-gas approach”.

There would be mandatory reporting of farm-level emissions from October 2024 with pricing commencing from October 2025 instead of January as originally proposed. This was still within the timeframe before agriculture would enter the Emissions Trading Scheme (ETS) if no agreement on an alternative method of pricing is reached.

The Government was also committed to setting the price of pollution at the “lowest level possible to meet the reduction goals”.

O’Connor said they would recognise scientifically validated sequestration, or offsetting such as through indigenous vegetation, in the Emissions Trading Scheme.

Public feedback was being sought over deferring by two years legislated farm-level ETS reporting requirements in the Climate Change Response Act 2002 (CCRA) - referred to as the “ETS backstop”. Current legislation means farms would have to start accounting for their emissions from the start of 2024 with ETS requirements starting in 2025.

Agricultural greenhouse gas emissions make up 49 per cent of New Zealand’s gross emissions.

As part of global efforts to keep global warming below 1.5C, the Government has committed to a 10 per cent reduction in methane emissions from agriculture and landfills by 2030, going up to a 24-47 per cent reduction by 2050, compared to 2017 levels. It comes alongside a net-zero carbon emissions target for 2050.

A key plank in accounting for and bringing down carbon emissions is the Emissions Trading Scheme. This requires polluters to purchase carbon credits for each tonne of emissions they produce, essentially using the market to drive down emissions.

The scheme, introduced in 2008, included a carve-out for agriculture, which acknowledged the fact mitigation and offsetting of carbon was much simpler than for gases such as biogenic methane emitted from livestock (mainly cow and sheep burps) and nitrous oxide (fertiliser and excrement). It also acknowledged the higher heating components of those gases compared to carbon dioxide but shorter lifespan.

The industry-led He Waka Eke Noa sough to develop a separate “split-gas” pricing scheme for agriculture, but negotiations on this stalled after the Government last year rejected their proposal.

While the Government tilted in the direction of the He Waka Eke Noa group in a draft plan unveiled at the end of last year, deciding to set the levy at the lowest possible price to reduce emissions, parts of the farming sector were unhappy with the rules around sequestration.

O’Connor said it was critical there was a plan to reduce agriculture emissions, with major corporations such as Nestle now demanding goods be more sustainable.

“Future export growth for our food and fibre products will depend on demonstrating their sustainability credentials. The decisions announced today set out a path that gives farmers certainty and addresses the ever-strengthening market signals from overseas on climate.

“The reality is, government required or not, our agriculture sector will have to adapt over the coming years and reduce emissions.

“It’s a fact of business in the 21st Century, but with the support of Government we can make that transition in a pragmatic way with the sector.”

O’Connor said they had listened to concerns of the sector.

“We have shifted farm-level emissions reporting requirements into Quarter 4 of 2024; emissions pricing won’t start until two years from now in Quarter 4 of 2025; and work will also get underway to allow scientifically validated forms of on-farm sequestration into the ETS, which can help reduce the cost to farmers.

“Our decisions accommodate the key issues raised by the partners on timelines, and also set a framework for the factors that will determine the farm-level levy price.

“Our plan is one that supports farmers’ transition, helps secure their future export growth, and works alongside our other climate policies to continue reducing our emissions.”

On sequestration, O’Connor said they were looking to put scientifically-validated forms into the ETS.

“This will provide a pathway for methods such as indigenous vegetation or riparian plantings to be recognised, and research is already happening in this space.

“Because it may take time to validate these forms for the NZ ETS, we anticipate the agricultural pricing system commencing in late 2025 will be the interim channel for rewarding sequestration.”

National Party agriculture spokesman Todd McClay said they were concerned the proposals would mean the sector would have to make major cuts.

He said their plan was to focus more on giving farmers the tools they needed to reduce emissions, including recognising on-farm sequestration, measuring farm-level emissions by 2025 and updating biotech rules using gene-edited crops, feed, and livestock.

They would keep agriculture out of the ETS but implement a pricing system by 2030 at the latest.

Act Party primary Industries spokesman Mark Cameron said their plan was to tie any emissions price to that of the five main trading partners, better account for differences in the greenhouse gases and improve the ability of farmers to offset emissions.

Shaw said he supported Labour’s single accounting system for farm-level emissions and recognising carbon sequestration from things like wetlands and small-scale planting in the ETS.

However, he opposed the fact there was no cap on emissions being introduced, which essentially would leave the emissions price up to politicians.

“Any system that leaves pricing decisions up to Ministers – even with a role for the Climate Change Commission – is guaranteed to be subject to lobbying.

“Future governments are all too likely to set the price too low to drive change. Rather than encouraging more environmentally sustainable farming practices, a low price is likely to just be absorbed into business as usual and passed on to customers.”