Brian Fallow: Clean, green — and a bit too pure

Unless the world goes vegan, you could argue that it's better to produce animal protein the NZ way. Photo / NZME

OPINION:

The scorn with which Greens greeted a plan to help cut agricultural greenhouse gas emissions is misplaced.

"It looks like the sector has missed an opportunity to come up with a solid plan," the Green Party said in response to the recently released plan from the He Waka Eke Noa process, which aims to put a price on those emissions. "It's like they were given a hallway pass and used it to wag school."

Greenpeace was even more scathing: "The Government cannot accept this cooked and crooked He Waka Eke Noa proposal from the country's worst climate polluters. It is not okay for the biggest polluting industry to write its own climate policy, invent its own measures of success, and attempt to manipulate the public into thinking responsible change is being made."

Before getting into the weeds of what the labours of farmer groups, officials and tangata whenua came up with, some general observations may be in order.

First is that global warming is not the only relevant ethical issue. Let's remember that enteric methane is a side effect of the brilliant ability ruminant livestock have — and the reason they were domesticated in the first place — to turn vegetation which is inedible to us as a species into nutritious, and tasty, food.

Unless you expect the whole world to go vegan — good luck with that — it is arguably preferable to produce animal protein the way New Zealand pastoral farmers do than to feed cereals and legumes people could eat directly to poultry and pigs instead, which are condemned to spend their lives crammed together in barns, strangers to sun, wind, rain and soil.

Second, there is an element of cognitive dissonance, if not outright hypocrisy, in wagging a censorious finger at farmers while surrounded by imported goods. The rest of the world is not going to just give us that stuff; we need to be careful about, even grateful for, the half of New Zealand's export income which comes from pastoral farming.

Third, farmers already have a financial incentive to minimise emissions. At its simplest, it is a waste of grass.

Their incentive is to maximise how much of what their animals eat gets turned into what people eat.

The result, says the final report of the Interim Climate Change Committee, predecessor of the Climate Change Commission, is that: "Over the past 25 years farmers have become more efficient and have reduced emission intensity — or greenhouse gas emissions per unit of output — by about 1 per cent a year".

There are grounds to doubt whether that rate of improvement can be sustained, however, according to a report for the Ministry for Primary Industries in 2016 by two pre-eminent experts, Dr Harry Clark and Dr Andy Reisinger.

The question now is what further gains can be made from imposing a price on agricultural emissions.

The answer to the question is: Let's see.

But it means that the process for setting that price must be mindful of what is biologically, technologically and economically feasible.

So the governance arrangements for arriving at levy rates, and prices for offsetting sequestration, are crucial.

While ministers of climate change and agriculture will have the final say, a central role will fall to a System Oversight Board on which farmers and Māori are represented, along with expertise in agricultural economics and science, R&D and adoption needs.

They will need to consider whether emissions are reducing towards New Zealand's statutory targets and emission budgets.

They will need to consider what levy rate is necessary to incentivise change in on-farm practice, "while also recognising time is needed for transition". In short, they will need the wisdom of Solomon.

One element of the report in which the He Waka Eke Noa partners are pushing their luck is recommending a price ceiling for methane for the first three years of the regime, that is, until 2028.

They recommend a price ceiling of 11c a kilogram of methane. Converted to CO2 equivalence using the internationally standard GWP100 exchange rate, that would equate to barely 5 per cent of the current emissions trading scheme price for CO2 emissions.

By 2028 the ETS price will need to be a lot higher than it is now, implying an even lower relative price for that methane levy ceiling.

Such a concessionary rate is hard to justify domestically to consumers paying a price more than 20 times higher for their energy-related emissions.

And it would be hard to justify internationally, when New Zealand has the sixth highest emissions per capita among Annex 1 or developed countries because of an outsized contribution from the agriculture sector. To be seen as doing five-eighths of not very much at all about half our national emissions invites protectionist mischief in a sector long prone to protectionism.

The justification offered for what amounts to a hefty subsidy is the risk of "leakage". That is jargon for the risk that moves to reduce emissions in one country result in a loss of market share to less emissions-efficient producers elsewhere.

Whether that results in a counter-productive increase in global emissions overall depends on the nature and rigour of emissions reduction policies in the countries which are home to those competitors.

It would also depend on the extent to which emissions reductions in New Zealand agriculture result from improved productivity and emissions-intensity (from internationally good levels already) rather than from land use change into, say, forestry.

The Climate Change Commission has looked into this and concludes that the risk of leakage for agriculture when emissions pricing is introduced is highly uncertain. It would be likely to be lower for the dairy sector than for the sheep and beef meat sector.

The Interim Climate Change Committee saw some potential for New Zealand to differentiate its farm exports on environmental grounds and command a price premium that might make the sector more resilient to cost increases.

However analysis of the leakage issue undertaken by Dr Tim Denne of Resource Economics cautioned that pricing agricultural emissions alone, without significant changes to farm practices, was unlikely to be regarded as sufficient to enable price premia to be set.

His analysis concludes that there is likely to be some leakage but how much is uncertain.

When Sense Partners looked at potential effects of emissions pricing, they noted that some of the cost impact was likely to be absorbed into the price of land.

It is an important point. There is no indestructible ratchet under farm land prices. They will in the end capitalise expectations about a range of things including product prices, tax laws and regulatory imposts.

Unwelcome as a fall would be to current owners, it is, and has been in the past, an adjustment mechanism ensuring the survival of pastoral farming.