NZ agri emission charges will tip the scales in favour of trees - analysts

Proposed emissions costs for farmers will add incentives to grow more trees for carbon credits, economists said. Photo / NZME

The Government's proposed farmgate emissions pricing system will hit sheep and beef farmers hardest and will further incentivise the planting of trees at the expense of pastoral land uses, economists and analysts said.

At $81 per NZ unit (NZU), carbon prices are already an increasingly viable alternative to pastoral land use.

ANZ agri-economist Susan Kilsby said sheep and beef farmers would feel the new pricing regime the most because the sector is not as efficient as others, has high methane emissions, and has lower profitability in general.

"If you put that alongside the incentive to plant pines for carbon credits, it is certainly going to further incentivise that land use change," she said.

The emission charges - outlined in the report He Waka Eke Noa - would have an impact on how much food is produced in New Zealand, she said.

"Numbers in the report all clearly point to a reduction in dairy, lamb and beef production under most of the scenarios outlined, partly offset by an increase in horticulture and arable," she said.

The Government acknowledged that the scheme might not be ready by 2025, and said a processor-level levy may be used as a backstop.

Kilsby said if a processor-level approach was taken then it would simply reduce farmgate pricing.

At present dairy processors are a lot better set up to implement differential pricing than the meat processors are, she said.

Westpac senior agri-economist Nathan Penny said the report's conclusions were widely expected.

"I think that there is some policy distortion in the mix that is going to heavily favour forestry over sheep and beef production," Penny said.

"The proposals announced today have not really changed that dynamic, but there are things that still heavily favour forestry, including the fact that overseas buyers can come in and invest in forestry easily but that it is not possible in anywhere near the same way in farming.

"That's a clear policy distortion that is tipping the economic balance in favour of forestry."

Penny said sheep and beef farmers would bear the brunt of emissions charges because they were inefficient food producers relative to dairy.

Ultimately the charges announced today would end up costing consumers, he said.

Salt Funds managing director Matt Goodson said a lot of water needed to pass under the bridge to see what any implemented system would look like.

"They intend to move to a farm-level pricing system but they recognise the difficulties in doing so by 2025," he said.

"As a high-level comment, they're trying to design the system to reward farmers who invest in climate mitigation on a farm-by-farm basis," he said.

He said the distinction between long-lived gases compared with biogenic methane was interesting, as it is the long-lived gases will have a cost linked to the NZU price.

"All of this will be full of complexity and if it proves too difficult they have talked about backup options including using the Emissions Trading Scheme (ETS) for processors of fertiliser, meat and milk to pay for their emissions," he said.

Matthew Cowie, director climate change and sustainability services at EY, said the consultation document represented progress but said the changes would not do anything to remove the existing incentive to plant agricultural land in forests for carbon.

"In fact, the levy will add slightly to the afforestation incentive through the addition of the levy charge for agricultural emissions," Cowie said.

"At least in the short term, the afforestation incentive from the NZ ETS is likely to be a much larger driver of land use change than the levies which might be used within this agricultural emissions pricing regime," Cowie said.

"This means that for those people with concerns about the rates of land use change into forestry, this consultation is only part of the picture."