June 8, 2022
The Primary Sector Climate Action Partnership, He Waka Eke Noa, is recommending that the best alternative to pricing agricultural emissions through the New Zealand Emissions Trading Scheme (NZ ETS) is a farm-level split-gas levy with built-in incentives to reduce emissions and sequester carbon, starting from 2025.
“Our recommendations enable sustainable food and fibre production for future generations while playing a fair part in meeting our country’s climate commitments,” says He Waka Eke Noa Chair Michael Ahie.
“Our recommended approach would enhance New Zealand’s reputation as world leaders in low-emission food production and keep us ahead of our competitors.”
The Partnership was formed in 2019 with a key milestone to develop recommendations on an alternative pricing system for agricultural emissions to the NZ ETS. Primary sector and Māori agribusiness partners are today releasing their recommendations report. Ministry for the Environment (MfE) and Ministry for Primary Industries (MPI) officials have worked with partners during the development of the recommendations. MfE and MPI will now support Ministers in considering the recommendations, and so are not signatories to the report.
Partners consider the recommended approach is robust and credible, delivers on farmer feedback and meets the Government’s environmental outcomes. It sees the sector investing its own funds in incentivising and supporting farmers and growers to take up practices and technologies.
Michael Ahie says the primary sector fought hard in 2019 for the opportunity to come up with an alternative to the NZ ETS for pricing agricultural emissions.
“Modelling shows the recommended system would be more effective in achieving emissions reductions than including agriculture in the NZ ETS. It would also have lower impacts on production and farm profit than the NZ ETS.”
The farm-level system being recommended would enable each farmer and grower to clearly see the direct impact of their on-farm decisions and would give them incentives for using new technologies and practices as they become available and financial recognition of on-farm carbon sequestration.
Modelling shows this would incentivise additional methane emissions reductions of between 4 and 5.5 percent on top of already-expected reductions from current policies. Current and new on-farm actions, together with reductions from the waste sector, will achieve the target of 10 % reduction in methane by 2030.
The estimated cost to farmers and growers varies significantly depending on the type of farm. Michael Ahie says the recommended approach achieves the necessary emissions reductions at the least possible cost.
“This is the best option to help farmers and growers transition to lower-emissions food production while maintaining viable businesses.”
“Importantly, the recommended system reflects what farmers have told the partnership over the past few months. It would give farmers ability to control their own farm emissions, which will incentivise behaviour change as part of an integrated farm management approach.”
“It would enable sustainable food production and drive efficiency, by incentivising practices and technologies such as inhibitors and animal genetics that reduce emissions per kilogram of food, without disrupting our global competitive advantage from grass fed systems.”
The recommended system adopts a split gas approach which recognises the different impact of methane on the atmosphere, as compared to long-lived gases. It applies a separate price and levy on methane that recognises that, as a short-lived gas, it does not need to be reduced to zero, rather only reduced and stabilised.
“We hear from our conversations and from consultation that farmers are anxious about the impact of any extra costs on their businesses from environmental regulations.”
“As the Government considers our recommendations, we urge Ministers to be mindful of the impact of their decisions on the well-being of primary sector.”
The Government will now consider the Partnership’s advice alongside advice from the Climate Change Commission, before making decisions later this year on how agricultural emissions are to be priced from 2025.
For further information please contact Janice Rodenburg on 021 705 301 or firstname.lastname@example.org
The He Waka Eke Noa Partnership recommends a farm-level, split-gas levy from 2025 as part of a broader framework of incentives, guidance, tools and research to help farmers and growers transition to lower-emissions food production.
In brief, every eligible farm business would be responsible for reporting their emissions numbers, having a greenhouse gas management plan in place, and paying levies related to the amount of methane and long-lived gases emitted.
Farm businesses would be eligible for an incentive for using approved technologies and practices that deliver measurable emissions reductions, such as methane inhibitors and animal genetics, as these become available.
They’d also be eligible for a financial offset that recognises the amount of carbon absorbed, or sequestered, by agreed types of vegetation on their farms.
The money collected in levies will be invested back into the primary sector for research and development into emissions mitigation technology and practices. It will also contribute to the cost of the system.
Levies should be as low as possible to drive emissions reductions and sequestration, while minimising impacts on primary sector production and profitability.
The partners recommend continuing a partnership approach, with a System Oversight Board with expertise and representation from the primary sector and Māori agribusiness working closely with government on setting levy rates and directing investment in research.
The primary sector is committed to playing its fair part in addressing climate change.
Partners are confident this recommended system is the best way to reduce agricultural emissions while maintaining a viable primary sector and meeting the Government requirement for a price on emissions.
This recommended farm-level system enables each farmer and grower to clearly see the direct impact of their on-farm decisions on their emissions and costs. Modelling shows this to be more effective at supporting change than the NZ ETS, at a lower cost to production and profit.
The partners heard that farmers want a transparent, accessible, and integrated system for pricing agricultural emissions that ensures the primary sector remains productive, profitable, and internationally competitive.
Of the options consulted on, there was a strong preference for a farm-level pricing system to give farmers control and autonomy over their farm business and emissions profile and recognition for their actions on farm.
Farmers supported split-gas pricing, the investment of revenue into research and development and the recognition of sequestration from on-farm vegetation, especially types not recognised in the NZ ETS.
There was also a strong message that farmers are anxious about the impact of any extra costs on their businesses.
A farm-level levy was one of the options partners consulted the sector on. Partners have taken on board feedback and made improvements to the recommended system to give farmers more control and clearer incentives to change practices, take up mitigation options and sequester carbon.
The recommendation is to move straight to a farm-level levy, without a transitional arrangement. That will be challenging to achieve but is preferable to switching systems after a few years.
Partners have also expanded sequestration proposals to provide for recognition of sequestration where there is evidence of planting between 1990-2008.
A split-gas levy has one levy rate for short-lived gas emissions (biogenic methane from livestock), and one levy rate for long-lived gas emissions (nitrous oxide from livestock and synthetic fertiliser and carbon dioxide from urea). This reflects their different warming impacts, and the different emissions reduction targets for methane and long-lived gases under the Climate Change Response Act 2002.
Partners are confident that the system will incentivise reductions to meet targets. The system of levies and incentives is flexible to allow for the evolution of technology, farm practices and land use change over the next eight years to 2030
He Waka Eke Noa has modelled estimated prices to give an indication of potential cost across a range of farms. Until the actual price is set, the partnership modelling is based on prices that are estimates of what could be required to meet the primary sector’s assumed contributions to emissions reductions targets. The partners are not recommending the use of these prices in future, rather the price settings will be recommended by the System Oversight Board based on a range of factors.
Recognising the wide range of different farm businesses and farm systems, the same price or price settings can have very different impacts on Economic Farm Surplus (EFS).
The modelled impact on average farm profit varies from zero up to 7.2%, but there is significant variation across farm systems and some farms may be impacted significantly more than this.
More detail is available in the Recommendations Report (Section 10: Impacts and Insights).
It is acknowledged there are some challenges in building an IT system that can manage individual calculations for over 20,000 farms, but partners believe it’s achievable.
The Partnership is confident the sector can be ready. Already over 60 percent of farms know their on-farm emissions numbers. The sector will work hard to support and guide all farmers and growers to input and understand the implications for them.
Key advisors to farmers, including farm advisors and accountants, have indicated they’re ready to help.
Partners also recognise there is currently a limited number of options for reducing emissions, as research and development continues. But partners believe there are enough tools and knowledge to get on with, and investment in research and development should speed up mitigation technologies for on-farm application.