New Zealand farmers make their own plan on reducing carbon emissions

Rugby-following farmers are familiar with the New Zealand “Haka” but it’ll be well worthwhile for all farmers to familiarise themselves with another phrase.

“He Waka Eke Noa”. This phrase translates as “We’re all in this canoe together” and it’s a partnership of 13 entities representing all farming sectors in NZ, which was established in 2019 shortly after the NZ government set out its plans for reducing greenhouse gas emissions (GHGs).

Agriculture has to reduce methane by 10% by 2030 and by 24% to 47% by 2050.

“Long-lived” gases are targeted to be reduced to net zero by 2050. It’s notable that our 2030 targets are far more demanding.

The NZ plan is a classic “polluter pays” approach which seeks to tax emissions. In contrast to Ireland’s carbon tax, the NZ government’s proposal includes carbon produced by agricultural activity.

The original proposal was to levy the tax at the prevailing trading price of carbon, which is running at about €43/t in NZ at present but is expected to double by 2030.

Problems

NZ farmers weren’t too happy about the proposal and pointed to a number of problems.

These included the likelihood of an ever-increasing tax rate unrelated to developments in the agricultural sector; the fact that the tax didn’t distinguish between methane and “long-lived” gases; and that it didn’t allow for any incentives to encourage farmers to mitigate or sequester emissions.

The government invited farmers to propose a credible alternative but stressed that if none was forthcoming the “backstop” would be that the original proposal would stand.

This gave rise to the setting up of the partnership and an extensive round of consultations with farmers.

At the end of last month, they produced a consensus report. While the government has yet to decide if the partnership’s report passes the credibility test, it’s likely that, as two government ministries are members, the proposals will be accepted.

There are a number of aspects to the partnership’s report that are of interest.

The NZ agricultural sector is way ahead of us in terms of the maturity of its response to the climate change challenge. This illustrates how good the NZ sector is at coming together and facing the inevitability of change. It takes the view that it’s always better to try and exert some control over your destiny.

Another aspect, which would be hard to imagine being accepted here, is that NZ producers have accepted that they’ll have to pay a tax on their carbon output but they set out measures that would minimise that burden.

We’ve a tendency here sometimes to “rage against the dying of the light” and in the process we exhaust our collective energies in trying to prevent the inevitable when we could be making progress in lessening the impact.

The tax is to be based on each farm’s estimated level of net carbon

A most interesting and intriguing outcome of the consultation process is of course that farmers have rejected the “cap and trade” option.

So what is the partnership’s response?

It’s proposed that a tax system should be introduced in 2025 and be fully operational by 2027.

The tax is to be based on each farm’s estimated level of net carbon. This is seen to give maximum flexibility to make adjustments tailored to the unique circumstances of each farm.

Exclusion

It should be noted that not every farm will be involved in the proposed system, as farms, for example, with fewer than 550 stock units or 50 dairy cows are to be excluded.

In the measurement of the tax yield on net carbon, a “split-level” gas approach is to be adopted.

Methane will incur a lower tax rate than nitrous oxide because of its lower impact on global warming.

Farms will be able to reduce their tax liability if they adopt recognised carbon-reducing technologies and if they increase sequestration.

Interestingly, the allowance for sequestration only covers “above ground” actions such as the planting of hedgerows, etc. It was indicated that “below ground” sequestration requires further research before credits could be accumulated on a robust basis. Of course, the tax liability will be reduced if farms reduce their level of gross emissions.

All of the proceeds of the tax are to be reinvested into research and extension to enable farmers to reduce their emissions and hence tax liability.

Each farm in the system will be assisted in compiling their net carbon estimates through access to a “centralised calculator”.

The entire system will be administered by a system oversight board that will be responsible for setting the levy rates and for identifying eligible offset and sequestration measures, as well as specifying priority research and extension actions.

The partnership does not specify any particular levy rates in its report but it does assess the impact on emissions and farm production and profitability of illustrative tax rates for methane and nitrous oxide.

The estimated impacts allow for sequestration and the adoption of mitigation technologies.

By 2030, the illustrative tax rates, on a CO2 equivalent basis, are €7.50/t for methane and €8.28/t for “long-lived gases”. The impact of these taxes is offset by about 70% for dairy but by less than 50% for drystock farms as a result of sequestration and mitigation.

It would appear that drystock farms have fewer opportunities for mitigation than dairy farms.

By 2030 versus 2017, the taxation measures are estimated to reduce emissions of methane by an additional 5.5% and “long-lived” gases by an additional 3% relative to “business as usual”.

Production is expected to fall by 1.4% for dairy and 0.1% for meat. The income hit is assessed at under 1.5% for dairy but between 5.5% and 11% for drystock in, for instance, the Southland intensive hill system.

On dairy farms, the net cost expressed per kilo of milk solids is less than 0.05% of the milk price.

New Zealand is setting a pathway for all its agricultural sectors on GHGs.

There’s a lesson here for us. Competitiveness is central to our farming prosperity.

But competitiveness isn’t just about watching costs, it’s also about confronting difficult policy issues decisively and getting on as quickly as possible with the business of farming.