Pastoral farming is responsible for more than 40 per cent of NZ's export income. Photo / 123RF
Pastoral farming is responsible for more than 40 per cent of NZ's export income. Photo / 123RF
COMMENT:
Some of the criticism from the more ardent end of the Green movement to proposals to extend emissions pricing to livestock farming is fatuous and myopic.
As the Interim Climate Change Committee — whose work forms the basis of the proposals the Government is consultingon — put it, the perfect should not be the enemy of the good.
It is the principle that counts.
And the hard-won and perhaps fragile consensus of support from farm industry bodies for the principle that there must be an end to the entirely free ride on livestock emissions that farmers currently enjoy is indeed historic — as Climate Change Minister James Shaw and Agriculture Minister Damien O'Connor put it.
Before turning to what was announced this week, let's remind ourselves that pastoral farming is responsible not only for nearly half the country's greenhouse gas emissions, but also for more than 40 per cent of its export income.
New Zealand has to earn its living as a trading nation. Those inclined to wag a censorious finger at farmers should first look around at all the imported stuff they own or use on a daily basis and ask themselves which 40 per cent of it they would willingly do without.
It is true that if you take the current carbon price of $25 a tonne and the plan that initially only 5 per cent of livestock emissions be subject to a price, and assume the most lenient possible way of calculating liable emissions, you end up with numbers that make almost no difference to farm-gate prices or emissions: 1c less per kilogram of milk solids, for example, and an imperceptible 0.25 per cent reduction in agricultural emissions. Hence the scorn.
Agriculture Minister Damien O'Connor. Photo / File
But it is shortsighted. The realistic assumption has to be that both the emissions price and the share of a farm's livestock emissions that is subject to that price will rise inexorably over time.
As Catherine Leining of Motu Economic and Public Policy Research says, the $25 a tonne carbon price assumed in the consultation document's cost projections is not consistent with either the targets in the Zero Carbon Bill or New Zealand's commitments under the Paris Agreement. It will have to rise, a lot, for all emitters.
The rate of the levy farmers face will be adjusted annually and linked to the prices generated by the emissions trading scheme, even though 20,000-plus farms will not be points of obligation under the ETS needing to buy and sell carbon credits, with all the compliance costs that would impose.
As for the initial level of 5 per cent of liable emissions to be subject to a carbon price, that is in line with the deal other emissions-intensive, trade-exposed sectors like steel and aluminium got when the ETS came into effect. It has since risen to 10 per cent.
More to the point, perhaps, it is also part of the coalition agreement between Labour and New Zealand First. But that only applies for the current parliamentary term, so will have expired or have been renewed by 2025 when the proposed regime comes into effect.
The interim committee's report recommends that the free allocation rate of 95 per cent (the converse of a 5 per cent exposure to the carbon price) be phased down.
That is necessary because the emissions intensity of agricultural production (emissions per kilogram of meat or litre of milk) has improved at a rate around 1 per cent a year over the past 25 years, even without the incentive of an emissions price, and further gains are expected.
If that business-as-usual improvement in emissions intensity was not taken into account in setting the allocation factor, in a few years the level of emissions allowed before the price applied would be 100 per cent of actual agricultural emissions, rendering the whole system pointless.
More generally, as the interim committee sees it, the case for a free allocation is to mitigate the social impact on rural communities of applying emissions pricing to livestock farming.
The aim is to avoid a repeat of the disruptive social changes that occurred in the late 1980s when farmers had to cope simultaneously with the loss of subsidies, the floating of the kiwi dollar (for a while it hit US$1.40) and sky high interest rates when the Reserve Bank was given the task of taming rampant inflation. "Just transition" is the catchphrase.
The committee expects the dominant driver of land use change to be the potential rewards for planting forestry sinks rather than the price on agricultural emissions.
It is reminder that the opportunity cost for at least some farmers of continuing in pastoral farming, as opposed to alternatives like forestry or horticulture, will have a large impact on national agricultural emissions.
Another key uncertainty is what we end up with as a mid-century target for national methane emissions.
That issue is central to the prospects for cross-party support for the Zero Carbon Bill now before Parliament and an enduring statutory framework for climate policy.
Too hard a regime for pastoral farmers over emissions pricing now would risk a tribal reaction from National and threaten the longevity of the regime the Zero Carbon Bill seeks to set up. Better to play the long game.
The Government, the Interim Climate Change Committee and the coalition of 11 farming industry groups which released a primary sector climate change commitment document on Tuesday all agree that for farm-level emissions pricing to be feasible and effective, a lot of capacity building in the sector will be necessary over the next five years.
The committee and the industry only differ on how to finance that transition — through industry levies or through recycling the revenue from temporary inclusion of agriculture in the ETS at a processor level.
The Government is non-committal on that at this stage. Submissions on its consultation document close on August 13.
