Fonterra says change emissions rules, Fed Farmers says scrap it

NZ dairy farmers are among the most efficient in the world, says Fonterra. Photo / Amos Chapple

Federated Farmers has told a parliamentary committee the emissions trading scheme (ETS) should be scrapped because it would create economic disaster.

But dairy giant Fonterra says it should be kept, but only if changed significantly.

The ETS was designed by the previous Labour-led government and passed just before the election.

The new government has put it on hold and is reviewing it through a special select committee.

Under the ETS, limits on greenhouse gas emissions would be imposed on all sectors of the economy. Not all sectors would come under the ETS at the same time.

Those that exceed their limits would have to buy carbon credits from those under their caps.

"We can ill afford to further weaken the economy in the current crisis," Federated Farmers president Don Nicolson said at a committee hearing today.

"We're talking about an economic implosion."

The federation said in its written submission the ETS was fundamentally flawed and should not go ahead because it would result in great harm to the primary sector and the economy as a whole.

"Should the emissions trading scheme be retained, the federation submits that agriculture should be excluded," it said.

"At any absolute minimum, any date for entry of agriculture should be removed from the legislation."

Dairy giant Fonterra told the committe that New Zealand's dairy production could fall by five per cent, costing the economy $650 million annually unless the ETS was changed.

This, said chief executive Andrew Ferrier, would allow other countries to "fill the gap in global supply risking further global emissions growth".

Ferrier said that global emissions would increase if a greater proportion of dairy products was produced by countries where production is less carbon efficient than here in New Zealand.

"New Zealand is one of the most greenhouse gas emissions-efficient dairy producers in the world," he said.

Ferrier argued that if the New Zealand dairy sector was exposed to an emissions price before its international rivals and before good technology was developed to cut emissions from the dairy supply chain, Fonterra's international competitiveness would be compromised.

The "gap in supply" would then be filled by less greenhouse gas-efficient dairy producers.

"What is the point in New Zealand losing out economically for no potential global atmospheric gain?, said Ferrier.

A five per cent cut in dairy production, as estimated by the New Zealand Institute of Economic Research would be the equivalent of $650 million less dairy production per year.

"This would have a knock-on effect on New Zealand's economy as a whole: of New Zealand's total exports from June 2007 to May 2008 of $39.1 billion, Fonterra alone contributed $9.7 billion, or 25 per cent."

Ferrier went on to say that the company supported an Emissions Trading Scheme, as "this is the best policy approach to support behaviour change to reduce emissions. But we believe the existing scheme needs modification to ensure New Zealand makes the best possible contribution to long-term global climate stabilisation without compromising economic growth" says Ferrier.

New Zealand dairy producers already operated at "world's best practice in terms of greenhouse gas emissions efficiency," said Ferrier.

"We want to raise the bar higher and continue to lead the world by making dairy production in New Zealand even more greenhouse gas-efficient."

Fonterra is arguing for a scheme that allocates emissions units according to a "measure of emissions efficiency per unit of output" or intensity.

This, it says, would "enable Fonterra to meet the growing global demand for dairy, while still encouraging Fonterra and farmers to lift the bar higher and improve their already world-leading levels of emissions efficiency, thus contributing to a global reduction in greenhouse gases below business as usual levels."

The intensity measurement would be based on "best practice emissions" per kilogram of milksolids on farm and per kilogram of product from manufacturing.

HERALD ONLINE/ NZPA