This blog post is by Motu Research Analyst Zack Dorner.
In case you missed it, here is an opinion piece published in the Sunday Star Times on 15 April by William Rolleston, vice-president of Federated Farmers. It covers his views on bringing agriculture into the New Zealand Emissions Trading Scheme (ETS). It comes as the Government is consulting the public on a new series of changes to the ETS.
In the opinion piece, Rolleston states:
Farmers here are encouraged to see agriculture's enrolment [in the ETS] on hold until mitigation technologies are available and other countries "make progress". Such pragmatic preconditions don't go far enough.
Although that may be Federated Farmers’ understanding of the Government’s current position, the first of what are to be regular reviews of the ETS recommended that agriculture come into the ETS in 2015, the date currently in the legislation (see page 47 of this document). The panel recommended this on the basis that there are some Greenhouse Gas (GHG) mitigation options available to farmers, and all other sectors are facing the costs from their emissions.
It is also important to note though that there is an important difference between the current processor-based ETS (where agricultural emissions are charged at the processor level, eg Fonterra) and a farm-scale ETS.
Farmers have almost no ability as individuals to influence their liability under the current processor-based system in the legislation; therefore inclusion of agriculture may have very little effect on on-farm mitigation. Including agriculture in this situation would mostly send a signal of government’s longer term intentions and shift some of the cost of meeting our domestic reduction targets onto farmers.
A farm scale ETS would incentivise farmers to take mitigation actions on their farm as this would reduce their liability. The ETS review panel did show a strong preference for a farm scale ETS, though it noted significant administrative barriers to doing this must be worked through (page 49).
Rolleston goes on:
Federated Farmers considers it a necessity that our competitors bring agricultural biological emissions into their schemes before we do likewise. Otherwise, all that will happen is carbon leakage to less efficient carbon production systems.
Unless New Zealand farmers can get a premium for our products overseas on the basis of being a part of an ETS, our farmers face the world price for their product, and therefore cannot pass the costs of their emissions on to their consumers unless other countries put a price on their agricultural emissions. You can argue about whether or not it is fair for our farmers to face these costs while not being able to pass them on to the consumer.
What’s the evidence for leakage being a problem in our agriculture sector?
It is important to note here that leakage will likely result in higher global GHG emissions, even if similarly efficient producers take over production. This is because New Zealand operates under an ETS cap, under which reductions in emissions in one sector will be replaced by an increase in emissions in another sector. A reduction in agricultural emissions which are replaced by production overseas would likely be replaced in a country outside of a cap, and lead to an overall increase in emissions.
We have a large amount of prime agricultural land which profitably and efficiently produces agricultural goods, and not much of it is likely to change out of farming due to the ETS. Empirical evidence suggests the ETS is unlikely to induce much land use change. There may be some risk at high carbon prices; more of these issues and potential remedies covered in this Motu Working Paper (especially pages 7 and 8).
Our agricultural sector is very efficient in terms of emissions at producing milk and meat compared with the rest of the world. This is around Rolleston’s final point.
So where to now? Some positive recognition of agriculture's impressive carbon leadership would be welcome. New Zealand agriculture has, during the past 20 years, reduced emissions in every single unit of agricultural product by about 1.3 per cent each year. As a biotechnologist and farmer, I advocate giving science a chance, through the agricultural greenhouse gas research centre.
The more GHG emissions from our agricultural sector we can reduce, the better. The trick is to figure out how to best incentivise farmers to continue to lower their GHGs per unit of output into the future. Yes, we need more research into mitigation. But we also may need some way of getting farmers to take into account the GHGs of their production, and to keep pushing them to lower their emissions.
And given New Zealand farmers are so efficient at what we do, we can play an important role as a world leader on agricultural mitigation and policy to encourage it. Through leading the way, we really can punch above our weight to lower global agricultural GHG emissions.