Wednesday, 26 September 2012

Looking forward: what NZ rural land might look like in the coming decades under a carbon price

This blog post is by Motu Research Analyst Zack Dorner.

A couple of years ago, my sister brought her partner to visit New Zealand for the first time. We picked them up in Auckland, and drove down the North Island back to Wellington. He asked “Why are there so many golf courses here?”

Of course, they weren’t golf courses, but the lush, green grassy farmland that New Zealand is so well known for, and that he was not used to.

Motu has just released a new working paper, modelling what our rural land might look like in the coming decades, including with a price on agricultural GHGs (greenhouse gases). Luckily, for our “golf courses”, even with the agricultural sector facing a price on its GHGs, New Zealand probably won’t look much different to the way it does now.

The really cool thing about the model used is that it is based on real world observations of how rural land use in New Zealand has changed in recent decades in response to commodity prices. It is slow to adjust – farmers don’t want to switch immediately to the new best thing for their land (see final graph below), which is understandable. Changing your whole farm can’t be easy or cheap to do, and who’s to say market conditions won’t change again.

Of course, the results in the working paper are just from a model. They do not predict the future, but give us an idea about the types of changes to land use and their magnitude under certain scenarios. There are on-farm mitigation options that farmers may be able to do to reduce their GHGs before changing land use, but to keep things simple, the model does not include these.

The working paper models three scenarios out to 2030: no carbon price, a carbon price ($25) just for forestry, and a greenhouse gas price for forestry and agricultural emissions.

The model shows several interesting things.

First, as I have said, land use change is quite slow. Even with a $25 carbon price on forestry and agriculture, there is actually relatively minimal changes in land use. This provides evidence that our agricultural sector may be able to respond efficiently to a price on carbon without huge disruption to rural life in New Zealand.

However, although changes to land use are gradual and small, they actually make a big difference to our emissions. The extra trees are especially helpful in this regard. From the paper directly:

Under our ETS [emissions trading scheme] scenarios there is substantial reforestation. The extra removals associated with this new planting mean that the additional sequestration in 2024 is from 17.6 to 20 percent of national inventory agricultural emissions in 2008.

That’s a huge amount of emissions, and would help New Zealand immensely in our quest to lower our emissions.

In terms of cows and sheep, we actually see more dairy cows, and fewer sheep and beef farms. This is because dairy farms are so much more profitable, and the balance is tipped even more in their favour once a price is applied to farming emissions. This is already happening to a much larger extent, and only the already marginal sheep and beef farms are converted to dairy or forestry under an efficient response to a carbon price. The overall change is only minor in the scheme of things, and even when you exclude agricultural emissions from a carbon price, this still happens (see the first graph below).

So these results suggest that there are large benefits to having a $25 carbon price in New Zealand for forestry and our country’s emissions profile. As for agricultural emissions, if dairy and sheep and beef farmers face a price on their emissions, the sky won’t fall in, but the adjustments that are already taking place will just continue to a greater extent. By creating an efficient, economy-wide price signal which includes agriculture, we should achieve more mitigation overall (see the second graph below). If on farm mitigation is encouraged optimally, and technologies continue to improve, we might well see less of the minor reduction in farming in the model and instead end up with more efficient farms on our rural land.

Bringing agricultural emissions into the ETS or some other pricing mechanism must occur once farmers are ready and on board. Through research like this, and having a dialogue with all interested parties, we can hopefully move forward together, and work towards future-proofing our golf courses, and our farms.

And now, for those of you who get a kick out of graphs (like me), here are some relevant ones:

This graph above shows the projected change in land use share for each type of land use. The solid lines give baseline projections. Short-dash-dot lines give a $25 carbon price, but not on agriculture. Dashed lines show a carbon price with agriculture. Note the y axis is the same scale for each graph so direct comparisons can be made (page 9).

This graph shows the amount of emissions that are reduced or sequestered. The red line is with just forestry, the blue line shows including agricultural emissions as well increases the emission reductions (page 16).


This final graph below shows why sheep and beef farms have been declining over the years, and how land use change is gradual (page 4 of Kerr and Olssen 2012).

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