Farm-specific emissions pricing

He Waka Eke Noa Primary Sector Climate Action Partnership is investigating two agricultural emissions pricing options for farmers.

The options would differentiate between agricultural greenhouse gases, take into account farm-specific climate options, and reward multiple onfarm sequestration initiatives.

According to a draft discussion report by the partnership, if suitable agriculture-specific alternatives are not on the table by April, the Government will automatically lump farms into the New Zealand Emissions Trading Scheme (ETS).

DairyNZ chief executive Dr Tim Mackle said when the Government consulted on legislation to put agriculture into the ETS in 2019, the agriculture sector opposed it because it was not considered ‘‘fair’’ to farmers and did not give recognition to on-farm efforts to reduce emissions.

‘‘Under the ETS, the emissions price is likely to increase to the point dairy could become uncompetitive internationally,’’ Mackle said.

Under the existing framework, the ETS considers only carbon removal via carbon forestry or native bush plantings as eligible sequestration options for farmers. Emissions will be calculated using emissions per kilogram of agricultural product produced, or per tonne of synthetic fertiliser sold.

‘‘The only way individual farms can reduce the passed-on cost they pay for emissions is by producing fewer meat or milk products or using less synthetic fertiliser,’’ the report says.

The partnership is concerned that carbon pricing under the ETS will reduce farm profits to such an extent that by 2030 the viability of some red meat farming systems will be in question, the report says.

He Waka Eke Noa proposes two alternatives to the ETS: A farm levy and a processor hybrid levy.

Both would incorporate a splitgas approach to calculating emissions, which means different levy rates would be set for shortlived biogenic methane and longlived nitrous oxide and carbon dioxide gases. Biogenic methane would not have to be reduced to net-zero.

The sector wants long and short-lived gases to be addressed differently because they behave differently in the atmosphere and have different warming effects.

The farm levy would calculate emissions using farm-specific data. The farm then pays a price for its net emissions, the report says.

Farmers who have taken measures to reduce carbon by planting vegetation would be rewarded, as the future sequestration potential from existing vegetation would be recognised by the levy.

Farms would be eligible to register in this farm-level pricing system if they were GST registered and averaged more than 550 live stock units a year, or averaged 50 dairy cattle, 700 swine, 50,000 poultry units, or applied 40 tonnes of nitrogen through synthetic nitrogen fertiliser application, the report says.

These animal numbers and nitrogen tonnage mean all farms that emit more than 200 tonnes of CO a year would be included in

2 this levy.

The partnership recommends a unique price for biogenic methane, and that the price of nitrous oxide and the value of sequestration be broadly aligned to the ETS carbon price.

The report estimates costs to the dairy sector in 2025 could amount to about 4c/kg milk solids. The 2025 costs for sheep meat could be between 9c and 19c/kg, 6c to 29c/kg of beef, and 21c/kg of venison. Fertiliser costs in 2025 could be between 2c and 5c/kg of nitrogen.

Rewards from additional sequestration initiatives are recognised, with actively managed indigenous vegetation established before January 1, 2008, paying farmers $156 a hectare a year from 2025.

For indigenous vegetation established after January 1, 2008, a $552/ha a year price from 2025 was indicated. Riparian vegetation would pay back roughly $238/ha a year.

At these prices, the estimated revenue from emission costs would be $137m a year, before the financial offset from sequestration is recognised. Modelling suggests additional sequestration value as high as $82m a year. The processor hybrid levy

calculates emissions at the meat, milk and fertiliser processor level. It is based on the quantity of product received from farms or, in the case of fertiliser, sold to farms.

‘‘Processors would likely pass on the cost to farms based on the quantity of product processed, or fertiliser bought,’’ the report says.

The processor-level hybrid levy would also use a split-gas approach and calculate emissions.

The processor hybrid levy would also give farmers the option to enter a sequestration scheme called an Emissions Management Contract, which pays for emissions they reduce.

A processor-level split-gas levy could raise about $137m a year.