Farmers influence emissions pricing policy

Nov 24, 2021 | ESG | 0 comments

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New Zealand’s farmer organisations are putting alternatives to the emissions trading schemes to farmers  

The Primary Sector Climate Action Partnership He Waka Eke Noa has produced a discussion document of options for NZ farmers to consider in the next few months as alternatives to the NZ Emissions Trading Scheme (ETS). The partnership consists of farmers lobby organisations Beef + Lamb New Zealand, DairyNZ and Federated Farmers and also includes Government and iwi/Maori.

The two options floated in the discussion document both take a split-gas approach. The farm-level levy and processor-level hybrid levy options both acknowledge that short-lived gases like methane have a different warming impact to long-lived gases like carbon dioxide, separating the price for methane from the carbon price.

The NZ ETS creates a financial incentive for farms to reduce their emissions by calculating agricultural emissions at a processor level initially. Under the NZ ETS, short lived gases like methane and long-lived gases like carbon dioxide and nitrous oxide are treated the same – using a carbon equivalence metric; CO2e. Under the ETS, methane would be priced on the prevailing carbon price with a set formula and farmers’ costs would increase every year as the carbon price lifts – even if they work to reduce emissions through on-farm vegetation.

Under the farm-level levy proposed by the Primary Sector Climate Action Partnership, emissions will be calculated using farm-specific data, with farmers paying a net emissions price. With this option, eligible on-farm sequestration would be rewarded which would offset some of the cost of the levy. Additional revenue raised through the levy above scheme costs would be invested back into the agricultural sector for further emissions reductions work and R&D. 

The processor-level hybrid levy would calculate emissions at the meat, milk and fertiliser processors level based on product quantity received from farms or fertiliser sold to farms. Processors would pay the levy, likely to be collected by charging farmers based on the quantity of product processor or fertiliser supplied. Under this options, farms can choose to enter an Emissions Management Contract (EMC) to get payment for reducing emissions and for recognising sequestration on-farm.

The new pricing framework isn’t expected to come into force until 1 January 2025 (but it could be sooner if the NZ ETS is selected by the Government). The Government has made it clear they will put agriculture into the ETS if the partnership does not come up with a credible alternative.

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