Have your say in how we account for our emissions

Posted on Tuesday, 1 February 2022

The agricultural sector has the opportunity to have a say in how we account for our emissions. If we don’t engage now we run the risk of being brought into the Emissions Trading Scheme (ETS) or having a pricing system that doesn’t work for us.

If you haven’t engaged already – now is the time.

Around the world countries are seeking to make people accountable for their emissions, however New Zealand is the only country currently considering a compulsory emissions price for agricultural emissions.

He Waka Eke Noa – a joint government/industry group – has been established to provide an alternative to the ETS that will better meet agriculture’s needs while still making farmers accountable for their emissions.

To assist with farmer engagement, New Zealand’s meat processors have established a He Waka Eke Noa working group.

As part of the He Waka Eke Noa agreement with Government, there are specific objectives that must be met to demonstrate industry engagement.

To date these objectives have been focused on farmers “knowing their GHG number” and developing a farm environment plan that seeks to mitigate emissions.

From February 2022 the discussion moves towards how the emissions would be priced and the pricing system that would be used.

That discussion is based on some key principles that He Waka Eke Noa’s climate change commitment was founded on: that the pricing mechanism drives and accelerates emissions reductions beyond what would occur without it in place, with consideration to available mitigation technologies. And further that:

  • The obligation should rest at the farm level where emissions are created and best managed, but be flexible to allow farmers to form ‘clubs’ or other groups (including with processors);
  • The price is set only on emissions in excess of emission targets, and to the extent necessary to incentivise the uptake of economically viable opportunities that translate to lower global emissions;
  • The price mechanism recognises on-farm sequestration and offsets;
  • Emissions pricing does not duplicate or conflict with other environmental policy instruments as far as possible (e.g. water, biodiversity, etc).

Three pricing options on the table:

1. Farm-level levy

The farm-level levy would involve farmers calculating taxable emissions based on their farming system or practice which is consistent with the He Waka Eke Noa objective of reducing total on-farm emissions.

This option recognises a split- gas approach that accounts for methane and nitrous oxide emissions separately and has potential for on- farm mitigation and sequestration to be recognised through the tax being calculated as: A (methane) plus B (nitrous oxide) minus C (mitigation or sequestration).

Rates or pricing for this option are yet to be set but the farm-level option appears to be favoured by those consulted with to date as it offers farmers greater ownership of actions; and it is the most equitable option for all farmers, breeders and finishers.

The farm-level levy provides greater opportunity than the ETS backstop option (outlined below) for industry to influence pricing and where funds are applied.

Setting up the system to administer this option would require investment.

2. Processor-level hybrid levy

The processor-level hybrid levy also takes a split-gas approach and would require less investment to set up and administer because processors would manage the levy transaction through kill sheet deductions.

A yet-to-be-determined party would determine how emission charges would be calculated.

Under the less favoured processor-level option, mitigation and sequestration activities would be recognised by an emission management contract and result in a rebate.

Administration of those contracts would require additional investment.

Again no rates or pricing have been set at this stage and there is greater opportunity for industry to influence pricing compared to the backstop option (see below), along with where those funds are applied.

One thing to consider with this model is that it would only capture farmers who farm for slaughter – ie not breeders or store stock finishers – so it has raised concerns regarding equality across all farming systems.

3. Processor backstop option – the ETS

It is important farmers understand the distinction between this backstop option and the processor-level hybrid levy option outlined above.

The ETS backstop is a legislated fallback position that will be brought in if the primary sector can’t come up with an emissions pricing approach that the Government supports.

This option requires processors to calculate emissions based on the number of livestock they process.

Processors would submit under the ETS and pay a tax calculated from the total tonnes of all livestock processed multiplied by an emission factor and the current New Zealand unit, which corresponds to one metric tonne of carbon dioxide equivalent emissions. It is expected that processors would seek to recover that tax from farmers.

The system would potentially have a lesser impact initially because of an initial 95% discount on agriculture emissions but that discount will likely decrease over time.

Under the backstop there would be no visibility as to where tax collected is applied and no reward for farmers for on-farm mitigations, unless they involve sequestration from forests registered under the ETS.

The ETS does not recognise the split-gas approach and the backstop option only captures farmers who farm for slaughter and all such farmers would be treated as one, irrespective of what mitigation activity may have already taken place or is planned in the future.

How to have your say

Farmers will have an opportunity to have their say on the pricing options in February, when B+LNZ, DairyNZ, and Federated Farmers take a nationwide roadshow to the regions to gauge farmer opinion before the primary sector action partnership He Waka Eke Noa reports back to the Government in late-April.

Check out dates and locations of these 29 workshops and four webinars:

Agriculture emissions pricing options – February roadshow: beeflambnz.com

And for further information visit hewakaekenoa.nz

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