The following was emailed to farmers on 11 October 2022.
Today, the Government released its response to the He Waka Eke Noa Primary Sector Climate Action Partnership proposal on the pricing of agricultural emissions.
While Beef + Lamb New Zealand would prefer farmers didn’t face a price for their emissions, the Government has been very clear that pricing will begin by 2025 and it already has legislation in place.
New Zealand is the first country in the world to look to put a price on agricultural emissions. While we recognise our role in reducing emissions, we are one of the most carbon efficient producers in the world and we will not accept a system that disproportionately puts our farmers and communities at risk.
As part of the proposal released today, agriculture will not be going into the Emissions Trading Scheme (ETS). Going into the ETS is something B+LNZ and other primary sector partners have been steadfastly opposed to.
The Government has agreed to many of the He Waka Eke Noa proposals, but it has put forward some changes which we believe will impact sheep and beef farmers and are not acceptable.
We need to fully analyse these changes carefully, and we will provide more information once we’ve done this, but one area of immediate and significant concern is the proposed changes to sequestration, which we know is of real importance to many sheep and beef farmers.
B+LNZ and other partners are not happy with these changes and will push for better outcomes as part of the consultation.
We are also examining other areas that have been modified and will be working through this process with our He Waka Eke Noa partners and seeking feedback from farmers. These areas include proposed changes to the emissions price setting process and criteria, and the linking of the nitrous oxide price to the ETS price.
The He Waka Eke Noa proposal was designed as a carefully balanced package that was as equitable as possible across all parts of the sector.
The modelling the Government released today reinforces just how serious this is for our farmers particularly and how important it is that we get things right.
It reinforces the need to take a cautious approach on any prices on agricultural emissions and also reinforces the need to adjust the methane targets.
Consultation on the Government’s proposals begins today (11 October) and ends on 18 November. It’s critical that you as farmers understand what’s been proposed and have your say. The consultation documents are on the Ministry for the Environment website.
What has the Government proposed?
- A farm-level split gas levy.
- The Government has agreed that the ETS is not an appropriate vehicle for reducing on-farm greenhouse gas emissions.
- It has carried out modelling that shows only a modest price on methane is needed to achieve the Government’s current methane reduction target for 2030, but its modelling does reinforce what we have been saying that any price on emissions will impact heavily on sheep and beef (and deer) farmers.
- It has suggested a range of changes to what the He Waka Eke Noa partnership proposed, including to: sequestration; the pricing criteria and process; and linking the nitrous oxide price to the ETS price. They have also not made a decision on the pricing details for fertiliser.
- The Government has reserved the right to start with a processor split gas levy for the first couple of years if progress on setting up the farm level system is too slow.
The following is a preliminary analysis on some of the key areas and we will provide farmers with more detailed information in the next couple of weeks.
Sequestration
- The most significant proposed changes are to sequestration.
- The Government has reduced the categories that farmers can get recognition for down to: indigenous vegetation where stock is excluded, which they could only receive additionality for, and riparian strips.
- The Governments says its ultimate objective is to add these categories to the ETS, but because this will take many years, they are proposing an interim separate contract-based system for the recognition of these categories.
- We do not think these changes are acceptable. If farmers are to face a price on their emissions, they should get proper recognition for the sequestration happening on their farms. Many farmers have found it difficult to get their post-1990 native trees into the ETS and our objective had been to set up something that was simpler, more practical and covered more categories of vegetation.
- There is a lack of detail on sequestration from the Government (including what the sequestration rates could be) and we will be pressing them for additional information and clarity over the coming weeks.
- We will be working with other industry groups and talking with farmers over the coming weeks, and will focus on pushing hard for changes to this part of the Government’s proposal.
Price setting process and criteria
- The He Waka Eke Noa partnership had proposed that the agricultural sector would have input into the advice to Government on the setting of methane and nitrous oxide prices. It had also proposed a range of criteria to reflect the price impacts on viability, availability of emissions reductions technologies and equity across sectors.
- The Government has proposed that the Climate Change Commission be responsible for recommending the methane price and that this advice is primarily based on progress towards the targets. Socio-economic impacts would be considered as ‘secondary’ to meeting targets.
- We are concerned this is too narrow a perspective on price setting. The He Waka Eke Noa partnership proposal reflected detailed analysis that showed price should not be the sole driver of action and that incentive payments to encourage the use of new technologies as they become available will have more of an impact.
Linking the nitrous oxide price to the carbon dioxide price
- The Partnership had proposed delinking the nitrous oxide price from the ETS-driven carbon dioxide price.
- However, the Government has proposed linking the nitrous oxide price to the ETS (with a 95 percent free allocation that reduces by 1 percent a year) because it’s a long-lived gas and has a net zero target.
- We need to study the long-term implications of this. An escalating carbon price could have significant cost implications for farmers (including sheep and beef farmers).
The methane price and what the Government’s modelling showed
- The Partnership had recommended a maximum starting methane price of 11c, and for the starting price to be held for three years.
- While the Government has not responded directly to this proposal, the Government’s own modelling released with the consultation document makes it clear that lower prices than what the He Waka Eke Noa partnership modelled could achieve the targets. This validates the modelling released by B+LNZ back in July and our ongoing position that we need to take a cautious approach to prices. You can find B+LNZ’s modelling here (PDF, 1.3MB).
- In particular, the Government’s modelling indicates that a methane price of 8c per kilo by 2030 could achieve the Government’s 2030 targets. Note: B+LNZ does not agree with the current methane reduction targets and is working with other industry groups to get the targets adjusted.
- The Government’s modelling shows that the sheep and beef sector (and deer) are most heavily impacted by a price on emissions. This would likely be exacerbated by the proposed sequestration changes, reinforcing the importance of pushing for fair recognition of sequestration. It also underlines the need to take into account a wider set of criteria when determining prices.
- There is some mention in the document about ways in which equity could be rebalanced, perhaps through the incentive payments or some sort of levy relief but there are no details about how this could be done. The lack of detail is concerning and we will push for further clarity.
How will the consultation run?
- The Government will be holding webinars during the consultation period to explain the proposal and farmers will be able to make a submission.
- We encourage you to make a submission, to put pressure on the Government to ensure the emissions pricing system is fair and equitable. B+LNZ will be working with other industry groups to provide advice to farmers on how to make a submission.
- B+LNZ and DairyNZ are also intending to hold a number of joint webinars.
- We know there is a lot of concern and confusion still out there around this process. We are intending to host a number of face-to-face meetings around the country over the coming month to share our views on the detail, get your feedback to inform our submission and also provide advice on making a submission. Keep an eye out for information soon about a meeting near you.
We will be in touch with further information soon.
