In a new report, the Climate Change Commission recommends major changes to the primary sector's preferred emissions pricing scheme to make sure it actually reduces emissions, writes Marc Daalder
Analysis: Generous subsidies for farmers that won't lead to lower emissions should be cut from He Waka Eke Noa's proposed pricing scheme, the Climate Change Commission said on Wednesday.
While the independent advisory group said it agreed that biogenic methane emissions should be priced at the farm level, it said farmers shouldn't get special treatment in the form of payments for carbon sequestered by native vegetation. It also raised concerns that the primary sector alliance's scheme won't reach the 10 percent methane reduction target by 2030 without the use of technology that's not yet available.
"The He Waka Eke Noa modelling indicates that to be effective their proposal relies heavily on incentive payments for as-yet-unavailable technologies – methane-reducing feed additives and vaccines – to reduce emissions," the commission wrote.
"Relying on such technologies introduces risks, including the possibility that technology uptake is slower than assumed. This could require more drastic emissions cuts later through other measures, and in a shorter timeframe, to meet the 2030 methane target. This could potentially have severe significant social and economic impacts."
The report punctures the almost festive air with which the Government received He Waka Eke Noa's own recommendations in June. Then, ministers were simply glad to have a pricing plan that most of the primary sector could agree on – Groundswell excluded.
Now, Cabinet will have to decide whether to side with farmers against their own experts, or with the commission's more critical advice, which could jeopardise that fragile consensus from the sector.
There are a range of points of disagreement between the two groups. While both agree that emissions should be priced at the farm level through a mechanism outside of the Emissions Trading Scheme and that this could begin with a simple scheme in 2025 that grows more detailed with time, that's where the similarities end.
He Waka Eke Noa suggested that farmers be paid to implement particular low emissions behaviour, receiving perhaps seven times more money for each tonne of emissions avoided than they would pay in a levy if they had emitted that tonne.
This shifts the marginal incentive to reduce emissions to the carrot of generous payments, rather than the stick of an emissions price. He Waka Eke Noa expected methane emissions to fall 4 percent under its plan by 2030, but only a quarter of that would result from the emissions price. The commission said this wasn't the right approach.
"A detailed farm-level system with a full marginal price incentive on emissions would most effectively incentivise on-farm emissions reductions. This would mean there is a direct emissions price incentive high enough to drive action by farmers to reduce emissions, and in doing so they avoid the full cost of the emissions reduced," the commission's advice stated.
Rod Carr, the chair of the Climate Change Commission, reiterated this in comments to Newsroom on Wednesday.
"A pricing system can be either seen as a way of raising money to hand out for things you want to encourage or a pricing system can be seen as putting a price on something and allowing investors, producers and consumers to make choices informed by that price," he said.
"As a mechanism for raising money, pricing agricultural emissions is an expensive way to raise money. Therefore the role of a pricing system is to reward lower emitting farming practices and land uses. The way that is most likely to happen is if those who are emitting face the marginal cost of their emissions."
The commission also recommended that payments for carbon sequestered by on-farm vegetation that isn't covered by the Emissions Trading Scheme be separated out into a new system.
"It adds complexity to the system without making it any more likely to achieve the emissions reduction which is the whole point of the system," Carr said. That's because the price might not be high enough to incentivise new planting and because the Government's carbon accounting framework wasn't able to count that sequestration. If it isn't accounted, it won't help New Zealand meet its emissions budgets or 2030 Paris target.
The farm-specific sequestration system would also raise equity issues, because non-farmers who have vegetation that isn't covered by the Emissions Trading Scheme wouldn't be able to benefit from their sequestration.
Carr added that, while the commission had criticised most of He Waka Eke Noa's proposed financial assistance for farmers, that didn't mean another form of assistance wasn't necessary or viable.
"There's still the opportunity - depending on how the levy is set and the amount of funds raised - there's still the opportunity to recycle the funds by rewarding and investing in new lower-emitting farm practices and there's nothing in our advice that would preclude that from happening. We're just saying that you need the price to play its part as well as the proceeds of the price to play their part."
The final significant point of difference between the commission and He Waka Eke Noa dealt with the best way to price emissions from synthetic nitrogen fertiliser. The primary sector wants that to be counted as part of its farm-level system, while the commission said it could be priced at the producer and importer level in the Emissions Trading Scheme - and should be, as soon as possible.
Kelly Forster, He Waka Eke Noa's programme director, said the partnership was still reviewing the advice.
"We are pleased the Climate Change Commission agrees with He Waka Eke Noa that a farm-level split-gas levy is preferable to the alternatives," she said.
"The commission has taken a different view to He Waka Eke Noa on recognising sequestration and levying N fertiliser. We will need to study their analysis before responding in detail.
"However, it is important to remember that the He Waka Eke Noa recommendations are based on giving farmers control over all the levers that impact on their emissions, including sequestration and fertiliser use, so they can take a holistic view across their farm system as they make decisions. We would not want this whole-farm-system approach to be undermined."
In its advice, the commission also measured progress so far against seven legislated milestones for getting a pricing scheme running by 2025. It said the goal to have a quarter of farms measuring their emissions by the end of 2021 had been met, but that the goal for all farms to measure their emissions by the end of this year won't be met.
On the same metrics, farms were also expected to have plans in place to reduce their emissions. Only 21 percent had a plan in place by the end of 2021 and the commission said it was unsure of whether the 100 percent target for the end of this year would be met, given limited evidence either way.
All of this leaves the Government with a difficult set of decisions on its hands. The He Waka Eke Noa alliance is fragile. The growing influence of Groundswell shows there are significant numbers of farmers who disagree with any emissions price.
In its own consultation, the commission "observed evidence consistently showing disagreement across the sector on the need and urgency for farms to reduce emissions, the quantity of reductions that are required and are possible, and how to accomplish these".
Polling commissioned from Manaaki Whenua shows that fewer than half of farmers think they should reduce farm emissions. The opposition to cutting emissions is just as strong as the support for it.
Even advancing the He Waka Eke Noa proposal isn't a sure bet. The Climate Change Commission's advice will be even less appealing to farmers, unless it is rapidly supplemented with a form of financial assistance that can satisfy all parties.
But, as the commission notes, urgency and competence are sorely needed in this space.
"A pricing system for agriculture must be in place by 2025. We cannot afford to wait - any delay will only set us back further from getting to where we need to be in 2030 and 2050."
And yet, a system reliant on generous subsidies to farmers and wishful thinking about future technology won't get us any closer to 2030 and 2050 targets.
The evidence base is clear that a more robust pricing scheme than He Waka Eke Noa's proposal is needed to actually cut emissions. Whether the Government will follow the science or bow to political pressure remains to be seen.
A final decision from the Government on the path forward is due at the end of this year.
