Ag emissions pricing explained

The resulting recommendations are likely to result in the biggest regulatory disruption to farming since agricultural subsidies were removed in the 1980s. ANZ agricultural economist Susan Kilsby explains what is proposed, what farmers need to know, and what they can do to prepare.

What is being recommended and who will be affected?

He Waka Eke Noa – the climate action partnership formed by government and industry – has been working on a method to price agricultural emissions, as part of the country’s commitment to reduce greenhouse gas emissions.

What it has come up with is expected to reduce gross methane emissions by between 4 and 5.5%, and gross nitrous oxide emissions by between 2.9 and 3.2%.

This target is part of the commitment New Zealand made at COP26 in Glasgow – to reduce global methane emissions in order to achieve the goal of limiting global warming to 1.5 degrees Celsius. New Zealand aims to cut biogenic methane emissions by 10% on 2017 levels by 2030, and by 24 to 47% by 2050.

To do this, He Waka Eke Noa has suggested the pricing of emissions should be calculated at farm level, rather than further up the production chain.

This is likely to be the most effective way to drive change, and while it is no surprise for those engaged with the process, this and other proposals will be a wakeup call for some.

As proposed, the emissions pricing scheme will apply to all farms that carry more than 550 stock units, have more than 50 dairy cattle, 700 pigs, or 50,000 poultry.

These criteria are expected to account for 96% of our emissions, and cover most of the country’s farms. Lifestyle blocks, orchards, vineyards and equine farms will not be expected to report emissions.

What does “price agricultural emissions” actually mean for my farm business?

In simple terms, the pricing of agricultural emissions – in particular methane – will, on average, be an additional cost to farmers.

Each farm will have to account for its emissions and pay a levy for them. How much individual farms have to pay will depend on the volume of their emissions and the price of the greenhouse gas concerned.

These prices have not been finalised, but He Waka Eke Noa recommended methane emissions pricing starts at 11c/ kg and be held at this level for three years.

It estimates average farm profits will be affected by up to 7.2%. The impact will vary widely across farm systems, with the profitability of deer, sheep and beef operations likely to be impacted more than dairy farms.

This reflects the fact that producing meat is more methane intensive than dairy, and that dairy farms tend to be more profitable than deer, sheep and beef farms, so the cost of the levy will have a smaller impact.

Even at this relatively low price for methane, it’s clear the scheme will have a significant impact on some farmers’ profits. He Waka Eke Noa expects this will encourage them to make changes to their farm systems, and ultimately reduce their emissions.

What to do?

At the moment, the proposals are just that – at least until the Government makes a final decision, expected in December 2022, with an emissions pricing system not expected to start until 2025.

He Waka Eke Noa says more than 60% of farms already know their on-farm emissions numbers. However, from the beginning of next year, all farms will have to calculate and report them.

Becoming familiar with the factors that impact emissions and considering what changes can be made to reduce emissions is a good start. Emission reductions can be achieved by either increasing the efficiency of livestock systems, using emission reduction technologies, or producing less agricultural products.

As proposed, the scheme also allows farms with plantings of a wide range of woody vegetation – including riparian areas, shelterbelts, pole plantings, orchards and vineyards more than 0.25 hectares, along with pre- 1990 forests, to use the carbon sequestration of these trees to offset their methane emission costs.

In simple terms, the more trees a farm has, the greater its ability to reduce, or even avoid paying for its agricultural greenhouse gas emissions.

The scheme also proposes incentives for farmers to take action to reduce their emissions, including using lowmethane genetics, or feed additives, although these technologies are still in the development phase.

He Waka Eke Noa recommends that revenue from the scheme be invested in research, development and advisory services to support the industry through this period of change.

Ultimately, how the changes will impact individual farming business will depend on how productive their current farming system is and what management changes can be made to improve income relative to emission costs.

It will also depend on what other emission reduction initiatives can be implemented and what options are available to increase carbon sequestration.