Agriculture emissions pricing recommendations released

// Climate change

The following was emailed to farmers on 8 June.

trees on farm

Today the He Waka Eke Noa Primary Sector Climate Action Partnership – including B+LNZ and MIA along with other agriculture and Māori farming organisations – has released its recommendations to the Government on an agricultural emissions pricing system as an alternative to already-legislated entry into the Emissions Trading Scheme (ETS).

The recommendation, for a farm-level levy system, has been agreed by all partners. The proposal, while not perfect, is significantly better than agriculture entering the ETS and gives farmers influence over their future. Farmer feedback was critical in refining the recommendations and the system can be further refined and improved over time as science evolves.

The Government will now decide whether it will accept this recommendation.

We know there is a lot of concern about this process among farmers. The implications for farming business viability have been at the forefront of our minds.

While we strongly support the recommended farm-level levy approach and believe it is better than the ETS, what is crucial is the prices that are applied under it.

Today B+LNZ has therefore also released additional modelling on the financial implications of the recommendations. This modelling based on over 400 individual farms reinforces the need to take a cautious approach on the prices applied to agricultural emissions under the proposed system – we’ll keep pushing hard for caution.

What has been recommended

  • The recommendation is for a farm-level levy system which recognises what individual farmers are doing on their farms.
  • Farmers would calculate their methane and nitrous oxide emissions based on what they’re doing on-farm, not based on national averages.
  • Unique prices for both methane and nitrous oxide have been recommended – this recognises they’re separate gases with their own targets and progress, and importantly will delink them from the fossil fuel-driven ETS carbon price.
  • The recommendation is for a maximum 11c per kilo starting price for methane and that it be held for three years. This is to provide some certainty and recognises a cautious approach is needed to avoid significant impacts on farm profitability.
  • Farmers can get credit for their sequestration. The recommendations cover a wider range of vegetation than currently recognised in the ETS and farmers would have the option of registering under the ETS (B+LNZ is advocating for changes to make this process easier) or through He Waka Eke Noa (the price for sequestration would be linked to the ETS price but there may be a discount applied if the He Waka Eke Noa system is easier to access and therefore potentially less rigorous in terms of the amount of carbon sequestered). We’ll keep working on improving recognition for sequestration.
  • Farmers will also get incentive payments taken off their costs for using technologies and practices that reduce emissions.
  • The money raised in the system will go back into research and development for further agricultural emissions reductions.
  • Together with DairyNZ, we have summarised the recommendations for you, including what this means for farmers and how farmer feedback has been incorporated. View the summary here (PDF, 2.9 MB).

Changes to recommendations as a result of farmer feedback

  • You told us the system needed to be based at a farm level and you didn’t want a transition from a processor-level system through a processor hybrid levy – this is reflected in the recommendations.
  • You told us sequestration is really important and you wanted more recognised – this is also reflected. The sequestration baseline has effectively been moved back to 1990, if farmers are able to provide additional evidence to prove there was no vegetation there beforehand.
  • You were also really concerned about cost and impacts on profitability and viability. We pushed hard for the price on agricultural emissions to be as low as possible while achieving reductions.
  • You were concerned about equity across sectors. We’ve recommended principles for setting prices and incentives to ensure that different farming systems and sectors are treated equitably.
  • You were concerned about some farming systems not having technologies or sequestration as an option for dealing with emissions costs. We’ve sought to recognise the challenge to some farming systems and there may be some price relief for farmers who cannot use sequestration or mitigation tools and whose financial viability would be severely challenged.
  • You wanted greater focus on cost, simplicity and integration. We pushed for options such as integrating with IRD and other farm systems. The recommendation is also for a simple calculator to be used from 2025 and for this to become more sophisticated over time.

B+LNZ modelling reinforces the need for a cautious approach on pricing

  • B+LNZ’s more detailed additional modelling released today indicates that the He Waka Eke Noa modelling underestimated the impacts on sheep and beef farm systems’ profitability and therefore the emission reductions likely to occur at the prices modelled by the programme.
  • This is because using an average farm does not reflect the significant diversity across and within our farming systems.
  • The B+LNZ modelling led to caveats being added to the He Waka Eke Noa recommendations and sector modelling. The modelling has been shared with Ministers and officials.
  • While we are calling for a cautious approach to pricing, we remain committed to the recommended system. You can find the modelling here (PDF, 1.28).

What this means for farmers now

  • There’s no doubt that emissions pricing is confronting for many farmers and for some could significantly affect profitability. Through He Waka Eke Noa we’re focused on minimising costs while supporting farmers to play their fair part in measuring, managing and reducing emissions.
  • Unless the Government decides to bring agriculture into the ETS beforehand, pricing won’t happen until 2025 – there’s time to get prepared.
  • Actions you take to reduce emissions on-farm now will put you in a better position when agricultural emissions pricing is introduced.
  • The first step is to know your on-farm emissions numbers – you can do that through the B+LNZ GHG calculator or by attending one of our ‘Know your numbers’ workshops. Find out more about why this is important here.

Why we’re involved in He Waka Eke Noa and why we need an alternative to the ETS

  • The Government wanted to put agriculture into the ETS in 2019, but we convinced them to work with us on an alternative as we believed the ETS would be disastrous for farmers.
  • With the legislation already in place to price agricultural emissions, saying ‘no’ to pricing wasn’t an option.
  • The ETS does not recognise enough on-farm sequestration (particularly natives), its pricing doesn’t recognise methane’s different warming impact and the carbon price will keep rising regardless of on-farm reductions – that would have a huge impact on sheep and beef farming viability, as our modelling shows.
  • We’re also facing increased expectations from consumers and wider society around doing more to address climate change.

B+LNZ’s related work on climate change

  • B+LNZ will continue to work on advocating for science-based emissions reductions targets, separate to our work on He Waka Eke Noa.
  • We don’t agree that the methane targets in the Climate Change Response (Zero Carbon) Amendment Act 2019 are justified based on the latest international science about methane’s impact on warming. A 10 percent reduction in methane emissions by 2050 is equivalent to net zero for carbon and the current targets go well beyond this.
  • We’re continuing to advocate, along with DairyNZ, Federated Farmers and others, for theuse of GWP* as a more appropriate metric for setting emissions reduction targets. There will be a review of the targets in 2024 and we’ll call for the targets to be reviewed using the latest science. 
  • The gains on sequestration achieved under He Waka Eke Noa are a good start but we’ll keep working on improvements. It needs to be easier for farmers to get recognition for natives, particularly under the ETS, and we need more investment in sequestration measurement for accurate recognition.
  • We’ll continue to push for action on whole-farm sales into forestry for carbon farming – some progress has been made but we need more decisive action from the Government and we want to see limits on carbon offsetting in the ETS.
  • We’ll also continue to work on research and development with other industry partners to find emissions-reducing technologies and solutions such as vaccines and more readily available low-methane sheep genetics.

Next steps

  • B+LNZ and DairyNZ will be running webinars on 14, 15 and 16 June where you can find out more about the recommendations.
  • The Government is considering the recommendations and public consultation is expected later this year, so farmers will likely get a further opportunity to provide feedback. By December the Government will make its final decision on how agricultural emissions will be priced.  
  • B+LNZ will be working with He Waka Eke Noa partners over the coming months to inform the Government’s analysis and we won’t stop working to get the best outcomes for farmers, particularly on issues like pricing.
  • We’ll continue to push for refinements and improvements to the system, to ensure it reflects the latest science and is fair and transparent for farmers.

Key information

Andrew Morrison, B+LNZ Chair
John Loughlin, MIA Chair

  • Climate change