Farmers could be ready for 'basic' emissions pricing by 1 January 2025

6 July 2022

Agricultural emissions should be priced at the farm-level outside the New Zealand Emissions Trading Scheme, He Pou a Rangi Climate Change Commission Chair Dr Rod Carr says.

Minister of Climate Change James Shaw today released advice from the Commission assessing how ready farmers and the broader agriculture sector are for emissions pricing. 

You can access the report here.

By the end of 2022, the Government will need to report on what an alternative pricing system for pricing agricultural emissions outside the NZ ETS looks like.

In the advice, the Commission has recommended that a basic farm-level emissions pricing system be introduced as soon as possible to lay foundations, which need to be rapidly developed into a more responsive and effective policy.

"The best approach to pricing agricultural emissions would be a detailed farm-level pricing system outside the NZ ETS. This system would be best able to recognise and reward the good choices farmers make to reduce their gross emissions in line with the statutory targets," Dr Carr says.

"Even though government and the sector won’t be ready for a detailed farm-level system by 1 January 2025, pricing agricultural emissions must not be delayed. Any set back will make it more difficult for Aotearoa New Zealand to meet its emissions reduction targets and increase the likely cost of meeting our Nationally Determined Contribution to global efforts to address climate change.

"Our analysis shows that eligible farmers can be ready to effectively participate in a basic farm-level system by the 1 January 2025 deadline that Parliament has set for pricing agricultural emissions."

"The time for action is now – we can’t afford to wait for the perfect policy."

Alongside the He Waka Eke Noa partnership’s proposals and the Commission’s advice on whether and how financial assistance could be provided to farmers in a pricing system, this advice will feed into Ministers’ decision on how to price agricultural emissions. 

Progress made by agriculture sector

"A lot of hard work has been put in - by farmers, the He Waka Eke Noa partnership, and by the agriculture sector more broadly - to make progress towards meeting the primary sector climate change commitments, and getting ready for emissions pricing," Dr Carr says.

"The progress that has been made is enough to keep the sector on track for a basic farm-level pricing system by 1 January 2025."

The Commission assessed readiness for three agricultural emissions pricing options – a simplified farm-level levy outside the NZ ETS as proposed by He Waka Eke Noa, farm-level pricing within the NZ ETS, and processor-level pricing within the NZ ETS.

The He Waka Eke Noa partnership has proposed a split-gas approach for farm-level pricing, to reflect the targets set for Aotearoa New Zealand.

"Our assessment has shown that - with significant effort - implementing a basic farm-level system, using a streamlined version of the He Waka Eke Noa proposal, would be possible by 1 January 2025. This will rely on the necessary IT systems being designed and built, compliance and enforcement functions established, and regulations put in place." 

A system to recognise and reward gross emissions reductions

"Developing a more fit-for-purpose system will be key to achieving gross emissions reductions in line with the budgets and targets for Aotearoa New Zealand," Dr Carr says.

"A detailed farm-level pricing system would recognise and reward the widest range of options for farmers to reduce their gross emissions, and give greater choice about how to respond to price signals in the way that makes most sense for their business."

While elements of the He Waka Eke Noa proposal could provide a useful starting point for implementing a basic farm-level system by 1 January 2025, the Commission has advised that several critical changes would be needed.

"The He Waka Eke Noa proposal suggests that farmers should be paid for carbon absorbed by on-farm vegetation - that is not eligible for the NZ ETS - to mitigate the financial impact of emissions pricing.

"The proposed approach would likely be expensive, complex, inequitable, and difficult to audit and enforce - without significantly improving emissions reduction outcomes. Farmers already have access to the NZ ETS for some on-farm sequestration.

"A separate system for carbon absorbed by vegetation that is not recognised in the NZ ETS could better reward the wide range of other benefits on-farm vegetation provides - such as enhancing water quality and biodiversity, and ensure equity between farmers and other sectors.

"And pricing synthetic nitrogen fertiliser at the processor-level within the NZ ETS as soon as practicable would achieve a more broad and equitable coverage of all nitrogen fertiliser emissions in Aotearoa.

"If the science of measuring on-farm fertiliser emissions improves over time, these emissions could later be included in a more detailed farm-level pricing system."

The Government’s decisions in December this year should provide clarity on what emissions pricing the agriculture sector will face.

"Our actions in Aotearoa New Zealand matter. We will be the first country to design agricultural emissions pricing, and globally all eyes will be on what that looks like and how it works.

"To protect livelihoods, it is necessary to reduce emissions – and pricing emissions can play an important part in rewarding lower emission technologies and practices." 

ENDS