Progress towards agricultural emissions pricing

Our assessment looked at the agriculture sector’s progress towards measuring and reporting agricultural emissions at the farm-level, and making sure farms have effective plans in place to manage emissions. We considered what support farmers might need for agricultural emissions pricing, and any barriers that could prevent farmers and the sector from participating in a farm-level pricing scheme.

Our advice has drawn on the best available evidence. There are some specific aspects we needed to take into account when forming our advice, including current and upcoming requirements on farmers, existing and future technology, social circumstances, how impacts are distributed, and the Crown-Māori relationship.

Engagement played an important role as we developed our advice. We spoke to people who hold the knowledge and information we needed to ensure our advice was robust. At the same time, this is complex mahi and many groups were being asked to consult or engage on over-lapping and similar pieces of work. We worked to coordinate and streamline engagement where possible.

Why this advice is important

Our assessment will help the Government understand how ready farmers are for an emissions pricing system that is practical, effective and equitable. The Government’s decisions in December 2022 should provide clarity on what emissions pricing farmers will face. For a farm-level pricing scheme to be effective, it must drive emissions reductions while being practical to participate in. An equitable scheme is one that is workable for a range of farm types – including for iwi/Māori collectively owned land – and that manages social, cultural, and environmental impacts. We know that farmers need a clear and consistent way forward, and more certainty on what the future will look like for the sector. Many farmers have already started moving to lower emissions practices on farm. It will be important for farmers to know their emissions profiles ahead of any farm-level pricing scheme – so they know where their emissions are coming from, and what actions they can take to reduce them.

Agriculture is a major part of our economy and landscape, which means it has a key role in creating a thriving, climate-resilient and low emissions future for Aotearoa New Zealand.

As the first country in the world to price agricultural emissions, implementing a well-designed pricing system will provide an example that other countries can learn from and show our trading partners that we are taking climate action seriously.

Alongside a broader policy package – including investment in research and development to keep our position at the forefront of innovation – emissions pricing will contribute towards reducing emissions from agriculture.

Agricultural emissions pricing is an important part of enabling the sector to transition to low emissions farming.

Under the Climate Change Response Act, a system for pricing agricultural emissions needs to be in place by 1 January 2025. 

There are many ways the Government could price agricultural emissions. For example, the Government could bring the agriculture sector into the already established pricing system – the New Zealand Emissions Trading Scheme (NZ ETS), or the Government could establish an alternative pricing system for agricultural emissions. By the end of 2022, the Government will need to report on what an alternative system for pricing emissions outside the NZ ETS looks like.

The He Waka Eke Noa Partnership delivered its proposals for an alternative agricultural emissions pricing system outside the NZ ETS in May 2022. At the same time, we delivered advice on whether and how financial assistance could be provided to farmers in an alternate emissions pricing system.

The Commission has also been tasked with providing this independent and evidence-based report on how ready farmers and the sector are for emissions pricing, and advice on what work still needs to be done. The Government will need to consider this report along with all the other evidence it has received to make its decisions on what emissions pricing will look like for the agriculture sector.

How ready are farmers and the wider sector for agricultural emissions pricing? 

A lot of hard work has been put in – by farmers, He Waka Eke Noa, and the broader sector – to progress towards meeting the primary sector climate change commitments.

While not all the primary sector climate change commitments have been met, the steps that have been taken are enough to keep the sector on track for a basic farm-level pricing system by 2025.

Many farmers have taken steps to measure and report on-farm agricultural emissions, and put plans in place to manage emissions. Our assessment shows that good progress has been made towards farmers being ready for farm-level pricing, but there is still work to be done.

We have assessed readiness for three agricultural emissions pricing options – a simplified farm-level levy as proposed by He Waka Eke Noa, farm-level pricing within the NZ ETS, and processor-level pricing within the NZ ETS. To guide our assessment, we used three questions:

• How ready is the system to be implemented?
• How ready are farmers and the sector to participate?
• Will farmers be able to identify emissions reduction actions in response to the system?

Our assessment has told us that – with significant effort – implementing a streamlined version of the He Waka Eke Noa proposals would be possible by 2025. We have identified key factors that are critical to this being possible – including designing and building the necessary IT systems, establishing administrative, compliance and enforcement functions, and putting regulations in place.

Other efforts will also be needed to enable farmers to respond effectively to price signals, overcome barriers, avoid negative knock-on impacts, and minimise inequities – including addressing impacts for Iwi/Māori and Māori collectively-owned land.

A detailed farm-level system would recognise and reward the choices farmers make to reduce emissions

A detailed farm-level pricing system outside the NZ ETS is the best approach to pricing agricultural emissions in the long term.

Our analysis of the different pricing options shows that a detailed system would incentivise the full range of options for farmers to reduce emissions. A detailed farm-level system would recognise and reward the widest range of mitigation actions, and give farmers greater choice about how to respond to price signals in the way that makes the most sense for their business.

However, the sector would not be ready for a detailed system by 2025, and it is important that pricing agricultural emissions is not delayed. Any delay will make it less likely that Aotearoa New Zealand will meet its climate targets.

In the interim, a basic farm-level system using elements of the He Waka Eke Noa proposal as a stepping stone will provide a path to progress towards a more mature, responsive and effective system.

Our analysis shows that almost all eligible farmers can be ready to effectively participate in a basic farm-level system by 1 January 2025. This includes having access to the necessary farm-level data and support from advisory services.

A basic farm-level system could provide incentives for farm-level emissions reductions through reducing production, changing land use, or some on-farm mitigation actions – while a more detailed system would recognise and reward maintaining production while reducing emissions.

We are concerned about some of the elements in the proposal He Waka Eke Noa has put forward

We have recommended several substantive changes be made to the He Waka Eke Noa proposal should the Government consider adopting elements of it.

Some sequestration – carbon removal through vegetation – is already recognised through the NZ ETS. Recognising non-NZ ETS sequestration through onfarm vegetation as suggested by the He Waka Eke Noa proposal should be progressed in a separate system, which could recognise and reward a wide range of benefits, such as biodiversity and water quality.

Bringing this on-farm vegetation into a farm-level emissions pricing system adds complexity, creates inequity between farmers and other sectors, and would not significantly improve emissions outcomes.

Synthetic nitrogen fertiliser should be priced at the manufacturer and importer level in the NZ ETS as soon as practicable. This would achieve a more broad and equitable coverage for emissions from synthetic nitrogen fertiliser across the country.

Agricultural emissions pricing is an important tool to deliver emissions reductions

Our advice is that a farm-level pricing system, supported by well-designed, well-thought-through policy, will be key to achieving emissions reductions in line with the budgets and targets for Aotearoa.

Aotearoa needs to transition all sectors to a low emissions future, and emissions pricing is key for enabling agriculture to play its part. The pricing policy the Government puts in place will determine how effective pricing is at helping us reach our budgets, targets, and international commitments.

A smart, well-designed pricing policy will help Aotearoa maintain access to high value markets while reducing emissions from agriculture. Our markets are increasingly expecting low emissions goods. It will also minimise negative knock-on effects for Aotearoa, and enable us to maintain our status as innovative and progressive in agriculture.

We were clear in Ināia tonu nei that the transition has to be an equitable one. Pricing needs to be equitable across the board – with regards to Māori collectively-owned land, within the agriculture sector, between agriculture and other sectors, internationally, intergenerationally, socially, environmentally, and economically. Climate action needs to drive emissions reductions – but steps are needed to make that change and address impacts.

The Government’s decisions in December should provide certainty about when and how emissions from agriculture will be priced, and what assistance could be provided. This will give farmers the confidence they need to plan for lower emissions practices.