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Hodgson Speech: Agriculture And Climate Change

Monday, 08 April 2002 Speech Notes

Agriculture And Climate Change

[Address to The Shepherds ( Wairarapa agricultural group), Landsdowne House, Masterton]

I’m pleased to have this opportunity to explain the government’s approach to climate change policy and the Kyoto Protocol.

The government, as you are probably aware, has agreed in principle to ratify the Kyoto Protocol by September this year, subject to some further necessary steps.

These steps include select committee examination of a National Interest Analysis of ratification that has been tabled in Parliament; the passage of legislation enabling ratification, and final decisions on the government’s preferred policy approach.

Late last year the government began a consultation process on climate change policy. The results are informing the development of a preferred policy outline, which we expect to release later this month.

That release will be open to further public comment and the final cabinet decision on ratification will be made in late July or early August.

It is important to remember that the Protocol does not come into force until enough developed nations have ratified. In practice that means both Russia and Japan must join those countries that have already made it clear they intend to ratify. It is likely, but not yet certain, that both will.

The government’s policy response to the Protocol is predicated on the Protocol coming into force. If it does not come into force, policies required to implement our obligations will not take effect.

Some policies – such as strategies for energy efficiency, transport and waste management – will proceed because they have a wide range of benefits. But there is no sense in which New Zealand will be “going it alone” with policies specifically relating to the Protocol.

If the Protocol does come into force, it comes into full effect on the first of January 2008. That is when the clock starts ticking on our greenhouse gas emissions. We intend to be ready for that. And the more time we have to prepare, the better.

This timetable places New Zealand in step with — not ahead of — a broad consensus of western countries on Kyoto. Two nations with targets have already ratified: by August it will be more like two dozen.

There are compelling reasons for New Zealand to support international action on climate change.

This country owes its prosperity – indeed its status as a developed nation – to a stable, equable climate that is ideal for pastoral farming. We have bought our place in the developed world with grass, which we have converted with exemplary efficiency into meat, wool and milk.

Our way with pasture is no longer quite enough to keep us in the manner to which we are accustomed, which is why this government is bent on transforming the economy to one in which knowledge and technology are more significant sources of value.

But for the rest of our lives, and far beyond, primary production will remain a basic driver of our economic welfare. That means climate change is, profoundly, an issue of economic security for this country.

If global warming is allowed to continue unchecked, the long-term impacts on this country are likely to be severe indeed.

There may be some initial benefits for agriculture from a warmer climate, with possible increases in the growth rate and range of some crops.

But floods and droughts are expected to become more frequent and more extreme. Biosecurity is likely to come under increasing pressure, especially from subtropical pests and diseases. Sea level rises would create problems with saltwater intrusion into groundwater, as well as threatening infrastructure.

Further problems with water supply and infrastructure would arise from higher rainfall in the west of the country and drier conditions in the east. New human health risks would arrive from pests and diseases, such as dengue fever, that presently thrive in warmer countries. Native species would be threatened by climatic changes in what remains of their habitats.

Climate problems can be very, very expensive. As farmers you will be well aware of the costs of floods and droughts. Flooding costs this country an estimated $125 million a year, not counting the millions spent on flood protection measures and insurance. The El Nino floods in 1997 cost our agricultural industry an estimated $1 billion.

The costs of inaction on climate change are essentially inestimable, but there is good reason to expect they would be huge. And because global warming is a cumulative process, the costs only magnify with time. Doing nothing is not the low-cost option.

Remember too that we are a major supplier of food to world markets, many of them sophisticated and increasingly influenced by perceptions of environmental integrity. A positive response to climate change will underscore that integrity. But ducking responsibility on climate change will not go unnoticed.

If we accept that the question is not whether to do something about climate change, but what to do about it, then we are confronted with the Kyoto Protocol.

Climate change is a global problem, which means concerted international action is the only remedy. And the Protocol is simply the only concerted international action on offer.

It has its limitations. It will not be, at first, a truly global agreement. It will cut western world greenhouse gas emissions in total by a mere 5 percent on 1990 levels, at best, if all parties meet their modest targets in the first commitment period.

But the Protocol does establish a functional international mechanism for reducing greenhouse gas emissions. That mechanism is the fruit of many years of negotiation and refinement. It embraces market solutions to an extent that the business community would generally be expected to welcome. It offers significant flexibility to member nations in their choice of how to manage their emissions. And it is readily capable of expansion to include developing nations in the second and subsequent commitment periods.

In short the Protocol is not just the only game in town. It is a positive, workable solution.

The government is being challenged, fairly, to explain the effect that ratification would have on the New Zealand economy. The crude answer is that, in the first commitment period, the best estimate is that ratification will bring us a slight net economic benefit.

The numbers are relatively simple: over the five-year first commitment period New Zealand is projected to receive carbon sink credits for its post-1990 “Kyoto forests” of 110 million tonnes of carbon dioxide equivalent. On the debit side we are expected to exceed our Kyoto emissions target, on business-as-usual, by 50 to 75 million tonnes of CO2 equivalent. The balance is positive by 35 to 60 million tonnes, so we will be a net seller of credits into the international carbon market.

The government and the private sector have both commissioned a range of economic analyses in recent months of the possible sectoral effects of ratifying the Protocol. You may have seen a few of the figures from these studies being used in the media or by lobby groups.

I want to stress a couple of points about what these studies do and do not tell us.

First, the extent of the assumptions they must make means they do not tell us what the economic consequences of ratifying the Kyoto Protocol would be. The difference between a general equilibrium model and a real economy should be obvious enough, yet it is a sad fact that the public debate on climate change has seen figures from these studies deployed as if they were definitive predictions.

The economic modelling done to date has tested the effect of applying a carbon price evenly, to all emitters, throughout the economy. In reality the government has a much wider range of policy options at its disposal and we will be using a combination of them to meet our Kyoto obligations.

This includes measures already under way, such as the National Energy Efficiency and Conservation Strategy and minimum energy performance standards, whose effects the models do not allow for. Nor can the models allow for changes in technology, which will be probably the most significant factor determining the economic effects of constraints on greenhouse gas emissions.

What the modelling does tell us is that domestic greenhouse policy will be crucial to maximising the benefits and minimising the costs of ratification — and that the interests of some sectors of the economy must be safeguarded with particular care.

Beginning with the premise that the effects of putting a price on carbon should be spread as evenly as possible throughout the economy, we learn from the modelling that immediate and universal application of the price would have the contrary effect, hitting some sectors and industries much more than others.

We are very conscious of this as we develop our preferred domestic greenhouse policies.

This is a government committed to fostering economic growth. We have absolutely no interest in adopting crude or extreme climate change policies that would run counter to that goal.

Many of you will have heard suggestions that the Government will be taxing livestock emissions to enable New Zealand to meet its greenhouse gas emission targets.

Both Jim Sutton and I have made it as clear as we can that this is not going to happen. We do not want to achieve emission cuts by driving farmers away from farming.

But we will have to do something about livestock emissions.

One tonne of methane, the chief agricultural greenhouse gas, has the global warming potential of 23 tonnes of carbon dioxide. A dairy cow produces about 75 kilograms of methane a year, equivalent to over 1.5 tonnes of carbon dioxide.

Atmospheric concentrations of methane increased by 150% globally over the last 250 years, while carbon dioxide concentrations increased by 30%.

Clearly the farming sector will have to bear its share of the costs of responding to climate change, just as it will have its share of the benefits.

I have been urging people in agriculture for some time now to start gearing up some research consortiums on emission reduction.

Ruminant phyisiology and forage research, in my view, are they keys to progress in reducing emissions from farming.

We already know that ruminant methane production varies with diet, feed intake, animal size, age and species. And it represents an inefficiency in the conversion of feed into animal performance. Between 5% and 10% of gross energy consumed as feed is lost as methane.

So if you invest successfully in research to reduce agricultural emissions, three things happen: First, you make or save money by reducing emissions, when emissions have a price attached. Second, you improve food conversion efficiency, and therefore productivity. And third, you stand to make money if the research produces valuable intellectual property in New Zealand ownership.

The Government committed $1 million of new funding in the last budget to the investigation of mitigation opportunities for ruminant methane, transport and energy.

When the payoff for farming is potentially so good, I suggest the reasons for you to come up with your own research strategy and funding are overwhelming.

But I have seen no sign yet of a real commitment of serious money. One way or another, I say it will have to come.

I want to close with a very important reminder of some of the other opportunities that the Kyoto Protocol presents.

The Protocol will change our energy use habits for good, by accelerating the shift away from finite fossil fuel resources and encouraging more efficient use of fossil fuels while they remain important.

The countries that ratify the Protocol will be those where the sustainable energy technologies of the future are most rapidly developed and adopted. The Kyoto stragglers will risk being spectators to growth and innovation elsewhere.

One of New Zealand’s competitive advantages over other developed nations is cheap electricity, but – probably because it is cheap – we have not been very efficient with it. Under the Kyoto Protocol our power will still be cheap, but there will be new incentives to make more efficient use of it.

If at the same time we can reduce greenhouse gas emissions while improving productivity, there are no losers. If we achieve the target of the National Energy Efficiency and Conservation Strategy, which calls for a 20 percent improvement in energy efficiency by 2012, we will have cut by a third our estimated excess of business-as-usual greenhouse gas emissions over our Kyoto target.

In the post-Kyoto world there will be international demand for new technologies, and improvements to existing ones, that reduce greenhouse gas emissions and make more efficient use of energy. Industrial processes, consumer products and agricultural technologies will be redesigned. There is no reason why New Zealand should not be a country that originates and profits from such advances.

This is particularly true concerning agricultural technologies: no other developed nation has a greenhouse gas profile as heavy in agricultural emissions as we do, which means none has the same incentive to develop processes and technologies for reducing agricultural emissions.

The demand for such technologies and processes will come from less developed nations as the Protocol expands, and as developed nations seek to sponsor emissions-reducing projects under the Protocol’s Clean Development Mechanism.

New Zealand has been successfully exporting agricultural products for more than a century. We are increasingly exporting agricultural expertise. The Protocol offers new opportunities for that, as well as addressing a fundamental threat to this country’s agribusiness. So I’m arguing strongly that ratification is very much in line with your organisation’s motto: the advancement of agriculture in its widest sense.

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