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Shaw pushed for early inclusion of agriculture and lost

Shaw pushed for early inclusion of agriculture emissions and lost

First published in Energy and Environment on November 14, 2019.

Climate Change Minister James Shaw was pushing ministerial colleagues into the earlier inclusion of agriculture’s biological methane issues, but lost the debate at a Cabinet committee meeting.

Papers released around changes to the Emissions Trading Scheme show Shaw put up two options over the treatment of agricultural emissions.

The first option was to apply processor-level surrender obligations on livestock and fertiliser emissions from 2021 with a 95% free allocation up until 2025.

Shaw told ministers this may only achieve modest emissions reductions. However, it may encourage processors to look for aggregate savings across their supply chains. Money raised from this would be used to fund work of a move to an effective farm-level pricing scheme from 2025.

“I consider Option 1 preferable for its ability to provide an investment signal and regulatory line of sight, as well as aligning the approach to agriculture more closely with emissions pricing in other sectors of the economy.”

Ministers also discussed the second option of a formal sector-government agreement for the interim period and a move to farm based emissions from 2025.

“This could achieve greater buy-in from the sector… There are also risks in not moving fast enough,” Shaw said. In the end Cabinet signed off on the latter course of action against Shaw’s recommendation.

Shaw said there were significant uncertainties around farm level pricing’s technical feasibility and cost-effectiveness.

“There was some concern emissions pricing would place added financial and social pressures on the sector and rural communities, particularly as a result of land-use change and the conversion of farming to forestry However, separately through the Zero Carbon Bill departmental report, I am proposing measures to ensure a balanced approach to afforestation.”

Free allocation at 95% would ensure that costs are modest and mitigate the risk of adverse effects.

Decisions could be taken later on phasing out the free allocation. The phase-out rate of free allocation to agriculture is currently set at 1% per year in the Act, but this is temporarily suspended. Shaw suggested this should begin 2025.

Economic modelling found current emissions prices coupled with 95% free allocation would achieve limited emissions reductions (around 0.26% of total agricultural emissions per year), assuming modest drops in milk and meat production and a small increase in afforestation.

“Clearly we will need to do more in the medium-long term to reduce emissions,” Shaw said.

Dairy mitigation included reduced fertiliser use, change in supplement feed, reduced cow numbers with no change in milk production per cow, once-a-day milking, and planting forestry on effective milking platform. Sheep and beef mitigations include reduced stocking rate while maintaining production, removal of breeding cows and planting forestry on pasture.

Shaw said the sector leaders proposal, which ministers largely adopted, lacked the necessary level of accountability and enforceability, despite some advantages such as greater farmer buy in.

“Sector leaders have not yet committed to unconditional support of emissions pricing from 2025; their proposal puts a number of conditions on how a pricing mechanism would be implemented. As a result, the proposal provides less short-term assurance of agricultural emissions reductions and less investment predictability.”

Shaw said progress would have to be monitored and reviewed in 2022.

“If this deadline is not met, there remains the ‘backstop’ option of introducing processor-level obligations in the NZ ETS at any time.”

Shaw said the sector has made progress in the last decade to improve land-use outcomes, including measures to improve freshwater quality. As a result of these wider productivity and efficiency gains, the sector has also improved overall emissions intensity by an average of 1% per year.

“However, more targeted and widespread action is needed. It is not enough simply to slow emissions growth or reduce emissions intensity; we must reduce the total volume of emissions.”

Gross agricultural emissions increased by 13.5% over 1990-2017; methane and nitrous oxide emissions increased by 7.5% and 28.8%, respectively.

First published in Energy and Environment on November 14, 2019.

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