In a world first, the New Zealand government has committed to pricing agricultural emissions from the start of 2025.

Agriculture accounts for over half of New Zealand’s total emissions and the move is seen as a key component of transitioning to a low emissions future.

The consultation paper detailing the proposals identified potential impacts on red meat and dairy production, with wider impacts on farming and rural communities.

Pricing emissions

Within New Zealand's climate legislation, the government has committed to pricing farm-level emissions.

If an alternative pricing system is not implemented by the start of 2025, agricultural emissions will be priced under the New Zealand emissions trading scheme (NZ ETS).

As unpalatable as the proposals may be to farmers and the agri-food sector, the alternative would certainly be worse.

Farmers would likely pay a higher carbon price, which does not distinguish the distinct properties of methane as a short lived gas.

What is proposed?

The government proposals build on recommendations brought forward earlier this year by the primary sector climate action partnership (He Waka Eke Noa).

In line with New Zealand’s split gas approach to emissions reductions, which differentiates between short lived (eg methane) and long-lived gases (eg nitrous oxide), the government proposes separate levy prices for long-lived gases and biogenic methane.

Long-lived gas prices would be set annually and linked, but at a discount to, the New Zealand unit price.

The biogenic methane levy, reviewed at an agreed interval, would have a unique price, which is adjusted based on progress towards domestic methane targets.

It is proposed that a farmer’s emissions bill would be determined through a centralised calculator, in which they provide information on their farm area, livestock numbers, livestock production and nitrogen fertiliser use.

Two options are proposed for emissions from synthetic nitrogen fertiliser.

These may be priced at farm level and included in a farmer’s on-farm emissions bill.

The second option being considered would require manufacturers and importers of synthetic nitrogen fertiliser to pay for emissions via the NZ ETS.

Revenue returned to farming

Revenue generated by the pricing systems would be used to incentivise farmers and support sequestration payments to farmers for key activities.

An incentive payment for a range of on-farm emissions reduction technologies and practices up-taken by farmers is proposed.

Essentially, the incentives would attach a value to certain mitigations, which may help farmers to reduce their overall emissions bill. As science and technology develops, additional practices would be included.

The government also proposes to reward farmers for on-farm carbon sequestration activities.

Initially, it is proposed that a simple system would sit adjacent to the farm-level pricing system that pays farmers for additional sequestration.

Longer term, it is envisaged that the NZ ETS system is the most appropriate mechanism to reward sequestration activities.

Impact on farming and beyond

The New Zealand government's modelling indicates that the proposed farm-level levy can lead to emissions reductions consistent with the country’s target for agriculture.

However, the modelling also indicated that pricing emissions may cause a reduction in overall output from the red meat sector and from dairy.

Modelling suggests that food prices may increase at least in the short term. However, longer-term shifts in land use are considered possible.

The potential impact on rural communities was identified including change in spending and quality of life. However, the government consultation also identifies that potential to transition to more resilient and sustainable land use and business practices.

Comment

In the transition to net zero, it is inevitable that all sectors will eventually move to paying for emissions.

The cap and trade model is a well-established model which caps the amount of specific pollutants in a geographic area and allows companies to trade rights within that area. Emitting firms obtain permits for each unit of their emissions.

To date, this has not extended to agriculture in any region and the NZ proposals differ somewhat to this model. However, it is seen as a cornerstone of climate policy and economics ultimately incentivising firms to drive down their emissions.

Closer to home in Denmark, the Social Democrats have proposed a CO2 tax on agriculture to support the drive to lower emissions by 50% to 54% by 2025 and 70% by 2030.

As pressure to reduce greenhouse gas emissions grows, those sectors that are not already included in emissions trading schemes, such as agriculture, are likely to come under greater pressure from the environmental lobby, society and investors to pay for the emissions they generate by some means.

Sectors that do not make sufficient progress in reducing emissions are likely to come under greater pressure.

The interim report of the Food Vision dairy group recommended exploring the potential of a cap and trade emissions model.

While it may not garner much support, it would be remiss of anyone in the industry to consider that Irish agriculture would be immune to the type of economic tools that are proven in other sectors to reduce emissions.

At the very least, it is worth considering the wide-ranging impact these measures would have on farming and rural Ireland.