Climate change: Long-awaited recommendations for how to tax agricultural emissions revealed

The partnership between Government and the primary sector has unveiled its recommendation for an alternative to the Emissions Trading Scheme (ETS) for pricing agricultural emissions. 

It is suggesting implementing a "farm-level, split-gas levy" from 2025 alongside a package of incentives to support farmers in reducing their emissions. 

Under the recommended scheme, farm businesses would have to report their emissions data, devise a greenhouse gas management plan and pay levies on the amount of methane and long-lived gases emitted.

A split gas approach is being recommended to reflect the different impacts methane has on the atmosphere compared to long-lived gases, with separate prices applied.

Money collected through the levies would then go towards the research and development of emissions mitigation technology and practices and contribute to the cost of the system.

Businesses that use approved technology or practices that deliver measurable emissions reductions - such as methane inhibitors and animal genetics - as they become available would be eligible for an incentive. They'd also be eligible for a financial offset that recognises the amount of carbon absorbed or sequestered by agreed types of vegetation on the farms.

This is expected to incentivise additional methane emissions reductions of between 4 and 5.5 percent on top of the already expected reductions from current policies. Overall, current and new on-farm actions, along with reductions from the waste sector, would achieve a target of 10 percent reduction in methane by 2030, the group says.

The recommendations are made by He Waka Eke Noa, a partnership between government agencies, the primary sector and iwi. 

It was established after the Government decided in 2019 to tax agricultural emissions, but the industry wanted to be involved in how this would be done. If no alternative is developed, agriculture will fall into the ETS in 2025. However, it's been proposed agriculture would receive a 95 percent discount

Michael Ahie, the He Waka Eke Noa chair, said the recommendations both enabled "sustainable food and fibre production for future generations while playing a fair part in meeting our country's climate commitments". 

"Modelling shows the recommended system would be more effective in achieving emissions reductions than including agriculture in the NZ ETS," Ahie said. "It would also have lower impacts on production and farm profit than the NZ ETS."

He said farmers will be able to control their own emissions "which will incentivise behaviour change as part of an integrated farm management approach". 

"It would enable sustainable food production and drive efficiency, by incentivising practices and technologies such as inhibitors and animal genetics that reduce emissions per kilogram of food, without disrupting our global competitive advantage from grass-fed systems."

The partnership acknowledges there are challenges in building an IT system to manage individual farmers' emissions calculations over 20,000 farms. But it's confident this can be ready by 2025.

The Government will now consider He Waka Eke Noa's proposal alongside advice from the Climate Change Commission before making decisions later this year on how agricultural emissions will be priced from 2025.

The Ministry for the Environment and Ministry for Primary Industries, which both worked with the primary sector in developing the recommendations, will support ministers in considering the suggestions. Therefore, they aren't signatories to the report. 

Following the report's release on Wednesday morning, Agriculture Minister Damien O'Connor said the sector and the public will "have the opportunity to provide their view before Cabinet makes final decisions towards the end of the year on how to effectively price emissions".

"It's really important that we get this right. Customers around the world are demanding higher levels of sustainability in the products they buy, so there is the potential for real competitive advantage here if we can get this right and continue moving to sustainable farming systems that are ready to respond to a warming world."

Climate Change Minister James Shaw said the agriculture sector must assist in cutting emissions. 

"There is no question that we need to cut the amount of methane we are putting into the atmosphere, and an effective emissions pricing system for agriculture will play a key part in how we achieve that."

But Greens agriculture spokesperson Teanau Tuiono said it's "not clear" how the sector's proposal will help in meeting emissions reductions targets. 

"We know many farmers and growers want to do the right thing for the climate, but it’s not clear that the sector’s proposals will actually help them shift to low emissions and regenerative farming practices.

"It looks like the sector has missed an opportunity to come up with a solid plan. It’s like they were given a hallway pass and used it to wag class.

"The report itself admits that further work is needed on many of its key proposals. Time is fast running out for the climate. There are only eight more lambing and calving seasons before the 2030 methane target deadline."

The ACT Party advocates for a "technology before tax" view.

"We say farmers shouldn't be forced into an emissions pricing scheme, until there are credible and practical methane mitigation technologies available," said ACT's primary industries spokesperson Mark Cameron.

"We're pleased the Government hasn’t forged ahead with a brutal tax at the processor level, but if levers aren’t pulled to allow farmers to access the technology that can help them lower their emissions it will be pointless and amount to more costs on the sector that kept us afloat throughout the COVID pandemic."

He expressed disappointment that the two ministries involved wouldn't sign the report.

"The reality is that they don’t want to sign because they don’t want to be held accountable."

The Government released its Emissions Reduction Plan (ERP) earlier this year, outlining the steps it will take to cut down emissions over the coming decades. More than $700 million was allocated through the Climate Emergency Response Fund to the reducing agricultural emissions, including by accelerating the development of new technologies.

The plan said agricultural emissions make up 50 percent of New Zealand's gross emissions, including most nitrous oxide and biogenic methane. 

The Zero Carbon Act, passed in 2019, set a domestic target of cutting greenhouse gases (except biogenic methane) to net-zero by 2050. Biogenic methane must be cut to 24-27 percent below 2017 levels by 2050.