Sunday, August 14, 2022

Balance the carbon books for proper ETS accounting

Much of our current farm vegetation in NZ is likely not to be recognised under Emissions Trading Scheme definitions.
Carbon sequestration and emissions must both be fairly counted, says Geoff Ross, a director of Lake Hāwea station

Accounting’s fundamental principle is that what is applied to one side of the ledger is equally applied to the other.

With climate change, the two sides are emissions and sequestration. For New Zealand farmers this involves our stock and inputs on one side, and sequestration like trees on the other.

If a farmer has emissions there should be a cost for that, and likewise, if your native trees are growing there should be a benefit, right? Not necessarily.

The recent recommendation from Rod Carr and the Climate Commission, if we are to adopt it, has a major discrepancy on the sequestration side.

The emissions side is easy to account for and is pretty hard to argue with. Each stock class will have a methane number, as will our tractor hours, and any nitrous oxide emissions will be added. It’s simple maths. It’s on the sequestration side that the vagueness and inconsistencies lie.

The recent recommendation states that sequestration shouldn’t be recognised under He Waka Eke Noa if it doesn’t comply with the Emissions Trading Scheme (ETS) definitions. This is the problem.

The ETS definitions for sequestration are far too narrow. In most cases they won’t recognise riparian planting, wetland conservation, some plantings under Queen Elizabeth II National Trust land covenants, shelterbelts, native regeneration from retired land, and more.

Unfortunately, much of our current farm vegetation in NZ is likely not to be recognised under the ETS.

Climate change action is urgently required by all. If NZ farming can be at the forefront of these actions, we stand to gain a competitive advantage internationally and command premiums over our competitors, breaking out of the commodity cycle.

While it is often the case in emerging sectors and new markets that the science lags behind the opportunity, some accounting fundamentals need to be applied right now.

There are only two options if we are to balance the books and correctly recognise the sequestration side of the ledger: He Waka Eke Noa recognises all on-farm additional sequestration, or the ETS is modified to include all positive management changes in vegetation on farms, such as riparian planting.  Alongside this, NZ supports a voluntary carbon credit market that will pick up more forms of sequestration, like most other countries are doing.

I favour the latter. It would bring farming into the same system as other businesses – the businesses we sell to – giving us a common currency.

If we don’t recognise positive on-farm changes in vegetation, the wrong behaviours will emerge. That won’t contribute to our country’s climate change commitments or our biodiversity, water, and cultural goals.

Let me paint a scenario:

A farm has planted its waterways in native trees and retired some regenerating gullies in the back country that are seeing native bush emerge. The farm wishes to meet a net carbon zero position. However, this planting and positive management don’t count under the ETS and there is no He Waka Eke Noa payment, therefore the farm must import carbon credits as offshore offsets from cookstove projects with low traceability. We know this scenario is emerging under the status quo.

NZ is currently a large net importer of voluntary carbon credits, some which are questionable. But current recommendations encourage this behaviour while not incentivising the farm to sequester carbon and improve biodiversity and water quality. NZ should be paying farmers for their sequestration via the ETS and voluntary market, not projects around the world.

We not only need a broader definition under the ETS of what counts as vegetation, but must also support a market for voluntary carbon offsets.

He Waka Eke Noa sequestration payments wouldn’t be needed if we made these changes. Farmers would be rewarded with the highest price for sequestration through land use change and using good management practices with changes to the ETS and an emerging voluntary carbon market. 

Here’s another scenario. 

A farm chooses to increase its cattle numbers and pay a higher levy. The same farmer then decides to fence off some regenerating bush along a creek to protect the habitat of native fish. This is done primarily for habitat restoration and would have been done regardless of carbon credits. Current rules make it unclear if this should be counted for sequestration payments.

An increase or decrease in emissions or an increase or decrease in sequestration – no matter the motivation – deserves to be counted under the same accounting principles. Because sure as hell the emissions will be counted. 

I can’t believe I’m saying this, but for the first time in my life, “let’s hear from the accountants” and balance the carbon books.

Who am I? Geoff Ross is a director of Lake Hāwea station.
Disclosure. Ross’ son is a PhD candidate in carbon sequestration and is the founder of carbon trading company Carbonz.

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