Monday, April 22, 2024

The unintended consequences of the Emissions Trading Scheme

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Land uses changes are threatening the national livestock tally and the viability of rural communities, Allan Barber says.
The year is 1996, and Steve Wyn-Harris and a farming mate compare notes on sheep and beef and diary farming.
Reading Time: 4 minutes

A report on recent land use change commissioned by Beef + Lamb New Zealand and long-term data collected by its Economic Service demonstrate a major reduction in sheep numbers and the accompanying downward slaughter trend. 

These combine to show a huge threat to the economic and social future of a number of rural communities. They also underline the danger of the unintended consequences that arise from the often misguided, if well-intentioned, policies of successive central and local governments.

Land use change will always occur naturally according to market forces or (as in the 1980s) because of the removal of subsidies, but more recently it has been driven by artificial factors, mainly linked to the carbon price set by the Emissions Trading Scheme.

The logical consequence of the ETS is the sale and purchase of large areas for plantation forestry, either to generate carbon credits to offset emissions or for government-funded programmes like planting a billion trees to meet our international commitments. 

Agriculture, being the largest driver of economic activity, has regrettably been blamed by vocal minority groups with incomplete knowledge of the facts for causing over half NZ’s emissions. 

These groups exert undue influence on the politicians who may only have three years to attempt to make their mark for posterity. Although it is impossible to develop workable policies that will address enormously complex issues in such a short timeframe, one electoral cycle after another we cast our votes and inevitably end up with a bunch of inexperienced amateurs who are motivated by the main issues of the day. 

Climate change, which now appears to be undeniable, has become the major driver of policy, but the policy response lacks balance. In its haste to burnish NZ’s environmental and planet-saving credentials, the Labour government, encouraged by James Shaw as minister for the environment, has ignored the recommendations of the Climate Change Commission and the scientific facts by persisting with the demand for unachievable methane reductions. 

The persistence with measuring methane emissions as though they are the same as carbon flies in the face of reality. The continuing ability of fossil fuel emitters to offset 100% of their emissions puts carbon farming at an unjustified advantage over alternative land uses like traditional hill country sheep and beef production. 

While the previous Labour government claimed to recognise the importance of agriculture to NZ’s prosperity, citing its work to complete trade agreements with the United Kingdom and the European Union as evidence, the massive focus on regulations without due consideration of their impact suggests it was only paying lip service. 

While acknowledging the sincerity of the Greens in their desire to minimise NZ’s impact on climate change, I also believe they are naïve enough to think money grows on trees (literally and figuratively) and do not understand the need for a productive economy founded on our natural resources and growing conditions.

Beef + Lamb NZ (BLNZ) Economic Service figures show pastoral land declining by 4.2 million hectares or 41% over 30 years, with sheep and beef falling by 5.1 million hectares, partially offset by an increase in land for dairy production. 

The remaining loss of pastoral land is attributable to multiple factors, including blanket forestry, tenure review, Department of Conservation Estate purchases, viticulture and horticulture, and urban subdivision into smallholdings and lifestyle blocks. 

Over the same period since 1990, NZ’s population has increased by 53% – a lower growth rate than India and Saudi Arabia, but much greater than Germany, France, the UK and United States – from less than 3.5 million to 5.11 million. 

Unfortunately, successive NZ governments have failed to invest sufficiently in infrastructure to cope with immigration, while the country’s per capita productivity has failed to improve in compensation for the amount of input. 

Agriculture has consistently done more than its share to earn wealth and overseas exchange to pay for what New Zealanders consume, but has been penalised for its inevitable greenhouse gas emissions profile, especially since 2017. 

The Economic Service has carried out a net present value (NPV) analysis of the respective uses of a Class 4 hill country farm, which shows sheep and beef production has a 36% higher return over 30 years than straight harvest forestry. 

But adding in ETS units at a notional value of $70 per unit blows traditional sheep and beef farming out of the park by increasing the NPV to over 2.6 times what that is worth. Carbon farming alone without harvesting further worsens the calculation, making me wonder if the whole ETS system is not just an artificial market distortion.

The Economic Service makes the point that the increase in afforestation has the perverse effect of hollowing out rural districts with the removal of livestock and, in the case of sale to a foreign owner or as a carbon farm, a lack of resident input to sustain local businesses and employment. 

Hill country farms are the most likely to be sold for forestry conversion. Over the five and a half years from January 1 2017 to June 30 2022, there have been 210,000ha of whole farm sales for afforestation with an estimated backlog of 11,000 ha to be planted awaiting seedling supply. 

Almost half of these sales have required Overseas Investment Office approval, and prices of land bought on the open market for forestry have risen 95% in the North Island and 84% in the South Island since 2019.

Little wonder landowners are willing to sell, when the land value justified by sheep and beef production is multiple times lower. We must hope the next government, whatever its composition, takes a more balanced and realistic approach to NZ’s obligations. 

• In my next column I will assess the potential impact of the reduction in livestock numbers on meat processing capacity and the communities in those regions.

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