By Malcolm Bailey, former chair of the Dairy Companies’ Association of NZ and former special agricultural trade envoy
Openly opposed by industry as well as the political opposition, the government’s emissions pricing proposal looks dead in the water and should be scuttled. Perhaps the government has done us a favour by amplifying the weaknesses of the levy approach and the stupidity of cutting New Zealand’s world-leading low emissions production.
Both He Waka Eke Noa (HWEN) and the government proposal should go to the bottom and make way for a new solution that follows key principles, uses market solutions, and works.
What has also been exposed is that HWEN was never a genuine partnership.
The government has come up with new impact modelling and rejection of the emissions leakage risk with no link to earlier work or credibility.
“Bad faith” is the best way to describe how the government engaged then dis-engaged as a “partner”.
Sound familiar when we think of other government consultations that were never genuine?
So where to from here? The primary sector does need to find cost-effective ways to reduce emissions for the sake of our planet and further enhance our world-leading low emissions credentials.
The key guiding principles for a new way forward are:
• NZ aligns with the 2015 Paris Agreement and contributes to a net reduction in global food production emissions and avoids emission leakage.
• Efficient farmers and growers’ businesses and their rural communities remain vibrant and the system is neutral re land use change.
• Emissions are priced at the margin (not across the board).
• Early adopters of emissions reductions are not penalised.
• On-farm sequestration is recognised.
• Cost effectiveness and robust science and economic analysis are used.
When judged against these six key principles, HWEN is a dismal failure too. Looking back it seems incredible that, in an effort to find consensus with the government, industry partners went so far down the wrong path.
We can achieve emissions reductions without one dollar of money going to the government.
It is now clear that the government has an agenda is to raise a lot of money from the farm emissions levy.
We now know where the money will come from to fund the Budget 2022 announcement to spend $338.7m over the next few years on emissions reduction research.
Levying is not cost-effective and is built on taxing every kilogram of output (not pricing at the margin) and then inefficiently re-distributing this money into incentive payments and hoping that throwing money at R&D will achieve something.
“Have money – will spend” is not the way to do things and reminds us of the bad old days of high taxation and subsidies.
Efficient farmers and growers who have already adopted emissions reduction measures will not get the benefit they deserve and will contribute to incentive payments to those who are inefficient.
The government will use the Climate Change Commission to drive up the methane levy price until targets are met.
And the nitrous oxide price will be linked to the Emissions Trading Scheme.
This inefficient approach will see some farmers go out of business and cause harm to rural communities and the NZ economy. Only limited on-farm sequestration will be recognised.
A blind eye will continue to be turned to foreign companies buying up large areas of good food-producing NZ land to plant pine trees so they can keep emitting back home.
If we are really serious (worldwide) about producing more food while reducing emissions, improving efficiency is the key. Efficiency is the one word that sums up what needs to be targeted to reduce emissions without driving farmers out of business.
The alternative proposal from the Waka Adrift farmer group, while a welcome breath of fresh air, runs out of puff by shying away from efficiency and a market-based solution like cap and trade (C&T).
So what is C&T?
This is a well-proven concept and is used to manage nitrate emissions around Lake Taupō.
The permitted level of total emissions in NZ would be set (capped) at an agreed amount. This amount would be determined by robust scientific and economic analysis in line with all the key provisions of the international climate agreements NZ has signed up to.
Initial allocation of units is a challenge.
If every farmer was allocated their share of this capped volume based on the average level of emissions per kilogram for each farm output category, sheep farms would not be pitted against dairy farms.
Farmers with lower emissions than the average will have emissions units they can sell and those above the average will be incentivised to improve their management to reduce emissions or face the cost of buying some emissions units.
No money is amassed anywhere and none goes to the government. So no money is at risk of being wasted on incentives or any other stupid political idea.
Therefore, for most farmers, it is only the last few percent of emissions (at the margin) that would be either available for sale or need to be purchased to comply with the cap. The price of these emissions units would be set by trading among farmers.
Where to set the cap level is inevitably a government decision. This is the elephant in the room for C&T because the cap is a proxy for the reduction targets. It is crucial that robust scientific and economic analysis is used in the process.
If all the key principles are adhered to, especially the risk of emissions leakage, efficient farmers should have confidence that C&T will not undermine our farm businesses as we achieve genuine emissions reductions.
