Friday, July 1, 2022

Sector hopes science, not politics, prevails in HWEN pricing

New Zealand farming leaders are hoping science rather than politics prevails when the Government decides the fate of He Waka Eke Noa (HWEN) later this year.

The plan put forward by the farming industry to price agricultural emissions has been created to make sure decisions around how those emissions are priced is based firmly on science, DairyNZ chairman Jim van der Poel said.

“HWEN was framed up the way it is to make sure that we don’t end up in the ETS. Science is evolving in this and we 100% believe we should be using science to decide what the appropriate numbers are and the impact that methane of farming in New Zealand contributes to global warming.

“Our expectations are that science will prevail over time.”

HWEN can also be changed to meet the science of the future, which would be harder to do if it was in the ETS, he told a webinar on HWEN run by DairyNZ and Beef + Lamb New Zealand (BLNZ).

It was one of three been held by the two groups designed to dive into the plan’s details and answer any questions farmers have.

BLNZ director Nicky Hyslop said HWEN’s overarching goal was preventing agriculture emissions coming into the emissions trading scheme. 

This provided farmers with a better outcome, giving them choice and control over their future, she said.

“This is about trade and social licence as much as it is about regulation and government.”

HWEN’s implementation agency will be governed by an oversight board that will advise ministers, with appointments made after recommendations put forward by the primary sector and Government.

There will also be an independent Māori board to ringfence the levies collected by Māori agribusiness.

Mandatory reporting on emissions begins in 2024-25 and emissions pricing begins 2025-26 using a central calculator as well as sequestration credits and discounts for incentives.

By 2027, a more detailed calculator will be used that should recognise more farm practices and sequestration and discounts.

That calculator will be developed by under the guidance of the implementation agency.

“This is about trade and social licence as much as it is about regulation and government.”

Nicky Hyslop
Beef + Lamb New Zealand

The equation for pricing emissions the cost of methane plus the cost of long-lived gases minus incentive discounts and on farm sequestration. 

DairyNZ strategy and investment leader Bruce Thorrold said they had put in front of government ministers what he believed is a robust and credible scheme. 

The unique price of methane showed the split gas approach taken by HWEN and because of its nature, it did not need to go to net zero over the time frame of New Zealand’s emissions budgets.

For the first three years, a price ceiling of 11 cents per kilogram of methane has been proposed, which is the equivalent of the 95% free allocation farming would get if it went into the ETS.

The long-lived gas price is predominantly nitrous oxide and will be enough to fund sequestration and incentives to reduce it. 

In 2028, the sector will review its nitrous oxide target, given that this gas does need to go to net zero, he said.

Incentives will help farmers recover their levy and they will get a credit or a discount to their bill for approved actions. 

These will be predominantly technology-driven and the value of these discounts are set by the system oversight board, he said.

“It’s fair to say that a lot of it will come down to the availability and price of technology,” Thorrold said.

A lot more sequestration will be recognised in HWEN compared to if farming went into the ETS.

These categories include indigenous forestry, scattered forest, woodlots, riparian planting and perennial crops. 

Pricing will be done in a two-stage system. 

In the first stage, it will be linked to the ETS for the first three years and at the bare minimum will be part of existing programmes such as QEII.

Once the more detailed calculator is introduced in 2027, more details around sequestration should be available. 

Anything on farms that farmers should have been paid for initially, they will get back dated payments for.

The sequestration price will also be reviewed in 2028.

Hyslop said getting rewarded for sequestration will be incredibly important for sheep and beef properties with extensive farming systems if they are to remain profitable.

“We are urging the Government to be cautious heading into this because we do want to protect the viability of our farming systems and our rural communities.”

They also do not have as many tools at this stage to lower emissions apart from low emission sheep and finding ways to finish animals faster.

Hyslop said while New Zealand was the only country that was developing a pricing framework for ag emissions, this conversation was occurring in the EU and UK.

A lot of trade agreements also have emissions reductions clauses in them and there was an international expectation that New Zealand will play its part.

“Other countries are watching this. I don’t think we will be the only country in this space going forward.”

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