• News
• News Archive
• Media Contact

Farming under ETS - what's in store?

What does the Emissions Trading Scheme mean for the agriculture sector? Shoshona Goodall, an environmental law specialist at Duncan Cotterill, explains.

New Zealand is currently the only country that has included agriculture in a domestic emissions trading scheme, the recently introduced Climate Change Response (Emissions Trading) Amendment Act . [1] 

Our trans-Tasman neighbours have decided to exclude it from any Australian Carbon Pollution Reduction Scheme (CPRS) that may be passed into legislation - the difference has been explained on the basis that agriculture accounts for just 16% of Australia’s emissions, but 48% of New Zealand’s.

Under the New Zealand ETS agriculture is to enter the scheme in 2015, pushed back from 2013 as originally proposed.  This is the date from which emission units must be surrendered for all emissions that occur.  The Government has softened the impact of the new scheme with the push back and concurrently it is participating in a group called the Global Alliance, which will coordinate international research on how to cut agriculture emissions throughout the world.  The Government is expected to contribute substantial funds to this research and take a leading role because of the prominence that agriculture has in the New Zealand economy.

Participants in the scheme can voluntarily report their emission in 2011, with this becoming compulsory in 2012.

The new Act sets the point of obligation for agriculture emissions at the processor level.  The participants in the scheme, therefore, remain processors of meat, wool and dairy and fertiliser companies.  Additional activities are included that also bring the exporters of live animals and egg producers within the scheme.  It is these industries that will be responsible for emissions that occur on farms.   The Select Committee report explained that while it is preferable in the long term for the point of obligation to be at the farm gate, it is desirable for this to be initially set at the processor level because of transaction and administrative costs.  Despite this, the price impacts are likely to be passed through to farmers.  This may in the future be changed to make farmers the participants in the scheme through an Order in Council (a decision issued by the Governor General). 

Options for meeting this liability include reducing emissions, earning emission units or purchasing units.  One way of earning units is through forestry planting, either by taking part in schemes such as the Permanent Sink Initiative or by voluntarily joining the ETS.  All of these options have their advantages and disadvantages and professional advice should be sought.

Free allocation of carbon units will be provided to the agricultural sector and these will be allocated on an intensity basis and phased out slowly each year until 2030.  This will be covered by a New Zealand Unit allocation plan which will be available for public submissions.  Following finalisation of the plan, applications would need to be made for a share of this allocation.

Because of this allocation, the full cost of emissions does not need to be paid until 2030.  Prime Minister John Key calculates that from this date, the new look ETS would cost the average farmer about $3000 a year. Through inclusion of agriculture in the ETS, the Government hopes to see changes in farming efficiency, such as more efficient use of nitrogen fertiliser and the use of nitrogen inhibitors. 

Just what the impact of the scheme will be on farmers depends on a range of factors.  Not only the level of allocation provided, and the cost of carbon, but also the implementation of new technologies and changes in farming practices.

[1] http://www.climatechange.govt.nz/emissions-trading-scheme/questions-and-answers.html#agriculture

Shoshona Goodall is part of a specialist climate change team at national and trans-Tasman firm Duncan Cotterill. S.goodall@DuncanCotterill.com;www.DuncanCotterill.com

Disclaimer: the content of this article is general in nature and not intended as a substitute for specific professional advice on any matter and should not be relied upon for that purpose.