17 minute read
Your feedback is critical
GHG pricing feedback is critical
ThePulpit
Kelly Forster
WITH a week of consultation to go, thousands of farmers and growers have already had their say about options for pricing greenhouse gas emissions – whether that’s at face-to-face or online meetings, taking part in surveys or providing feedback direct through the He Waka Eke Noa (HWEN) website.
Your feedback is critical to making these options fit for purpose. HWEN partners are absorbing the feedback as it comes in, looking at where the options could be amended or improved and where farmers’ and growers’ preferences lie.
There are a few points I want to clarify to make sure everyone has the facts in front of them, including how the HWEN options will deliver reductions and how much they might cost farmers.
Let’s be clear that both options put forward by the HWEN partners have the potential to reduce emissions by much more than 1%.
The 1% figure is an estimate of how much emissions would reduce from pricing alone, but HWEN is not proposing ‘pricing alone’. The partners are committed to a framework where the pricing system motivates and rewards actions to reduce emissions, including investing in incentives to uptake technology or change practices and research. Modelling shows this framework would achieve around 4% reductions in methane.
Combined with reductions from other existing policies and the commercial availability of emissions mitigation tools such as methane inhibitors and lowemissions livestock genetics, this would see New Zealand meet its targets.
We’ve modelled the potential reductions of methane separately from carbon dioxide and nitrous oxide – the split-gas approach – to recognise the different impact of long-lived and short-lived gases on the ultimate goal of limiting global warming to 1.5degC.
Our calculations use the actual weight of methane emissions instead of converting them into carbon dioxide equivalent-weight using the GWP100 comparison. This is in line with growing scientific consensus that the alternative GWP* methodology more accurately reflects the impact of methane.
I also want to clarify the different approaches to calculating emissions levels for pricing in the two options presented by HWEN.
The processor-level system would use a national average amount of emissions per kg of product (farm outputs) and per tonne of synthetic fertiliser sold.
The farm-level system does not calculate emissions on outputs. Rather, actual on-farm emissions are calculated to reflect an individual farm footprint, using inputs such as stock numbers and fertiliser use.
I’ve also seen comments suggesting that the proposed approach to sequestration means every tree on every farm is included and any tree felling will incur a liability. In fact, farmers would have the choice of including areas of forest in the HWEN scheme; if you don’t claim your trees as sequestering carbon, then you won’t face any consequences if you cut them down.
One of the main questions is ‘how much will this cost me’? The partners realised this would be important to farmers, so put some numbers alongside the options using prices equivalent to current Emissions Trading Scheme (ETS) prices.
These numbers will change. They are there as an indication only. The levy per tonne of emissions may go up if reductions are not happening quickly enough or may go down if emissions reduce quickly.
What HWEN is proposing is a transparent way of setting prices, involving farmer representatives, while recognising the final decision on the price will be made by central government. The partnership is also exploring a price ceiling. An example would be that the overall cost would be no more than if agriculture entered the ETS.
So what’s next?
Behind the scenes, partners are looking at all the feedback that’s coming in, including considering alternative options that have been put forward.
There have been a lot of well-considered and thoughtful comments that will help guide and inform the partners as they consider what to recommend to government.
We’ll provide a summary of what we’ve heard after consultation closes at the end of March.
The HWEN partners will take time in April and May to consider the feedback and develop recommendations that are due to government by the end of May. It was never going to be easy to come up with a credible and practical scheme in the timeframe available, but we’re on track.
The Government will consider the recommendations and likely consult the wider public later this year, before making a final decision in December on a pricing system for agricultural emissions.
The partners are clear that recommendations will be in line with HWEN’s core principles: to recognise and reward on-farm changes that reduce emissions; apply a split-gas approach to recognise the difference in climate impact between different gases; recognise on-farm sequestration that the ETS does not; and ensure that revenue generated helps reduce emissions in the agricultural sector.
I encourage those who haven’t already had their say to use the feedback form on the HWEN website hewakaekenoa.nz/yoursay by March 27.
GOAL: Programme director Kelly Forster says the HWEN partners are committed to a framework where the pricing system motivates and rewards actions to reduce emissions.
Who am I?
Kelly Forster is the He Waka Eke Noa programme director.
Your View
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ETS proposals crazy, confused
Alternative View
Alan Emerson
OVER the last week, climate change and both the Government and the world’s reaction to it has reached absurd levels.
In addition, the so-called reforms planned for the ETS are, in a phrase, crazy and counterproductive.
It started with Climate Change Minister James Shaw telling the High Court in Wellington that the New Zealand climate target of limiting global warming to 1.5degC was “aspirational”.
That was in response to a bunch of lawyers who took the Government to court claiming it needed greater action on climate change.
Perhaps those lawyers could tell me the numbers of their profession who biked or walked to work, those who wore woollen clothing, so as not to pollute the oceans, and those who had vegetable gardens to reduce their environmental impact. My view is they should get their own houses in order before interfering in mine.
That ‘aspirational’ 1.5degC will also be cold comfort to the people who have worked tirelessly on He Waka Eke Noa (HWEN), to try and prevent the rural sector getting railroaded into the ETS. As I’ve also written, Shaw has made no commitment to any of the solutions we may offer.
The harsh reality that Shaw and others seem to be ignoring is that the world is increasing its global footprint and massively so, in part as a reaction to the Ukrainian war.
British Prime Minister Boris Johnson is increasing the UK’s oil and gas production, along with their emissions.
America is to boycott Russian oil and will purchase supplies from both Venezuela and Iran. Again, increasing emissions.
Australia is also ignoring climate change and ramping up both coal and oil production.
The production of global electricity from coal increased a massive 9% last year.
Last year global CO2 emissions increased 4.95%.
NZ’s corresponding reaction is to try and tax the burps and farts of cows and sheep.
One of the mitigation systems available in NZ is planting pine trees to absorb carbon that has led to a lot of good farmland being taken for forestry.
Big polluters doing that sends totally the wrong messages to consumers. Basically they are saying ‘drive whatever you like, fly wherever you want, we’ve got you covered.’
Now in a typical politically inspired bureaucratic lurch, we have the Government proposing new rules for the carbon farming of exotic forests.
Ministers James Shaw and Stuart Nash have said they want to consult, but reading their media release the decisions have been made.
They want to exclude new permanent exotic plantations from the ETS.
That will be counter productive and I’d describe the brains trust that came up with that shambles as naïve.
Ollie Belton runs Carbon Forest Services. I rate him. His reading of the proposal is that it will mean more good productive land will go into forestry.
“If you can’t find rubbish country to plant in permanent forests, your option is to plant pines on good country near to a port,” Belton said.
“You can then plant your trees, claim carbon for a period and harvest.
“The current government flip-flopping is crazy and isn’t doing anyone any good. We have purchased poor land, ordered the trees and arranged for planting. We’re getting confused signals.”
‘Confused signals’ is right.
The simple answer is to require councils to give consent for forestry on anything but the roughest country. That has been Labour policy for the past three years. It was shepherded through the Caucus by our local MP Kieran
RECOMMENDATION: Alan Emerson believes the Government should address emissions at source-level, because planting pine trees to absorb carbon has led to a lot of good farmland being taken for forestry.
McAnulty and I support it. There’s no need for further consultation, just do it.
Instead, we’ve got yet another consult fest followed by a knee-jerk reaction of reducing permanent forests on any class of country. The further irony of the Government position is that if they are trying to reduce the planting of forests on good farmland their current proposal will have the opposite effect.
So my advice to government would be two-fold, with the first being to address emissions at source. We’re not doing that except for the puerile ute tax that affects the productive sector and will have no effect on central Aucklanders buying big gas guzzlers to use to take their kids to school. In addition, according to the University of London a third of NZ businesses will miss their 2050 carbon targets.
The second is to implement their policy and make the planting of forests on anything but class six and seven land a consented activity.
Instead, we’re getting a tortuous, convoluted policy suggestion of removing permanent forestry from the ETS. It is a policy that will increase the amount of good farmland going into forestry. It will also require the international purchase of carbon credits to meet our current obligations, which is crazy.
Another factor for government to consider is that if NZ did become carbon neutral tomorrow it would have absolutely no effect on the world’s climate.
Your View
Alan Emerson is a semi-retired Wairarapa farmer and businessman: dath.emerson@gmail.com
We need to talk about the dogs
From the Ridge
Steve Wyn-Harris
WHILE people have been focusing on the rapidly increasing cost of things like fuel, food, fertiliser and a cup of coffee, they’ve completely lost sight of what’s been happening in the dog market. This is where the real inflation is going on.
Let’s start with house dogs, or whatever the name is of the ones that hang around the home.
Puppies of breeds like spoodles, retrievers, dash hounds, and the wonderfully named Shih Tzu have been selling like hot cakes and going for astronomical prices.
Only a few years ago they would sell for several hundred dollars but now fetch up to $6000.
I’ve just had a look online and could snap up eight-week-old Hungarian Vizslas from Dunedin for the bargain price of $5000. The blurb tells me that Hungarian nobles bred them to be excellent family dogs, great hunters, and the clincher, the least smelly of dogs.
What attracted my eye to this sale is the litter has 13 in it and there are only five left.
That’s 65k for a litter of pups! I just rechecked my calculator and it was right the first time.
Do these sellers pay tax?
What on earth am I doing dagging and drenching sheep?
I think I’ll look for something cheaper.
Here’s one, a made-up breed from West Auckland called a Westiepoo, which it says is the product of someone’s terrier getting it on with a poodle.
These are $4500 and a more modest litter of half a dozen to choose from.
Labradors are more familiar to most of us and these pups are fetching a more reasonable $2000.
It seems that covid is driving these crazy prices. People working from home and unable to travel overseas are falling over themselves to pay this sort of money so it’s the demand that is driving things.
One would think that the supply would quickly catch up. After all, most bitches can have two litters a year, with an average across breeds of half a dozen pups each litter.
You might imagine that folk buying those Vizslas would be thinking that to recoup that outlay I might have a little dabble at breeding myself and an exponential increase in Hungarian hunting dogs would see them filling every available kennel and dog box.
I had intended to write this column about farm working dog prices but as you can see, I became distracted quickly.
The prices paid for these fancy pants breeds makes some of the recent soaring prices paid for heading and huntaway dogs look relatively reasonable now.
There have been sale reports of trained dogs selling up to $10,000. Many trained farm dogs with good genetic backgrounds have been selling for $5000 or more.
Apparently, a shortage of good dogs available and time-poor cockies now often prefer to buy a trained dog, rather than the task at the end of a long working day of training the young pup.
I must be honest here.
I haven’t spent much money on dogs myself in my nearly 40-year farming career.
Dino, my first bitch, a beardie pup cost me $10, from Dan and Wag was 10 times that of Max, but I did buy the young student a pup last year for $400, which brought tears to my eyes.
All the rest have been products of accidental pregnancies and of course I found Ditch dumped in the water table a number of years ago.
None of them have been useless, but none of them have been brilliant either. You do get what you pay for in life.
I do marvel at other farmers’ dogs and sometimes think if I hadn’t been so busy for so long and spent a decent amount of time on training good genetics just what I could have had.
We will never know.
House prices looking vulnerable
Straight Talking
Cameron Bagrie
ANYONE in the rural community wanting to cap the rise in interest rates or see the New Zealand dollar fall needs to be eyeing house prices.
The sharper the turn in the residential property market, the less pressure the Reserve Bank will be under to keep lifting interest rates, provided it flows into some key areas of inflation pressure.
The housing market has turned, yet market expectations are we are going to see even larger rises in the Official Cash Rate over 2022.
We look headed for a showdown between inflation that could prove sticky, but house prices that look vulnerable to very sharp declines.
Inflation is more broad-based than housing alone and much of it beyond the Reserve Bank’s control. However, the tentacles of the residential property market spread widely across the economy both in terms of house prices, building activity and employment.
Residential property is a key pro-cyclical part of the economy. It moves up sharply in booms and can quickly reverse. Taming inflation is not growth, asset price or housing friendly.
Housing is a sizable component of the consumer price index. Purchase of housing is 9% of the consumer price index and rent’s another 10%. Housing and household utilities are more than 28%.
Home ownership inflation increased 15.7% in the past year. The finger is being pointed at covid supply chain issues, but the story is simpler than that; it is a function of a booming housing market where demand for materials and labour is outstripping supply.
Falling house prices are an inevitable part of a receding inflation equation. House prices lead construction costs by almost a year. Falling house prices also remove the wealth effect, or positive impact of rising wealth on spending. When your wealth recedes, people tend to spend less too.
House prices are falling. National house prices are down 2.3% in the past three months. Auckland has seen a 5.5% decline.
It is still early days in the housing cycle, but indications are it is turning fast. The number of days to sell a house is rising and jumped from a seasonallyadjusted 32 days in January to 37 days in February. Volumes sold in the month of February 2022 were down 32% versus February 2021. The level of inventory is rising. Rising days to sell and less sales volumes typically lead house prices.
Some, including the Reserve Bank, predict a modest fall in house prices over 2022 of 5%, but the supply and construction of houses to remain buoyant.
This is one reason the Reserve Bank is projecting the Official Cash Rate needs to head above 3% and market expectations are the same. House prices fall a bit, but activity generally holds up, keeping inflation cooling, but a bit sticky.
Indications are the housing market is turning more aggressively. Building consents fell 9.2% in the month of January and have fallen for three of the past five months. Fifteen percent construction cost inflation, challenges getting credit, rising interest rates, signals some areas such as Auckland may now be building too many houses and negative migration (a driver of demand) are changing the landscape for housing supply.
Activity is coming from an extreme level of strength with 48,700 consents issued in the past year and monthly data can be volatile. But turning points can occur quickly.
Financial markets are ramping up expectations the Reserve Bank will start raising the Official Cash Rate faster. A further 185 basis points of increases in the Official Cash Rate are priced into 2022 and 85 basis points in the next two meetings, implicitly betting the odds are high we could see two 50 basis point rises.
The current and expected inflation picture can be argued to validate this. Expectations for inflation two years ahead are above 3% and outside the policy band.
Things could soon get very awkward if the housing market continues to turn. Traditionally this has helped eased inflation. But inflation pressures are looking more broad-based and not being helped by splurging government spending.
How much bludgeoning will the Reserve Bank be prepared to dish out in the name of inflation? The answer is of course enough until they are comfortable that their objectives of 2% inflation and maximum sustainable employment (think of an unemployment rate above 4% not below 4%) are within reach.
We could be on a collision course between the current inflation objective and the necessary bitter medicine required to achieve it.
ONGOING: Some, including the Reserve Bank, predict a modest fall in house prices over 2022 of 5%, but the supply and construction of houses to remain buoyant.
Your View
Cameron Bagrie is the managing director of Bagrie Economics and a shareholder and director of Chaperon – helping businesses navigate banking. His views do not constitute advice.
Next time I’ll check WeatherWatch
