Weighing the pros and cons of He Waka Eke Noa options

For more than two years a partnership of agriculture sector groups, iwi and government agencies have been discussing alternative livestock emissions pricing mechanisms. The partnership, known as He Waka Eke Noa, is due to present recommendations to the government in April. If the sector can’t agree on a workable alternative, or He Waka Eke Noa’s proposals are rejected by the government, the government’s ‘backstop’ of including agriculture in the ETS is triggered. In this column Federated Farmers of NZ President Andrew Hoggard discusses the merits of the emissions pricing alternatives.

For those wondering what Feds’ position on He Waka Eke Noa is – well, at this stage my opinion hasn’t changed from what I outlined prior to Christmas. Both options have some benefits over the ETS, the ‘backstop’ alternative imposed by the Government, they each have positives and negatives. On the positive side, both He Waka Eke Noa options presented recognise the split gas approach with a separate price for methane, both account for sequestration, and both recycle any money raised back into agriculture. At present the ETS does none of these. The Farm Level levy more accurately reflects the individual farm actions, unlike the processor hybrid levy, but it has very high admin costs, unlike the processor hybrid levy. Finally, with both of them there is concern that the price gets set by some committee which we may not have a lot of control over. Personally, the idea of committees setting prices is a little too Politburo-ish for my liking. We still don’t know how the price will be set or what the price will be and there is a risk of a split gas approach taken in name only, with short-lived methane emissions being overlytaxed. Farmers who are really performing well in terms of minimising their farm’s greenhouse gases will still end up paying a price, which grates me. Under the ETS that is going to happen as well, but at the same price as other gases not a split gas price. This is all further complicated by the Government saying the ETS backstop already in legislation may not be the backstop they go with. They’ve said they intend any backstop ETS tax paid by farmers would be invested back into the agricultural sector to support further emissions reductions. This could include elements of revenue recycling designed through He Waka Eke Noa, such as the sequestration recognition.

A core advantage of the ETS is the certainty it provides and the fact that the price is set by a market, and not a political committee. If the Government was to fix the current broken methane targets and split out short-lived methane from the ETS, this might actually be a better long-term option then anything put forward by He Waka Eke Noa. That’s the high level stuff. Underneath that we still have a number of things that we are trying to get right, aspects it’s very unlikely we’ll get a clear picture on until perhaps we have put this forward to Government. That raises the very real risk of us saying ‘yes’ to the big picture stuff without locking down the detail. For example, the “price setting Politburo”: who gets to go on it?; who appoints them?; what skills do they have to have? Are they endorsed by “agriculture” or could the Minister go and chuck on a mate who is openly biased against farmers? If such a thing were to happen, then when we complain, we’ll get “you agreed to this” thrown back in our faces. Another issue we are working through is the price paid for sequestration and what is eligible. Currently you could claim ETS-eligible native trees through HWEN – sounds good, right? Means you don’t have to deal with ETS and HWEN? However, it must be paid for by money raised from farmers. If you link the price of this sequestration to the price of the ETS, then if the price of the ETS keeps rising, that’s more money that needs to come from other farmers. That disincentivises production, in turn meaning there is less of the offending gas to split the cost of sequestration over, meaning price has to be higher, “ which starts a vicious circle. So something that sounds good from the outset could bite us on the arse. To me, if something is ETS eligible, then that’s where it needs to go, because that increases the supply to market which hopefully keeps that price down a bit. Another advantage of entering ETS eligible sequestration into the ETS is that then the rest of the economy is paying for it, benefiting farmers overall. Currently under He Waka Eke Noa all the sequestration money has to come from taxing farmers. We’re all very concerned that carbon farming is swallowing up good farming land. If we get the settings wrong in HWEN we could well encourage more no-harvest forestry. Ideally the outcome is that as we develop ways through HWEN to recognise current non ETS sequestration, and build in surety it is real sequestration, then surely we would want to transition that over to the actual ETS, to make more offsets available there as opposed to businesses resorting to buying up land to plant trees. Such businesses could even market the fact they are offsetting using farming-friendly units, and not adding to the problem of fire-prone, blanket monocultural pine afforestation. This is all stuff we will need to continue working on well past the government-imposed two momnth deadline. But again, what certainty to we have that this will be allowed? GWP100 was only supposed to be a temporary metric, put in place in the early 1990s until they worked out something better to account for methane. But once something is agreed to, it risks being locked in place. But if we don’t agree to something, we may end up being locked into the ETS, which may be worse. Some might think ‘yeah, but the next time National gets in they will change it all back’. To that I’d reply “like working for families, or interest free student loans?”. But scepticism aside, if the entire Ag industry were to agree to something then there is even less chance any future government will change anything. Even if time proves that option to be a disaster for the sector. So, back to where I started. What’s Feds view? Its bloody tricky, is what I would say. It’s a call our National Council will make, and we will be looking at where the final document lands, what we see as the future political risks, the costs and benefits both domestically and internationally, and ultimately what our membership is thinking. I see our role as not telling you what to think, but pointing out all the pros and cons and the concerns we have. I’m not arrogant enough to think I know best and that I have to tell you how to think. But most of all I feel the He Waka Eke Noa options need to be judged on their own merits, not just that they are less worse than the ETS.

The Farm Level levy more accurately reflects the individual farm actions...

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