Greenhouse gas emissions: pricing for arable

Climate change, greenhouse gas emissions and carbon taxes have been in and out of the news for decades. But as the discussions are often highly politicised and the language extremely scientific, many New Zealanders have found it easier to dismiss them as ‘theoretical’ or ‘future problems’. Unfortunately, they are not; they are real and they are here now.

New Zealand is committed to emissions reductions, and from 2025 our primary sector businesses will face payments on the amount of GHGs they release. Given that short time frame, it’s time all farmers begin to understand how this payment is likely to be calculated. So when will that information be available? Here’s where things are at as of November 2021: • He Waka Eke Noa* has developed preliminary information on the two pricing options under consideration, and the “backstop” of the ETS at the processor level; • More detail, including modelling and case studies showing how much each approach might cost different farm systems, will be shared in February 2022; • In April 2022, He Waka Eke Noa will provide a recommended pricing option to government. What are the pricing options?

The two pricing options being considered are a farm-level levy and a processor-level hybrid levy. The third, default option is the ‘backstop’ of Agriculture in the Emissions Trading

Split-gas levy approaches

These two options involve setting different levies for short lived (methane) and long lived (nitrous oxide and carbon dioxide) gases, with levy rates being set by an independent advisory body. Methane would be calculated by weight of gas and have a unique levy rate. Long lived gases (nitrous oxide from livestock and fertiliser and CO2 from urea) would be calculated in weight of CO2e. There is an option to link the rate for nitrous oxide and CO2 to the NZ ETS carbon price or have a unique rate. They both seek to recognise on-farm sequestration not currently in the ETS, including riparian planting, shelter belts, perennial cropland and woodlots. Farms could work as individuals or collectives, and revenue raised would be invested in research and development to support emissions reductions. A (methane) + B (nitrous oxide & CO2) – C (sequestration) = $ The farm-level split gas option would apply to farm businesses with one, or more, of the following: 550 stock units (sheep, deer, cattle, goats); 50 dairy cattle; 700 swine; 50,000 poultry; apply over 40 tonnes of nitrogen through synthetic fertiliser per farm per year. Farms would calculate their emissions using a single calculator, with actual on-farm emissions being used to determine pricing. Processor-level hybrid option

A (methane) + B (nitrous oxide & CO2) = $ Processors would pay for emissions based on a charge applied to products supplied (meat, milk) or bought (fertiliser). Processors would likely pass on these costs to farmers. Separate charges for short, and long lived, gases would be set by an independent advisory body. To receive payment for sequestration, farms would have to develop and sign up to an emissions management contract (EMC). The framework for this is still under development. ETS backstop

Under the backstop ETS approach, emissions would be calculated using national average emissions factors for milk, meat and synthetic fertiliser, and then charges would be applied per kilogram of meat or milk or tonne of fertiliser. Methane and nitrous oxide emissions would be priced at the same rate ($/tonne of CO2 equivalent). and initially, farmers would get a 95% free allocation. This allocation would reduce gradually over time. Which option will work best for arable?

As yet, FAR doesn’t have sufficient information to support any particular approach. In the meantime, we are considering some of the other issues attached to the different pricing approaches; things like: Which approach will actually encourage individual farmers to take actions to reduce on-farm emissions? Which approach will be most efficient to run? Which approach will provide funds for research into mitigations? We expect to have a better understanding of the pros and cons of each option for arable growers by February, when other partners are doing nationwide workshops. Noting this is not especially good timing for arable farmers, expect to hear more from us between now and then. In the meantime, there are a few things you can do to get ready for emissions pricing. 1. Work out your farm’s GHG number. a) Use E-Check, Overseer or one of the other tools. 2. Understand where your emissions are coming from and consider how to reduce them. a) FAR’s GHG farm plan module will help with this. 3. Understand your number… is it low, medium or high for an arable system? FAR is gathering information to help guide you on this. He Waka Eke Noa—industry agreed targets

End of 2021 25% of New Zealand farms know their GHG emissions number

End of 2021

End of 2022 25% of New Zealand farms have a written GHG management plan

100% of New Zealand farms know their GHG emissions number

End of 2024 100% of New Zealand farms have a written GHG management plan

From 2025 Emissions pricing and payments come into effect

*The development of processes for measuring, monitoring and reducing New Zealand’s on-farm GHG emissions and identifying an effective pricing option for them, is managed by He Waka Eke Noa (HWEN). A collaboration between primary sectors, iwi and government, it was formed in 2019. It comprises several sub-groups focusing on things like farm planning, emissions reporting tools, sequestration, farmer extension and emissions pricing options. FAR has staff involved in many of these groups to ensure that arable issues are considered in all discussions.

Emissions tools at arable fingertips

FAR has released a greenhouse gas emissions calculator and a greenhouse gas emissions planning module that will allow arable farmers to meet their GHG reporting and planning obligations. FAR Environmental Researcher Turi McFarlane says E-Check is a DIY tool that uses information around farm size, fertiliser applied and stocking units on and off, to calculate the farm’s GHG number. Once growers have identified their number, they can move on to completing their written management plan using FAR’s Greenhouse Gas Planning Module. E-Check and the Greenhouse Gas Farm Planning Module, along with written and video user guides are available on the FAR website www.far.org.nz/environment. Contact Turi.McFarlane@far.org.nz or Dirk.Wallace@far.org.nz

Ruralco on 0800 787 256.