The Climate Change Commission reports to the Minister today. It must not cop out with just a 3.4 percent cut for agriculture by 2030. New Zealand will face a much larger bill to meet its Paris target if it buys carbon credits overseas when it could cut methane at home.
OPINION: Continuing to protect agricultural emissions from climate action now involves not just subsidies but actually wasting money – and lots of it.
The waste could easily amount to billions of dollars if New Zealand ends up having to buy carbon credits overseas at a cost far higher than methane could be cut at home.
This twist, combined with new evidence on the benefits of curbing methane emissions early, is set to fundamentally alter the deal agriculture interests thought they had extracted from the last Government.
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Whether the Climate Change Commission is now willing to confront this will be tested when it reports to the Government today.
The huge wastage would come if there continues to be no reliable mechanism for rewarding farmers who reduce emissions – and no regulation.
As agricultural emissions currently face no charge under the Emissions Trading Scheme (ETS), many reductions that would otherwise be profitable will not be realised.
That was not a political problem in the past because New Zealand only made climate pledges that it could meet with opportunistic carbon accounting and cheap carbon credits that had next to no environmental integrity.
But the Paris 2030 target is different. It would be a great deal harder for New Zealand to fudge its way through this time, and the Prime Minister has said the target will need to be strengthened – not weakened.
So New Zealand has a make or buy decision: it must make actual cuts in emissions to meet the target, or buy genuine carbon credits from overseas to make up the difference.
When advising the government on a plan for meeting the 2030 target, the Commission estimated that at least 43 million tonnes (Mt) of carbon credits would need to be purchased from overseas, in addition to domestic cuts. This draft advice in February also set out scenarios that would require buying in 64 or 105 Mt of credits if the nation’s pledge was strengthened.
A price for carbon credits of NZ$100/t is at the conservative end of international projections for 2030. If that is taken as the average cost of purchase, the Commission notes that a multiplier would also need to be applied to account for the value to New Zealand of local investment – and uses a figure of 1.8 in its examples.
Taking these two assumptions for illustration, the potential economic costs to the nation are between $4.3 billion and nearly $20 billion.
But the more that emissions can be reduced at home, the lower the bill. And the above suggests New Zealand would be better off cutting emissions locally at a cost of up to $100 to $180 per tonne.
While the Commission has proposed cuts to all other sectors equal to 6.3 percent of the gross emissions otherwise projected, it suggests just a 3.4 percent cut in the volume of agricultural emissions – for the period to 2030.
It did not state the basis for cuts to agriculture being only half those to other sectors (and emissions from farming account for about half the nation’s total). It also failed to provide baseline data on what volumes of agricultural emissions could possibly be cut, at what cost.
Such data is fundamental to proper analysis and any audit of its recommendations. It is a standard part of the analysis presented by the UK equivalent of the Commission.
What the Commission ultimately recommends is a cut similar to the target for agriculture that was agreed when Labour and the Greens were seeking support from New Zealand First to create the Commission.
That target aimed to limit any cut in biogenic methane to 10 percent of current levels by 2030.
In draft legislation put before Parliament, it was expressed as an exact target the Commission had to plan for. The Sustainability Council submitted that this formulation could lead to perverse outcomes and that the target was in any case manifestly unfair.
When the clause emerged from select committee, new wording was added and its significance has not been widely appreciated. The effect of the new wording is to say that the 10 percent limit is not absolute, that it is a minimum expectation – according to legal interpretation sourced by the Sustainability Council.
That change means the political deal with NZ First and agriculture interests was never incorporated into the wording of the Act. Further, the Commission is not just free to plan for reductions that exceed 10 percent by 2030, it has a duty to consider these.
Yet the Commission produced advice essentially in line with the limit originally proposed (a 13 percent cut for the year 2030, equal to a 3.6 percent cut in volume to that date). At the same time, it failed to provide the baseline information that would show what could be achieved if there were no limit.
Gaps in the Commission advice aside, it is widely understood that many of the options for cutting emissions involve changes in farm practices that are relatively low cost and there are also moderate cost options – all well under $180/t. The key question with these is what quantity of emissions they could cut.
The importance of knowing this is made clear by looking at the impact of even a modest change in the plan for methane that the Commission has put forward.
In addition to the scenario it used to back its proposal for cutting the volume of methane by just 3.6 percent, the Commission also modelled a scenario that would cut it by 8 percent. That would result in an additional 13 Mt reduction – a third of the gap to meeting the current Paris target.
At the prices for carbon the Commission assumes, the net economic savings to New Zealand would be over a billion dollars (if the alternative was buying carbon credits at $100/t and the multiplier was 1.8).
As the technical potential to cut methane is considerably more than 8 percent, it is easy to see how excess costs in the billions of dollars could pile up in the course of meeting the Paris target.
And that is before considering the effect of emerging technologies such as the use of a locally occurring red seaweed that the start-up company CH4 Global is pioneering. Trials are showing that feeding it to livestock could eliminate the great majority of their methane emissions.
A key unknown with this product is what it would cost per tonne to remove most methane at source – and in the process get farms close to carbon neutral production.
Pastoral farmers face a future where rising consumer expectations for carbon neutral production, together with competition from synthetic milks and meats, mean that higher environmental standards are inevitable.
A Just Transition to a zero carbon economy needs to provide assistance to farmers to make the changes needed, and in the process help them tool up to meet the rising environmental standards of premium food markets. These will increasingly demand strong climate and sustainability credentials backed by certification.
New Zealand cannot use trees to plant its way out by 2030, as they don’t absorb enough carbon in their early years. And if changes on the farm are left too late, not enough emissions will be cut to avoid the waste spending.
So the domestic methane game is set to change. At the same time, the UN Environment Programme has reset the international debate on the value of cutting these emissions globally. Its recent report estimates that a 45% cut in methane by 2030 would shave the temperature peak by 0.3 degrees in the 2040s.
Change would likely mean a proportion of agricultural emissions being priced under the ETS, if they are not regulated instead. The current exemption allows farm owners to avoid ETS charges on 35.5 Mt this year, where each tonne is worth around $36/t at current prices.
That amounts to a $1.3 billion a year cross-subsidy to agriculture from all other sectors.
But the game is no longer just about this transfer of wealth: now it is also about excess costs paid to purchase carbon credits overseas when methane emissions could be economically avoided at home instead.
That cost is additional and it’s not even a transfer to someone else in the country: it’s a straight out waste of New Zealand’s resources.
This is in nobody’s interest and sharpens the question of how to make the changes in a way that gets the economics right while also supporting farmers in transition.
The Commission’s draft advice did not mention the excess costs issue, though this elephant could not have gone unnoticed.
If the Commission ignores this again in the advice it delivers today, then the Government will be left to confront the agriculture sector without the benefit of an independent body to lay out the case for change.