On the face of it, a draft report on how greenhouse gas emissions from farms could be quantified and priced is derisory. On a closer look it is a bit more defensible.
It is a draft discussion document arising from the He Waka Eke Noa process — a partnership of farmer groups, iwi and the Government — to design a regime to measure, manage and reduce emissions of methane and nitrous oxide from farms. The aim is an alternative to the rough justice and inefficiency of bringing agriculture into the emissions trading scheme in 2025 at the processor level, that is, dairy factories and meatworks.
It proposes two possible models. One would impose levies on each individual farm based on their emissions and any offsetting sequestration (trees).
The other would be a one-size-fits-all levy at the processor level but offset, if a farmer opted to, by a contractual payment that recognised their efforts to reduce and/or offset emissions.
The trouble is that initial indicative modelling suggests both models would lead to reductions in total agricultural emissions of less than 1 per cent from 2017 levels.
Less than 1 per cent?
When farmers are responsible for, and profit from, nearly half the country’s emissions?
When the Zero Carbon Act requires biogenic methane emissions to be 10 per cent below 2017 levels by 2030?
And when the global methane pledge New Zealand signed up to in Glasgow last month calls for a collective fall in global methane emissions of 30 per cent by the end of the decade?
The draft report acknowledges, among the key disadvantages of both the proposed farm-level levy and the alternative processor-level hybrid levy, that they are “unlikely to be effective at reducing emissions”. But it adds that “the revenue raised would be redirected into initiatives to help reduce sector emissions”. Initiatives like the quest for a methane vaccine, perhaps.
The report also says initial modelling shows that other current environmental policies, like the national policy statement for freshwater and the role of forestry in the emissions trading scheme, would cut agricultural methane emissions by 3 to 4 per cent and nitrous oxideby 2 per cent from 2017 levels by 2030.
Even so, the almost imperceptible price signal the proposed models would deliver is a pretty serious flaw.
It reflects two features of the proposals. One is the “split gas” approach which envisages a much more lenient impost on methane emissions than the internationally standard GWP100 approach, under which a tonne of methane emitted is treated as equivalent to 27 tonnes of carbon dioxide.
The other is the assumption that agriculture would be treated as an emissions-intensive, trade-exposed industry and initiallyface an emissions price on only5 per cent of its emissions (rising by 1 per cent a year).
The indicative modelling in the He Waka Eke Noa report assumes a methane price of 11c a kilogram (or $110 a tonne) of methane emitted.
That would be only 1.29 times the assumed price for carbon dioxide, when the GWP100 exchange rate used for international carbon accounting purposes would require27 times the CO2 price.
The reason for this conspicuous difference is that methane is a potent but short-lived greenhouse gas. It is extremely good at trapping heat but it breaks down in the atmosphere within a few years into the much less potent greenhouse gases carbon dioxide and water vapour.
How hard you want to be on it depends on whether you focus on the potent part or the short-lived part. It depends, in other words, on the policy-relevant timeframe.
The GWP100 metric the world has fastened onto for carbon accounting purposes estimates the heat-trapping effect a tonne of a greenhouse gas will have over the arbitrary period of 100 years after it is emitted, with carbon dioxide as the benchmark.
In methane’s case the current estimate is 27 times as much as CO2. But the effect is front-loaded within the 100 years. Ifthe metric was GWP20 instead, based on the 20 years after emission, the ratio would be 80 times.
Advocates of the split gas approach — which, after all, the Zero Carbon Act endorses — argue that what should matter for public policy is whether emissions are rising or falling and ifthey are adding to or subtracting from global warming.
They can point to the most recent (6th) assessment report from the Intergovernmental Panel on Climate Change, the authoritative body on the science.
It says that “expressing methane emission as CO2 equivalent emissions using GWP100 overstates the effect of constant methane emissions on global surface temperature by a factor of 3 to 4 over a 20-year time horizon … while understating the effect of any new methane source by a factor of4 or 5 over the 20 years following the introduction of the new source.”
Under standard metrics like GWP100, “the cumulative CO2 equivalent emission associated with methane emissions would continue to rise if methane emissions were substantially reduced but remained above zero. In reality, a decline in methane emissions to a smaller but still positive value would cause a declining warming,” the IPCC says.
In New Zealand’s case, methane emissions peaked in 2006 and by 2019 (the most recent national inventory) had fallen by nearly 5 per cent, although they still represented 42 per cent of gross emissions.
They need to reduce, gradually, but unlike the long-lived gases, including nitrous oxide, they do not need to reduce to net zero.
The He Waka Eke Noa report calls for levy rates, for both methane and the long-lived gases, to bebased on advice from an advisory body created or enabled by legislation after engaging with the sector and the wider public.
One of the factors the levy-setting process would have to balance against meeting statutory objectives for reducing national emissions would be supporting an internationally competitive agricultural sector.
That indeed is the rationale for exempting all but a small proportion of the sector’s emissions from a price. It does not do the planet any good if relatively emissions-efficient New Zealand farmers lose market share to less efficient competitors overseas.
But the more serious the world gets about pricing emissions, the weaker that case for special treatment becomes. A review of free allocation in the ETS is planned.
The dilemma for New Zealand farmersis that the same feature of methane which justifies a split gas approach is now encouraging governments to see methane as the low-hanging fruit in combating climate change. The cooling effect of reducing methane emissions is seen as a way to buy time for dealing with the much bigger problem ofCO2.
If — and it is a big if — that results in major markets imposing costs on their farmers to reduce livestock emissions, it is just about inevitable that that would be accompanied by a clamour to impose tariffs — border carbon adjustments in the jargon — against imports from countries seen as free riding.
The potential for protectionist mischief is serious.
For example, the agreement in principle for a free-trade agreement between New Zealand and the United Kingdom contains language which suggests the risk of protectionism under the guise or pretext of climate policy needs to be guarded against.
It recognises that “nothing in the FTA will prevent either the UK or New Zealand from fulfilling their commitments under the United Nations Framework Convention on Climate Change or Paris Agreement provided that such measures are not applied in a manner that would constitute a means of arbitrary or unjustifiable discrimination against the other country or a disguised restriction on trade”.
While the signatories to the global methane pledge do not include the three largest methane emitters — China, Russia and India — they do include the European Union and the United States.
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