The Problem

Farm Level Levy - as is currently stated in the HWEN draft proposal delivers a 10% cut in methane emissions by 2030 for an estimated $678 million in spending. Delivering an estimated reduction of 13.5 million tonnes CO2 over 5 years from 2026-2030 based. If this reduction in emissions converted to value on the ETS at the current price it is worth $1.148 billion. For a $678 million investment this is a small return in regards in regards to project spending on carbon credits from carbon sequestration. I.E less the carbon sequestration return generated is less than half the initial project cost. Comparatively this is a very low return in regards to climate impact per dollar spent. For example New Zealand could offset all of these emissions via international gold standard credits for a price of $202.5 million, leaving a staggering $475.5 million that could be spent on innovation and science to reduce emissions. For an example closer to home, using artificial intelligence and machine learning a company Carboncrop is now able to deliver carbon credits at a project fee returning $1:$9 ($9 in value of carbon for every $1 spent) much more efficient than the $1:1.8 being spent here. In addition the farm level levy records methane emissions from each farm. There will be significant spending spent on collecting methane emissions data per farm when currently NZ does not have a methodology that recognises the difference in methane emissions based on management practices. While there is measurable methane reduction from changing stock numbers, this can easily be instead measured by output, a metric for which we already have the data, and that will be recognised proportionately by reduced on farm output from cutting stock numbers.

The Backstop of the ETS is only a cost of $50million for the same emission reduction but doesn’t allow for the split gas approach, doesn’t recognise early adopters, doesn’t incentivise on farm emission reduction and doesn’t acknowledge on farm sequestration. The ETS also currently is undersupplied to its current price, given its cap, and adding agricultural emissions will increase demand and an inflated price for credits which will be passed onto consumers of agricultural products in NZ. The ETS also currently incentivises the permanent afforestation of Pinus radiata monocultures which is bad for NZ biodiversity, water quality and generates low value for communities.

The Producer Hybrid Levy has unquantified but presumably much lower administration costs than the farm level Levy. However it doesn’t mandate on farm emission reduction for all farmers and doesn’t acknowledge on farm sequestration.

The Context for the Solution

• Between, low genetic stock class, asparagopsis methane reducing seaweed, artificial methane reducers, low emission feed types, bolous methanogenesis inhibitors and methane vaccines there are many underfunded projects underway that could provide meaningful methane emission abatement.

• It is important to realise carbon neutrality in a farming systems is an arbitrary number. Carbon budgets should be measured by comparing the carbon balance of a man made system with that of the natural system state (IPCC 2021). For example a farm with high rainfall and lots of marginal land with considerable regeneration may have a favourable carbon budget (I.E carbon positive by sequestering more than they emit), but this sequestration may be considerably less than the natural state of the farm. Credits should still be given where they are due, however this is important as NZ farmland was historically a massive carbon sink in our native forests, so carbon neutrality should not be considered the end goal for all farms.

• The split gas approach should be supported as per IPCC recommendation.

• In the coming decade farmers will have many options beyond the ETS or government farmer levy to sell their carbon sequestration or abatement credits on the voluntary market. They may even find more attractive prices on the voluntary market. For example see the silver fern farms net zero beef programme or carboncrop.nz.

The Solution

• Producers pay a levy based on production as described in the hybrid levy approach, significant savings over the farm levy approach (this leaves approx. $400 million remaining of proposed $678 million from the farm levy approach to be spend on research and development for on farm climate solutions).

• The processor levy should encompass methane for commodity brokers and for fertiliser companies and fuel companies they pay their own levy. This allows the split gas approach and internalises the cost of production to each supplier. This will incentivise emission reduction based on higher price of high emission products.

• This levy starts at 5% of emissions in 2025 and increases by 2%, 3%, 3%, 4% each year until 2030 to cut agricultural emissions by 20%. (Note: This proposed reduction in emissions is non-exclusive of the rest of the policy suggestions)

• The ETS is reformed to allow for broader on farm sequestration, (shelter belts, native regeneration, tussock and soil).

• ETS bans exotics planted in perpetuity for carbon

• With the money saved on the farm levy approach the government invests significantly in methane reducers as described above and an associated methodology for methane abatement credits. This will enable farms to be rewarded for adopting methane reducing management changes. Alternatively farmers may be able to file their methane reduction when they send their produce away for approved, which producers may reward with a better price.  

• Support is given to voluntary carbon markets and a data base set up for all the possible ways farmers can be rewarded for their sequestration and abatement, both in the regulatory and voluntary markets. This should include the allowance of access to international voluntary markets as is already happening.  

• An appropriate cost estimate of $100 million could be given to the producer levy approach. (twice the quoted cost of the ETS backstop) and yield a reduction in emission of 28.116 MT [1] or $2.25 billion worth of NZU at the current price of $80. This is a cost efficiency ratio of $1:$22. Note if emission level reductions stick the same level of 10% these numbers will half to 14MT, $1.1 billion and a ratio of $1:$11.

• Emission reduction and carbon sequestration however will be higher than this as buyers and sellers access the voluntary markets.

• Details on this should be included in the wider ‘farm environment plan’ that farms will have to report on by 2025. In this way farmers are empowered to access solutions voluntarily that will either save them on costs, or provide them income. Farmers will only have to report to one place their farm environment plan.

[1] (39.6x.05+39.6x.07+39.6x.1+39.6x.13+39.6x.16+39.6x.2)