Consultation on Pricing Agricultural Greenhouse Gas Emissions
The Government is currently consulting on a new pricing scheme for agricultural emissions.
The agricultural sector is currently excluded from the Emissions Trading Scheme (ETS) and contributes to about half of New Zealand’s greenhouse gas emissions. The Primary Sector Climate Action Partnership – He Waka Eke Noa – is a partnership between the Government, Māori and the agriculture sector that was created to develop a pricing system for on-farm emissions by 1 January 2025. If an alternative pricing system is not implemented by 1 January 2025 then the NZ ETS pricing system will apply to the agriculture sector.
The Proposals for the Agriculture Pricing System
He Waka Eke Noa’s recommendations (developed in partnership with farmers) is for a farm-level split-gas pricing system for agricultural emissions. The Government supports this pricing system but has proposed some changes, taking into account advice that it has received from the Climate Change Commission. The Government’s modified version of the proposal includes the following elements:
- Business owner(s) of farms above a specified fertiliser use (40t synthetic nitrogen fertiliser) or stock number threshold (550 stock units (sheep, cattle, deer) or 50 dairy cattle) have the legal responsibility to report emissions.
- Reporting would involve inputting farm area, stock reconciliation, livestock production data and synthetic nitrogen fertiliser use into a centralised calculator to determine emissions numbers for methane and long-lived gases.
- Separate levy prices for long lived gases (i.e. carbon dioxide) that are set annually and linked to the NZU price, with a proportional discount.
- Separate levy and unique prices for biogenic methane, which are reviewed periodically (annually or three yearly) based on progress against emissions targets and advice from the Climate Change Commission.
- Revenue raised from the pricing system would fund incentive payments, which will be available for a range of mitigation technologies and practices, to reduce emissions.
The Government is also considering an alternative pricing option where biogenic methane emissions (by-product of animals and plants) are priced by a market-based system and long-lived gases are priced in parallel with the NZ ETS.
If the farm-level pricing system is implemented, it will be reviewed in 2030 to ensure it is fit for purpose and appropriate.
Within this consultation, the Government is also consulting on:
- An interim processor-level levy as a transitional step if the farm-level levy is not ready by 2025.
- A proposed pathway for how sequestration (capturing and storing carbon) from on-farm vegetation (e.g., shelter belts, permanent regenerative bush) should be recognised in the interim, with a view to it being included in the NZ ETS.
- Options for how emissions from the application of synthetic nitrogen fertiliser could be priced, either within the farm-level levy and included in the on-farm emissions bill, or via the NZ ETS at manufacturer and importer level.
The Government is proposing a penalties and offences regime as well as enforcement mechanisms to ensure compliance. There is currently no further information on what offences could be, what enforcement would involve, or what the penalties could be.
By the end of December 2022 the Minister of Agriculture and Minister of Climate Change will publish a report on an alternative pricing system. In 2023, subject to cabinet decisions, a Bill will be introduced to implement the agricultural emissions-pricing system and initial regulations will be developed during 2024. By 1 January 2025 the agriculture emissions pricing system will take effect.
The agriculture sector contributes around half of New Zealand’s total emissions including most of New Zealand’s nitrous oxide (produced by micro-organisms reacting to nitrogen introduced to the soil through animal by-product, fertiliser, and legumes such as clover), and biogenic methane. Requiring this sector to pay for their emissions will be challenging, and has already proven to be very contentious.
You can learn more about the proposed pricing of agricultural gas emissions, and register to webinars on the proposal at https://consult.environment.govt.nz/climate/agriculture-emissions-and-pricing/. There will be further opportunities for consultation on aspects of the agriculture emissions scheme such as cost recovery, incentive payments, and penalties and offences.
Submissions close 18 November 2022.
Please feel free to contact us to learn more about the proposal and how it could affect you or your business.