Emissions scheme needs beef

BY ROD ORAM

OPINION: Over the next few months we'll know what sort of emissions trading scheme we'll end up with. Judging by the review process so far by parliament and government, it will be light and easy.

If it is, it will fail. It will discourage emitters from investing in new and better technology, leaving taxpayers to pick up the tab for buying international credits to cover our ever-growing greenhouse gas liabilities.

The impact will be far greater than simply a taxpayer subsidy of inefficient industry. We will have no credibility in December's Copenhagen negotiations on a post-2012 climate change treaty. Crucially, we won't help drive the agenda on agricultural emissions, which account for half our profile, in the same lead-by-example way we have long done with agricultural trade.

The need to be involved is clearly identified by NZIER and Infometrics in their recently released regulatory impact study of the ETS, commissioned by the government.

"Given our unique emissions profile, New Zealand needs to be at the table when post-2012 negotiations take place to ensure that our voice is heard and that the outcome is equitable. We cannot realistically do so if we do not have a commitment to a domestic carbon price."

Yet the authors argue we can be credible even if we exclude agriculture. The say a narrow, undemanding scheme would be the most cost-effective way for New Zealand to meet its greenhouse gas liabilities.

Specifically, it says agriculture should be excused from the scheme if the cost of on-farm measurement of emissions is prohibitively expensive. It also recommends that allocation of free greenhouse gas credits to all trade-exposed sectors be made on the basis of intensity of emissions rather than outright volume; and phase-out of those credits should be at the speed of other countries' actions so our exporters are not disadvantaged.

While these recommendations might seem reasonable at first glance, they are based on two huge, flawed assumptions. The first is about the global response to climate change. "If the rest of the world takes steps to price carbon, and technological change is induced by this pricing, then a broad-based domestic carbon pricing scheme is the least-cost way to meet New Zealand's international obligations," the report says.

But it assumes that won't happen, so it argues for a narrow emissions scheme in New Zealand. Pre-judging that the Copenhagen conference will fail is a lousy negotiating strategy. Taking agriculture out of our scheme will drastically diminish our ability to help get a good outcome for all agricultural producers and one that rewards us for developing the science and management skills needed to reduce farm emissions while increasing food production.

NZIER and Infometrics take this pessimistic view because they are convinced that all sectors of the New Zealand economy, not just agriculture, have minimal scope to benefit from cleaner, more resource efficient technology

"Domestic abatement opportunities are limited and costly and are often associated with output reductions," they conclude.

This directly contradicts multiple studies from around the world demonstrating that existing technologies can be deployed to start reducing emissions while delivering economic benefits. Reputable analysis has come from the likes of the Stern Report, Princeton University and McKinsey, the management consultancy.

Even if the Copenhagen negotiations fail to deliver a global treaty, most developed countries and many developing ones will continue to work on reducing their emissions, to adopt existing clean technology and to fast-forward new technologies.

If we believe we have no opportunities to engage in those activities, our industries will lock themselves into inefficient, old technology. They will become increasingly uncompetitive.

Above all this is true in agriculture, the only sector in which we have the science, scale, management skills and incentives to be at the forefront of reducing greenhouse gas emissions.

The concept is simple: those agricultural emissions are, in large part, a waste of nutrients. Current farming practices spill carbon and nitrogen into air, soil and water. But better breeding and management of ruminant animals and their feed, combined with recycling of those nutrients on-farm, would increase the output, reduce the costs and improve the environment.

Producing a litre of milk generates greenhouse gases equivalent to 940g of carbon dioxide, Fonterra has determined in its recently released carbon life-cycle analysis.

Around 85% of the gases are emitted on farm, 10% downstream in manufacturing and 5% in distribution of the finished products.

Virtually every farmer sees those emissions as a liability. They argue they cannot change their farming practices. So if they were charged for those liabilities in an emissions trading scheme they would become less competitive internationally.

Fonterra is slightly more enlightened through its commitment to the carbon life cycle analysis developed by AgResearch, Scion (the forestry Crown Research Institute) and the University of New South Wales and funded in part by the Ministry of Agriculture.

But its main motivation is still defensive. It says overseas consumers are increasingly concerned about the environmental impact from producing the food they eat. Thus, Fonterra is working with the International Dairy Federation and other bodies to achieve global benchmarks so consumers can make accurate comparisons.

It is on potentially dangerous ground, though. Lincoln University's comparison of dairy production here and in the UK concluded ours has a lower carbon footprint. But further work by Ecologic, the Nelson-based environmental think tank, concluded there was a large margin of error in such studies. The two countries' footprints overlapped within the margin. Moreover, British farmers are reducing their intensity of operations and thus their footprint while New Zealand farmers are increasing theirs.

While we need to keep refining the methodology so we can strongly defend ourselves against environmental trade barriers, carbon life-cycle analysis is far more important as a discipline for achieving greater resource efficiency on-farm and in downstream operations.

Once farmers realise greenhouse gases are a wasted source of nutrients, they take steps to capture and use them. Thus, for example, they are rapidly adopting nitrogen inhibitors to keep nitrous oxide in their pastures rather than leaking out into the air and waterways. The grasses take up the nitrogen, thereby reducing the use and cost of fertilisers.

Dairy farmers are focusing ever more intently on such issues because they are having to farm much more intensively.

They are, for example, using much more supplemental feed such as maize and palm kernel extract to improve the diet and thus milk production of their cows. There is growing evidence that such changes of diet can decrease cows' methane emissions, the biggest and most difficult to curtail of agriculture's greenhouse gases.

By adapting their management systems further, farmers can, for example, collect effluent the cows produce when they're on feed and standoff pads. The effluent is then used to fertilise pasture grasses or crops such as maize, which have much higher nutritional value than grasses.

Such developments will help farmers capture some of the potential of turning greenhouse gases into nutrients. A big investment in science is also needed. So far government and the primary sector have made only a very modest start.

Many people argue that economic benefits will drive such science and progress without including agriculture in an emissions trading scheme. It might, but not with the same intensity or global upside that will come from including agriculture, albeit on a long timetable, in the ETS.

Dairy farmers pride themselves on being the country's economic leaders. They can prove they really are by leading on this issue.

- © Fairfax NZ News