He Waka Eke Noa Pricing options

In 2019 the government decided to put a price on agricultural greenhouse gas emissions and a committee proposed that to do this agriculture enter the NZ emissions trading scheme (ETS). The agricultural industry did not think this was the best option for the industry and they formed a body called He Waka Eke Noa (we are in this together) to come up with an alternative way of pricing emissions. Their pricing options are currently open for consultation with farmers before the final feedback is given to the government in the middle of this year. Feedback closes on Sunday 27th March so be sure to give yours here.

The options on the table are:
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The Emissions Trading Scheme

• The agricultural sector will end up in the ETS if we either: do not come up with a suitable replacement pricing option or if we vote to be part of the ETS.
• The ETS treats all GHGs the same so methane, nitrous oxide and CO2 would all be priced the same. This pricing would start off with a 95% discount off the ETS value of carbon which is expected to be around $85/tonne by 2025 making the cost to farmers 0.05 x $85 = $4.25/ Tonne of CO2 equivalents. The discount on emissions would decrease by 1% per year.
• Forests can enter the ETS if they are larger than 1 ha and meet other entry requirements.
• The government will be in charge of revenue gathered from agriculture through the ETS although it is likely the will recycle it back into the industry.
• Emissions are calculated based on national emission factors rather than on farm specific calculations
• There would be a relatively low setup cost to this option as it is already in existence. Estimated establishment cost of $3m and operating cost of $10m per annum.
• Modelling predicts that this option would result in the lowest reduction in emissions, it is doubtful that the 10% reduction target for 2030 would be met.

Farm-level levy

• Emissions would be priced separately for methane and nitrous oxide/CO2. The pricing would be decided by an administrative body and would follow the ETS price of CO2 at the discount rate until 2030 and then the administrative body would look to decrease the price of methane.
• On farm sequestration that doesn't meet the entry requirements of the ETS (ie is less than 1 ha or less than 5 m in height) would still be accepted as an emission offset.
• The sector would be in charge of the revenue generated through this scheme, to be directed to research and payment of offsets.
• Emissions are calculated at a farm scale through a singular calculator to ensure consistency.
• There would be high setup costs to this option. Estimated establishment cost of $117-141m and administration costs to the farmer and organisation of $69-$84m per annum.
• Modelling predicts that this option would have the greatest impact on reducing emissions and help in reach the 10% reduction target for 2030.

Processor-level Hybrid levy

• The processor (meat, milk, fert company) would be responsible for charging farmers per kg of product they produce.
• Emissions would be priced separately for Methane and nitrous oxide/CO2. The pricing would be decided by an administrative body and would follow the ETS price of CO2 at the discount rate until 2030 and then the administrative body would look to decrease the price of methane.
• On farm sequestration that doesn't meet the entry requirements of the ETS (ie is less than 1 ha or less than 5 m in height) would still be accepted as an emission offset.
• The sector would be in charge of the revenue generated through this scheme, to be directed to research and payments of offsets.
• Emissions are calculated using national averages to produce a kg of various products, these would be reviewed by He Waka and updated.
• Farms can apply for an emission management contract if they are employing mitigation practices that are recognised to reduce their emissions or have reduced emissions over time, then their emissions would be calculated at the farm scale.
• There would still be a high setup cost for this option but not as high as the farm level levy. Estimated establishment costs of $79-$120m and administration costs to the farmer and organisation of $39-$66m per annum. The majority of all of these costs are due to the rebates paid to farmers employing mitigation practices and on farm sequestration. Otherwise this system is very straightforward.
• Modelling predicts this option would result in just less than the farm level levy and would still result in reaching the 10% reduction target for 2030.

Processor-level Hybrid levy transition to Farm-level Levy

• An additional option is to start with the Processor level levy, as this would be easier to setup, and transition to the Farm level levy over time allowing for farm scale accounting and recognition.
• This would ensure the agricultural industry still meets its key milestone commitment (that we have a pricing system in place by 2025) but would allow an easier start to the administration of pricing and the cost to setup the system.

 
More options and case studies on the options can be found here. To ensure the success of He Waka Eke Noa and ensure the industry is not forced to enter the ETS there are a few milestones that need to be met:

• End of 2022, all farmers to know their GHG number
• End of 2023 pilot project for reporting of farm emissions
• 2025 all farms to have a written plan in place to measure and manage their GHG emissions

 
If you have any questions regarding the above or for help running your farm through one of the calculators available to determine your GHG number call our team on 0800 458 636 or email [email protected].