Govt concedes to farmers on emissions

Labour Cabinet backs down on farm emissions and sequestration after farmer groups revolted; Shaw defends 'political reality' of concessions; National wants action delayed to 2025

TLDR: It turns out everyone says they want to reduce climate emissions to net zero some time in the vague and unaccountble future, but when push comes to shove most business and political leaders (and voters) say: ‘not us, not now and not that much’.

That was again evident yesterday as the Labour Government made a series of last-minute concessions to farmers over plans to impose ‘split-gas’ levies on farm emissions. This came after more than two years of collaborative ‘He Waka Eke Noa’ talks led to an initial proposal in October that farmers rejected outright.

The Government announced it would fix emissions levies at very low levels for five years and allow farmers to claim credits for trees planted next to waterways under the ‘clean streams accord’. The Climate Change Commission had recommended against both concessions. Climate Change Minister and Green Co-Leader James Shaw defended the watering down of the emissions levy scheme, saying it reflected political reality.

I included more detail and analysis below the paywall fold for paying subscribers. Update: subscribers have asked me to open it up for sharing. I have done that now. It can be shared.

Jersey cows on a dairy farm in Taranaki. We tried to catch them mid burp, but they were too clever for us and we blinked first. Photo by Lynn Grieveson for The Kākā.

The Government backed down again on climate change

The Labour Government has softened a plan to levy farmers for their methane and nitrous oxide emissions after a farmer revolt, promising "relatively low" prices for at least five years, ample handouts to farmers to offset the levies and the inclusion of 'riparian planting' trees next to waterways in the Emissions Trading Scheme (ETS). 

The concessions follow a rejection by farmers of a set of 'He Waka Eke Noa' proposals from the Government in early October that were forecast to sheep and beef farm numbers (but not dairy cow numbers) by 20%. The October proposals also excluded riparian planting from the ETS, which caused farmer outrage. Here’s my analysis via The Kākā of those proposals from October 11.

The schism between farmers and the Government over the last two months came after a two-year collaborative process designed to bring farmers 'into the tent' to price climate emissions that make up more than half of New Zealand's overall emissions.

On the eve of a Carbon Zero Act deadline (December 31) to report back on its plans and now well behind the National/ACT Opposition in opinion polls ahead of next year's election, the Government has announced a final proposal for:

• a "relatively low" initial methane price and a pathway of pricing set for five years, to be reviewed after three years;

• a low nitrous oxide price that would mean farmers were no worse off than before the scheme and the pricing of synthetic nitrogen fertiliser (made with gas) would be taken out of the existing ETS and kept in the farmer-led split-gas scheme;

• significant payment schemes would be set up to offset the costs for farmers and completely recycle all revenues to farmers;

• the removal of on-farm carbon dioxide emissions from tractors etc from the ETS, which was not proposed in October and will reduce farmer costs; and,

• the inclusion of riparian planting in the ETS, which had originally been recommended by the He Waka Eke Noa colloboration, but was removed by the Government in the initial proposals in October.

Prime Minister Jacinda Ardern, Agriculture Minister Damien O'Connor and Climate Change Minister James Shaw announced the final proposal in an Auckland CBD Government Policy Office at the last possible minute before the expiry of a December 31 deadline under the Carbon Zero Act. The Act includes a requirement for a 24-47% reduction in biogenic methane emissions below 2017 levels by 2050, including a 10% reduction below 2017 levels by 2030. 

The Government has also put off the hardest decisions about actual price levels until early next year and it now appears unlikely legislation to enforce the prices will be passed before the election. The Opposition has previously pledged to repeal the levies if elected and National Agriculture Spokesman Todd Muller indicated yesterday a new Government would not bring in processor-level levies at all. This week’s final proposal again included a ‘ETS backstop’ that would force the payment of levies at processor level, rather than farm-gate level, if the farm-gate scheme was not ready by 2025. Under the processor-level backstop, Fonterra, Silver Fern Farms, Alliance etc would collect and pay the levies on behalf of farmers, which farmers oppose.

“After listening to farmers and growers through our recent consultation, and engaging over recent months with industry leaders, today we have taken the next steps in establishing a proposed farm-level emissions reduction system as an alternative to the ETS backstop.

“The most important thing is getting an emission reduction system set up that lasts. We are working hard alongside the agriculture sector to strike the balance between building good levels of sector buy in, while also ensuring the system is robust and meets our emissions reductions goals” Jacinda Ardern in her statement.

Inside the concessions

The full report included the following details on pricing:

• A farm-level split-gas levy for agricultural emissions would price emissions from biogenic methane and nitrous oxide (including from fertiliser) separately;

• The legal point of responsibility for reporting and paying for emissions would be GST- registered business owners who meet the emissions thresholds (equivalent to ~200 tonnes CO2-e per year)

• reporting could be done at either the individual farm level or via a collective;

• relatively low, unique prices could be set initially for both biogenic methane and nitrous oxide for five years based on set criteria;

• a price pathway for both biogenic methane and nitrous oxide would be set for five years, with a review after three years;

• the price of nitrous oxide would be capped for the first five years at a level that the sector would be “no worse off than if the sector had entered the NZ ETS at this point”;

• payments would be available to reward the uptake of incentives and eligible sequestration;

• an interim approach would be taken for rewarding sequestration through a declaration-based system from 2025, followed by a transition to the NZ ETS, with sequestration from riparian plantings and from increases in carbon from indigenous forest linked to specific management interventions included from 2025; and,

• an interim, processor-level levy would be proposed only as a transitional step if the farm-level pricing system could not be set up and running by 2025.

The statement said Cabinet would make final policy decisions on the agricultural emissions pricing system in early 2023, followed by legislation to give effect to those decisions. However, the timeframes are looking awfully tight to get it through select committees and passed before the election next year, unless it was done under urgency.

Deep in the report, the Government makes clear it has rejected the Climate Commission’s advice (bolding mine):

“Rather than using the commission’s recommendations for a high price to drive behaviour change, with output-based assistance to moderate impacts, the Government is proposing to accept the partnership’s recommendations for a low price to raise revenue, which would then be used to fund incentives to drive behaviour change.

“Mitigating adverse impacts on the sector by keeping levy prices low and relying on incentive payments to drive abatement may not support achievement of our 2050 targets.” Officials wrote in the final report.

Shaw defended the changes in comments to Stuff’s Glenn McConnell, essentially saying the farmers will get what they want and not much can be done about it (bolding mine):

“There are probably simpler, more effective systems that are out there. But ultimately, the political economy of all of this is that the sector leaders have said that this is the system that they want. This is the means to endure across multiple changes of government.” James Shaw via Stuff.

OECD data

Aotearoa is one of the OECD’s worst performing emitters per capita and in emisssions growth per capita in recent years. The OECD’s measures show Aotearoa’s emissions grew 5.3% in Labour’s first term, and has only fallen back to 2017 levels in 2020 because of covid disruptions. Coal, petrol and diesel use have all rebounded in 2021 and 2022, along with the economy, while farm emissions have remained robust.

The OECD estimates we will have to reduce emissions by almost 30% in seven years to meet our Nationally Determined Contributions (NDCs) under the Paris Agreement, or to buy credits on still-non-existent international markets to avoid becoming a pariah.

OECD data

Promises made, promises not kept

So what? - The PM promised in the 2017 election campaign that climate change action was her generation’s ‘nuclear free moment’ and she declared a ‘Climate Emergency’ in Parliament two years ago. Yet since 2017:

• Waka Kotahi (NZTA) has spent just 3.1% or $624 million of its $20.4 billion of total spending over the last four financial years on walking and cycling, and just 20% or $4.1 billon on public transport, while $15.9 billion was spent on road building and maintenance;

• The Government has spent over $1 billion in the last ten months subsidising petrol and petrol use by cutting fuel levies by 25 cents a litre to help voters deal with costs of living, and paid for it from its ‘Climate Emergency Response Fund’ (CERF);

• The Government expects to collect $7.1 billion in Emissions Trading Scheme (ETS) revenue over the next four years, including an extra $2.1 billion estimated since Budget 2022 because of higher carbon prices, yet it has not allocated or spent $3.6 billion now sitting in the CERF to reduce emissions, in part to keep its net debt track falling from 19.9% of GDP currently to 14.1% by 2026/27;

• The Government has specified that any spending to reduce emissions must be fiscally neutral, which means it will have to paid for from ETS and split-gas levies, rather than either increasing taxes or debt; and,

• The Government quietly rejected Climate Commission advice last week about the ETS in order to keep the carbon price (and therefore fuel prices) low, as Newsroom’s Marc Daalder reported.

Climate policy steeped in as much magical thinking as housing policy

My view - Repeatedly, this sixth Labour Government has baulked at or delayed almost all of the policies that could have generated a political blow-back from median voters around cost of living and the over-arching drive to get Government debt down, which in turn keeps interest rates low and residential land prices high.

We have a housing market for an economy with double-cabe utes, decks and BBQs tacked on.

In essence, the Government has chosen time and again to keep the political and financial costs of climate emissions as low as possible, and to avoid actions that would hurt the Government’s overall focus on keeping net debt low. It has chosen low petrol prices and low interest rates at every turn, essentially pushing the costs off into the future and not including a measure of them on the Government’s balance sheet as a future liability.

That’s because, fundamentally, it believes median voters want to keep driving their double-cab utes around our biggest cities on big, fast and wide motorways between where they work, play and live, which is mostly in stand-alone homes with double garages and gas bbqs in the backyard. Aotearoa has an emissions-intensive lifestyle and economy, and it doesn’t want to change. We have a housing market for an economy with double-cabe utes and backyard BBQs tacked on.

Low target strategies dependent on magical thinking

The PM has also chosen not to use her political capital to try to shift the centre of gravity lodged around what median voters currently think. Shifting that point of balance towards more meaningful action would require challenging the status quo and convincing consumers and voters to give up something, in exchange for something else the same or better, or to avoid a worse fate.

Sadly, the Government and the Opposition are choosing to believe (or at least say they believe) that voters can have it all: a ‘win-win’ situation where they can both keep their current lifestyles and meet our emissions targets without much change or pain. The key to this magical thinking strategy is to hope the boiling frogs don’t notice as the heat keeps rising, or at least that they can be distracted from the heat at the moments when they vote.

Infuriatingly, this performative climate politics has been enabled, accidentally or otherwise, by the effective greenwashing of Labour by the Green Party being partially in Government with Labour. It felt it might be able to influence things, but in actuality has had to swallow rat after rat while also being unable to effectively campaign against these decisions in public. Without a strong public voice calling bullshit on this magical thinking, the bulk of the population and certainly the most engaged supporters of real climate action can bumble along believing ‘something’ is being done.

The irony is the Green Party has never been stronger in political opinion polls, in part because it has become seen as a ‘sensible’ supporter of the status quo that also allows voters who care about climate change the illusion of action and momentum. At some point they might work out a Green vote is a vote to keep the Labour (and National) status quo.

Ignorance is bliss for the green frogs simmering in Aotearoa’s pot, but the physics of climate change and the trade bureaucrats of Europe and the United States are not magical thinkers or sympathetic to Ford Ranger drivers.

Last week, the European Union legislated to bring in a ‘Carbon Border Adjustment Mechanism,’ which is designed to punish climate laggards wanting to export to the world’s largest trading zone.

Farmers may see this week’s backdown as a victory that buys time until ‘their’ side is rightfully back in charge again to remove the impediments to growth. But it is a mere skirmish in a decades-long conflict where the forces of global pension funds, global financial regulators, accounting standard setters, credit rating agencies, trade-zone bureaucrats and ultimately, rich world consumers, will decide who is on the right and wrong sides of history.

Magical thinking frogs won’t survive these pressure cookers in the long run, but the long run is a foreign concept when elections are less than a year away and the news cycle is tightening from 24/7 to 10-15 seconds: the ideal length of a TikTok video.

Ka kite ano

Bernard