I've been busy reading the government's new policy on Sustainable Land Management and Climate Change [PDF]. This is the other half of their climate change policy, targeting the agriculture and forestry sectors. The former is our major source of greenhouse gas emissions, responsible for 49.4% of emissions in 2004, while the latter promises the quickest way of reducing our Kyoto liabilities short of shutting down Tiwai Point (and don't think they haven't been thinking about it) - so this is an important policy.
Previous policy for the agricultural sector has revolved around shielding farmers from the cost of their emissions while funding research in the hope of finding a long-term solution. Partly this is justified - there seem to be few options for emissions reduction other than shooting cows and throwing them in a ditch. But it also causes significant distortions - paying a billion dollar a year subsidy to your dirtiest emitters does that - and undermines policy in other sectors. The good news is that this is going to change. Agricultural policy is now premised on farmers paying the cost of their emissions as technological options for reduction become available. The government believes that nitrification inhibitors now offer significant opportunities for reducing nitrous oxide emissions, so farmers are going to have to pay for them one way or another.
The report presents four ways of doing this: a tax on nitrogen-based fertiliser coupled with a subsidy for inhibitors; a tradable permit or offset trading regime covering all agricultural emissions; or regulation through the RMA. Of these, the last is clearly the "salmonella" option - something chosen to make the alternatives look good. The two trading regimes are clearly unworkable due to a lack of solid information on farm emissions (something farmers don't seem to be in any hurry to fix). So, we are likely to have a nitrogen tax and encouragement of inhibitors. This doesn't sound like much, but it’s a start, and together is expected to reduce net emissions by 2.25 megatons of CO2-e over CP1. Unfortunately as it involves them a) admitting that climate change is happening and b) taking responsibility for their pollution, I expect the farmers to go absolutely feral over it and drive another tractor up Parliament steps.
The forestry section seeks to repair some of the damage done over the past decade. When Kyoto was negotiated, we expected to be one of the big winners due to a large amount of forest cover and a high level of forest planting in the 90's. But the myopic "the market will provide" attitude of National coupled with a desire by Labour to avoid creating winners and losers has turned that potential success into a failure. Low wood prices, the dairy boom, and downright perverse policy has resulted in unacceptable levels of deforestation which threaten to impose significant costs on the taxpayer. Meanwhile, parts of the industry have pumped themselves up on tales of Kyoto gold, and are squealing for a handout.
Boy, are they disapointed. Contrary to their belief, the purpose of policy in this area is not to reward existing forest owners for having trees, or to subsidise clear-cut plantation forestry (something which has no net carbon effect whatsoever over its rotation). Rather, it is primarily to discourage deforestation. Cutting down trees without planting new ones imposes a cost on the planet and (thanks to Kyoto) on society. This is a classic example of an externality, and the classic solution is to make those responsible pay for it. And ignoring the obvious salmonella options of central direction and the RMA, this is exactly what the government intends to do. The simplest method is to apply a flat deforestation charge of $13,000 per hectare (or around 800 tons of CO2) on those who deforest without replanting. However, this can be framed as a tax, and it paints the government as the bad guy who takes money off people, so they are likely instead to go for the tradable permit option which involves forest owners giving money to each other. Besides the obvious political advantage of taking the government out of the firing line, this also can be easily expanded later to cover either afforestation (which it is currently proposing to deal with by a grants scheme similar to the Projects Mechanism) or full emissions trading, and it creates vested interests who will defend the system against future governments (yet another reason I like these systems: they use capitalism against itself). On the minus side, it is likely to involve the same endless debate around allocation methods that we have seen in the energy sector. And OTOH, the government has shown a willingness to bite the bullet and create winners and losers with this policy, which suggests they will be willing to do so around allocation as well.
One side-effect of these policy announcements is a further perverse incentive to deforest - a point highlighted by National and forest owners. This is a consequence of democracy, and it is just something we have to live with. While it would no doubt be more effective to impose policy in the dead of night with no public consultation or time to organise against it, that would make us a rather different sort of country, and not really one I want to live in.
As an interesting point, there is a large hole in policy coverage. The two most likely deforestation policies will apply only to forests planted before 1990, while the afforestation policy will apply only to those planted after 2007 (the PFSI covers exotic forests planted since 2002, and indigenous forests planted since 1990). So the "Kyoto forests" planted since 1990 do not seem to be covered at all, despite posing just as much of a potential liability to the crown as pre-Kyoto forests. I doubt this is an oversight, which suggests that there are plans to expand the policy to cover them.
As with the energy strategy, you can submit on this thing, and I suggest that everybody who wants to tackle climate change does. I think the policies are relatively solid, though I will be pointing out the gap in forestry policy and encouraging the government to extend the deforestation liability to all forests, not just those planted before 1990.