Tuesday, July 16, 2019

Putting agriculture in the ETS

The Interim Climate Change Committee's report on Action on agricultural emissions: Evidence, analysis and recommendations was finally released today, and as you might guess from the title, it is recommending that we actually act, rather than let farmers keep on polluting. While the headlines are focussing on the long-term plan for a farm-level levy system in 2025, the report actually recommends that agricultural and fertiliser emissions be brought into the ETS at the processor level as soon as possible. Which is a crude way of doing it, which obviously ignores all the things individual farmers can do to reduce their emissions, but its fail-safe, in that we get a price signal ASAP, rather than allowing it to be endlessly delayed by design questions and political cold feet (which was the story of the ETS: proposed in 1995, implementation dragged out until 2008, and arguably not properly implemented yet).

So, that's the good news: the ICCC has recommended action which will see farmers at least partly paying their way from next year. They'll have enormous free allocation, of course - apparently we can't expect New Zealand's tough, independent farmers to stand on their own two feet and pay the full cost of their pollution, unlike us weak city-folk who already pay the full cost of petrol and electricity - but there will at least be a marginal price signal. And even at the producer-level, that will shift the profitability of various actions, and maybe provide Fonterra with an incentive to start pushing its farmers to adopt best-practice to minimise their bills. With fertiliser, there will be a direct incentive to use less, just as there is for petrol.

The bad news? The government's discussion document isn't committed to this, and offers a "sector-government agreement" to support on-farm behaviour change as an alternative. I wonder which one farmers will vote for? But in addition to continuing to subsidise rural pollution, this is also not fail-safe, and instead provides a strong incentive for farmers to drag out and challenge the on-farm system so they can keep getting a free ride for as long as possible. Just as they've done with local government efforts to control nitrogen pollution.

I'd suggest submitting on the discussion document, but MfE's online submisison tool - "our preferred way to receive submissions" - requires a login with no apparent way to create an account (I guess they don't actually want to hear from people after all). You can however submit by email. As for what to put in there, try this:

  • Agriculture and fertiliser should be brought into the ETS at the producer level immediately.
  • There should be no free allocation for either. Farmers should pay for 100% of their emissions, just as people pay for 100% of their emissions from petrol and electricity. If the government insists on free allocation, it should be phased down linearly over a decade at most, so that farmers eventually pay the full costs of their emissions.
  • An on-farm emissions measurement system should be developed to allow the point of obligation to eventually be moved to the farm level to reward efficient producers, but that development should not delay the imposition of a price signal.
Farmers will complain that pricing with no free allocation will cause some of them to go out of business. Good. Driving inefficient, dirty producers out of business is the point of pricing schemes. Its a feature, not a bug. And the sooner it happens, the better.