The price of carbon starts to rise more sharply

Rural News

Guy Trafford pulls together the various strands of our developing carbon price policies as debate extends around the Climate Change Commission's draft report

11th Feb 21, 9:42am by Guy Trafford

One thing the Climate Change Commission's daft report has done is to put additional life into the price of carbon on the New Zealand Emissions Trading Scheme.

Prices have been lifting since earlier in 2020 when the Government passed the Climate Change Response (Emissions Trading Reform) Amendment Act 2020, but just when they started to slow out came the report.

The price is now at a record $39.60. Some forward contracts for 2025 are being offered at over $46. This led to doing some revision on what the current situation is for landowners.

The government set minimum price from 2021 is $20 increasing by 2% per year with a similar policy relating to the cap from a limit of $50. Currently the policy is if the cap limit is reached then more government credits will be released to ’dampen’ demand.

	2021	2022	2023	2024	2025
Cost containment reserve trigger price	$50.00	$51.00	$52.02	$53.06	$54.12

Source MFE

Back in 2019 the Commission said to reach a “low emissions” economy by 2050, the price of emissions would have to rise from around $21 to between $75 and $152 per tonne of carbon. To reach “net zero emissions” the price needed to rise even further: to between $200 and $250 a tonne.

At a similar time, Dairy co-op Fonterra projected the price of carbon to rise to between $75 and $150 a tonne by 2030. Synlait said that it had begun making decisions based on a carbon price of $40 dollars per tonne in 2023. It had not yet forecast a 2030 price.

For agriculture a price on carbon starts in 2025, currently this is set at 5% (95% free emissions). Prices will be incurred at the farm level for livestock, rather than at the earlier favoured (by governments) processor level. This will enable farmers who are better able to reduce emissions to gain the benefits. This might be achieved by faster finishing, hence less emissions, breeding from better genetics and stock-food additives to name some techniques.

Fertilisers will be assessed at the processor level who presumably pass on costs to users.

However, farmers are not able to use trees to offset any methane emissions.

The current regulations are for the Government to put a price on agricultural emissions in 2025 however, if not enough progress has been made by the end of 2022 on the implementation of the ETS programme (by the ag sector) then the government may implement their own and have prices incurred at the processor level.

Below are the supposed Programme milestones:

2020

Guidance has been developed for farmers on how to measure and manage greenhouse gas emissions through farm planning, see Greenhouse gases: farm planning guidance [He Waka Eke Noa Primary Sector Climate Action Partnership website].

During 2021

Guidance and information are widely shared through existing groups and organisations, and online.
Discussion with farmers and growers on options for understanding and recognising on-farm sequestration (long-term storage of carbon for example in trees or soil).
Discussion with farmers and growers on options for a farm-level pricing mechanism for agricultural emissions.

By the end of 2021

A quarter of farmers and growers in know their annual total of on-farm greenhouse gas emissions. In practice, this means a person responsible for farm management holds a documented annual total of on-farm greenhouse gas emissions by methods and definitions accepted by the He Waka Eke Noa Steering Group.
A quarter of farms will have a written plan in place to measure and manage their emissions.

During 2022

Recommendations are made to Ministers on the detailed design of an integrated on-farm reporting and pricing system to come into effect from 2025.

By the end of 2022

100% of farmers and growers know their annual total on-farm emissions.

By the end of 2023

A pilot project testing a system for farm-level accounting and reporting of emissions is completed.

In 2025

All farms have a written plan in place to measure and manage their greenhouse gas emissions.

The milestones for He Waka Eke Noa, as well as provisions to determine whether progress is being made, are legislated through the Climate Change Response (Emissions Trading Reform) Amendment Act.

The current target reduction for methane by 2050 is -24%; 47% of 2010 levels of around 1.2 MT.

For forestry there have been some new changes that came into place on January 1st 2021 that may have been missed by some. The changes are mostly around what penalties forest owners are liable for if they fail to “surrender or repay units on time” after deforestation or de-registration. For some forest owners this penalty could be hundreds of thousands of dollars, for forest owners with liabilities less than 25,000 units per year the unit price is capped at $30 per unit.

By my rough reckoning over a 32 year period for the southern North Island a land owner could expect to sequester (on a pruned site of Radiata) approximately 29 tonnes per year (ranging from 2.5 up to 42 per year). With current prices for the ETS at $40 and potentially getting up to $150 there is considerable opportunity, and risk, involved in registering a block in the ETS (the risk coming from the liability at harvest).

All of the above information has been published before but one of the current problems is the difficulty of tracking it all down with no one site someone can go to and get a coherent detailed outline of what is being laid out. Some of the documents from government often are lacking dates so knowing how relevant they remain adds to the uncertainty.

The latest draft report from the Climate Commission has not aided this, and I have had one query from a reader about where are the assumptions of the Commission drawn from?

In particular I was asked if I knew where they had got their “future population predictions”. While the Commission does draw on a wealth of experience, to date very little evidence is included in the document. A 1st year student wouldn’t get away producing any work without a comprehensive reference list.

Which leads to the conclusion that this basically an opinion piece shaped to meet the requirements of government. This may be adequate for the first draft but hopefully a lot more supporting science is included before this goes into law.

Dairy prices

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Source: GlobalDairyTrade and USDA

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49 Comments

by keithwoodford | 11th Feb 21, 10:32am 1612992725

"However, farmers are not able to use trees to offset any methane emissions."
This is not a problem. It would make no sense for farmers to want to use their trees in this way. Much better to take the full price for the tree credits and pay for any methane emissions given methane will receive a 95% rebate in its pricing.
KethW

by profile | 11th Feb 21, 10:49am 1612993775

More concerning that farmers are not allowed to use soil carbon to offset emissions.

"- Adaptive multi-paddock grazing can sequester large amounts of soil C.
- Emissions from the grazing system were offset completely by soil C sequestration.
- Soil C sequestration from well-managed grazing may help to mitigate climate change.

...Combined with 9.62 kg CO2-e kg Carcass Weight−1 in emissions, this resulted in a net GHG sink of −6.65 kg CO2-e kg CW−1"

https://www.sciencedirect.com/science/article/pii/S0308521X17310338?via…

by keithwoodford | 11th Feb 21, 11:06am 1612994816

Some NZ farming systems sequester carbon and some do not.
Cropping is generally depletive.
Drainage has been depletive in a big way on peat soils in parts of the Waikato.
Overall it is a mixed and complex story.

by profile | 11th Feb 21, 11:39am 1612996753

I agree soil carbon is complex but given we are betting 16%(!) of our GDP on this someone has to do the hard yards. Cropping is less than 5% of our farm land, peat far less.

Given politicians have figured out a way to use tax to solve this - "The climate system is a coupled non-linear chaotic system, and therefore the long-term prediction of future climate states is not possible." Then surely they must able to to figure out soil carbon fluxes in NZ grazing systems and give credit where due? If we are playing the carbon game we need all the cards on the table not just the politically convenient ones.

https://www.statista.com/statistics/1004753/new-zealand-land-area-used-…
https://www.ipcc.ch/site/assets/uploads/2018/03/TAR-14.pdf

by solardb | 11th Feb 21, 2:01pm 1613005314

Trees are long term, grass and crops can be changed year to year . I do think more could be done to allow (or clarify ) fodder trees , farm forestry type systems. https://www.nzffa.org.nz/farm-forestry-model/why-farm-forestry/trees-fo…

by keithwoodford | 11th Feb 21, 2:31pm 1613007119

Profile,
I have a mate who has spent most of his professional life studying soil carbon. A couple of years ago we spent several hours discussing it one night over dinner and some glasses of wine. At the end, I said to him that what he was saying was that our understanding of soil carbon is very limited. He could not argue against that. In the Mid West of the USA, where depletive cropping has been going on for more than 100 years, there is no doubt that a pasture phase will be restorative. But that does not actually get us very far ahead in the NZ context.
KeithW

by maltwix | 12th Feb 21, 9:10am 1613074254

The point being that grassland is restorative.
Listening to overseas researchers it is become clear that a healthy ecology is miserly with its losses be it methane, mineral (eg Nitrogen leaching) etc. Only degraded systems lose these potential energy sources and nutrients. If waterways are degrading then so is the land in the catchment. If the above assumption has any truth, then there is a lot we can do in the NZ context.
We have begun measuring our soil carbon as it correlates well with resilience (+ 1% soil carbon equates to 144,000 l extra water storage). Ata regenerative who are undertaking a Savory Institute Ecological outcome verification has just done our baseline measurements at 3 depths (0-10cm, 10-20 & 20-30). His comment is that results are extremely variable nationwide which would suggest that there is plenty of opportunity to sequester more.
Reading the pastoral greenhouse research page on soil carbon and listening to the climate commissioner Kieth is quite right we are ignorant of how grasslands function. Rob Carr stated that its merely the carbon content of the grass plant (obviously way smaller than a tree) that is added and respired from the soil. Actually grass plants actively pump CO2 fixed in photosynthesis into the soil as exudates to feed microbes. It is this dynamic that has created the deepest soils on the planet under prairies and savannahs. Needs diversity for microbial quorem sensing to really fly. Just ryegrass clover is not going to do it which might be the limitation of our NZ context.
The most beneficial effect which is extremely hard to measure is that of soil building. Each subsequent sample is taken from the surface downwards.

by redcows1 | 12th Feb 21, 9:34am 1613075673

Oh to have something better than ryegrass. Short rooted, drought intolerant, at times low energy and low palatability. But currently it's the best overall fit for our pasture based system. I could be very easily persuaded otherwise.
Soil tested a couple of blocks the other day. One, ash soil, appeared to have way more organic matter and moisture. The other was silt loan and relatively new with low organic matter and moisture. Point being it was easy to see on a simple level just how much potential there is for increasing soil carbon and our production and resilience.

by totara | 14th Feb 21, 9:20am 1613247636

So how much do grazing pastures actually sequester? And how much compared to the amount of carbon that was present before the native forests were burned off for pasture? Is it something like there is now 1% of the carbon present compared to what was there before, and with better soil/carbon management there would be a doubling to 2% of what was there before?

by profile | 11th Feb 21, 10:38am 1612993082

Perverse outcomes. CO2 pricing is now at the point where it is pricing out harvesting for timber. So the timber that would have displaced steel and concrete is now being abandoned like a rural primary school/community.

Parents are taking the carbon credit cash now and leaving the succession to deal with the carbon liability/useless bit of the farm.

by Palmtree08 | 11th Feb 21, 11:46am 1612997161

That's a good point about the storage worth more than the timber and possible perverse outcomes. I guess that's already the case in some areas. The price of timber has to rise to reflect this. Carbon intensive industries like steel and cement will no doubt have to rise in lockstep.

by solardb | 11th Feb 21, 12:06pm 1612998403

Only if they don't replant it . And there's no guarantee the carbon credits will rise that much in value.
Its complex , I think we are generally been a bit tough on a completely new system.

by profile | 11th Feb 21, 12:26pm 1612999563

No, it's not complex. Owners just leave the trees standing and spend the carbon credits on a new V8's, launches etc. With the carbon price where is is, in an increasing number of locations harvesting is now the less profitable option - and let's face it cashing in more valuable carbon credits is much less stressful than starting up the saws, bulldozers and annoying your neighbours with road dust and logging trucks.

by WhiskeyJack | 11th Feb 21, 12:51pm 1613001098

Not really, you can still harvest and get paid for the timber, so long as you replant - it's a normal forestry business.

by profile | 11th Feb 21, 1:00pm 1613001623

Yes, really. It's happening. Why harvest if you are going to make more money now from selling your carbon credits? Farming has been priced out, and now harvesting is being priced out as well.

by solardb | 12th Feb 21, 9:50am 1613076606

Have you tired complying with the scheme?

by Omnologo | 12th Feb 21, 1:49pm 1613090967

I thought the purpose of an emissions scheme was to value carbon as such to disincentivise C emitting activity to the point where C credits are worth nothing. Otherwise we fry ourselves off the planet.

by solardb | 12th Feb 21, 1:58pm 1613091510

yes , the irony of it is those of us that have been planting trees for years, to try and achieve these ends , are on a scale to small to qualify . Or just think , f the paperwork , just go do it .

by Palmtree08 | 11th Feb 21, 10:54am 1612994061

If farmers are storing carbon on their properties, they should be paid for it, or able to offset it. With the ETS you only get paid if you choose to sell credits. If you have trees and don't sell credits, everyone else is freeloading on the carbon you are storing on your property. Why would anyone sell credits at $35 when they may be $150 in a few years and you are forced to buy them back at $150 on harvest?

by keithwoodford | 11th Feb 21, 11:00am 1612994414

Under the averaging scheme you don't have to pay anything back but you do have to replant

by Wilco | 11th Feb 21, 11:37am 1612996648

Or - better option - not harvest at all and walk away from the farm.

by Palmtree08 | 11th Feb 21, 11:39am 1612996763

So that means the credits are only available on one cycle? I do have credits sitting in my account and it kind of annoys me they are providing a social good that's not being recognised. I'd much prefer a "stewardship" payment, that recognises I'm forgoing income on my land asset in perpetuity. I'd be happy if the trees were never removed, or maybe low impact, selectively logged.

by Wilco | 11th Feb 21, 1:18pm 1613002686

When you say only one cycle - which is correct - on a pine tree rotation of 30 years at $40 per tonne that is over $30,000 in carbon credits per hectare.

by WhiskeyJack | 11th Feb 21, 12:33pm 1612999980

$30,000

by Wilco | 11th Feb 21, 1:21pm 1613002897

Thanks WJ my maths skills didn't match my enthusiasm to contribute to a conversation on making money out of nothing . Fixed.

by Palmtree08 | 11th Feb 21, 4:59pm 1613015997

After reading your 300 000 comment, I was already planning my retirement ;-)

by Jack Lumber | 11th Feb 21, 4:06pm 1613012801

You can collect carbon ongoing but you need to commit to a permanent forest that is not harvested. If you use averaging you can harvest and not repay but you stop after a certain time - @17 years for radiata - the Crown then assumes the role of managing the credit flow. You cant have it both ways. What people dont realise is that carbon only really works on cheap land - once the land price increases above around $8 - 10k per ha you have to have a good timber story to make it work even at high carbon prices. This is a simple mathematical function of an investment with a very high front end cost. As such high value land will never appeal for carbon. In effect carbon will be on the poorest land with the most erosion. Really this is chance to sort out proper landuse in NZ in that eroding land will be forested - a lot in natives. Its a hard pill for people on that land but if we are going to reach these targets the trees have to go somewhere. In some ways they are the beneficiaries of a great windfall in the opportunity to increase returns. You can see it as a problem but I imagine a lot of them after shearing sheep at the moment would like to see something that doesn't bleed red ink.

by Hook | 11th Feb 21, 6:34pm 1613021648

A good explanation JL. Thanks for putting it in perspective

by profile | 11th Feb 21, 6:37pm 1613021835

Carbon farming only works via tax transfer. "Proper"land use that generates 3/5 of nothing and destroys rural communities? You really think carbon wouldn't be bleeding red ink if it wasn't propped up by your omnipotent climate changing cronies? Would sheep and beef be bleeding red ink if rural land prices weren't artificially inflated by the carbon rent seekers - or heaven forbid they were paid for their soil carbon sequestration? If you were producing something useful fair enough - but this government mandated construct is about as useful as a tulip bubble.

"All climate policies by the US, China, the EU and the rest of the world, implemented from the early 2000s to 2030 and sustained through the century will likely reduce global temperature rise about 0.17°C in 2100."
https://onlinelibrary.wiley.com/doi/full/10.1111/1758-5899.12295
vs
" One of the most surprising findings was that the shifts from cold stadials to the warm interstadial intervals occurred in a matter of decades, with air temperatures over Greenland rapidly warming 8 to 15°C (Huber et al. 2006).
Although the D-O climate cycles have now been found in many other climate proxy records around the globe (Voelker 2002), the reason why Earth's climate was so much more variable during the last ice age is still unknown."
https://www.nature.com/scitable/knowledge/library/abrupt-climate-change…

by Mark Hubbard 1965 | 11th Feb 21, 11:58am 1612997889

Good to know.

I have to be fully retired by end of 2024.

Date is set.

No interest in any part of accounting for all this rot.

by Carlos67 | 11th Feb 21, 12:02pm 1612998163

Is it just me or is this whole Carbon thing not just a huge crock of shit designed to make somebody rich ? New Zealand needs to bail out of this sort of thing ASAP, we are an agricultural food producer, you know the stuff that keeps you alive. Our emissions level is a joke in global terms and we are slowly, slowly backing ourselves into a corner and will get screwed with this. Start Reforestation of big areas in native bush now and say goodbye.

by youngdumbandbroke | 11th Feb 21, 12:10pm 1612998638

That's what happens when politicians think the answer to environmental problems, or any other problem for that matter, can be solved by clever accounting tricks. Shuffling cards for tokenistic, feel-good headlines. As per usual, they implement policy without properly accounting for unintended consequences. All to the detriment of the productive sectors of NZ.

by Hook | 11th Feb 21, 1:17pm 1613002668

Carlos there are already reported moves by the US, UK and the EU to apply Carbon tariffs to countries that don't have carbon accounting systems or are deemed to be laggards (think NZ) in making serious efforts to reduce their emissions. As NZ is a primary product export dependant country we are directly in the firing line of such initiatives and something we can't just ignore or walk away from.

by wee willy winkie | 12th Feb 21, 3:53pm 1613098417

Hook, the Paris Agreement calls on its signatories to reduce their emissions, but makes an exception where food security is concerned. This implies that it is acceptable for food producers to not reduce their emissions where doing so would compromise food production.

by solardb | 11th Feb 21, 12:08pm 1612998504

I'm wondering when local govt , transit , Kiwirail , the govt itself , and other large land owners(or controllers ) will start planting trees in a serious way .

by Wilco | 11th Feb 21, 1:26pm 1613003194

Our local government has been going in the opposite direction. Selling off its pine trees to pay the interest bill on its debts. I understand there is a company that includes Air NZ looking for forestry land. But this is just off set stuff - not actually fixing the problem of human's impact on the environment.

by powerdownkiwi | 11th Feb 21, 9:23pm 1613031801

off-setting is just a fudge.

We pull it out of the ground, where it's been longer than we've been around. We burn so much of it for energy - to do our work - that it's altering the habitat we evolved in. But you can't 'offset' it; the buried 'acreage' represents more surface acreage than we can divert (we're now too overshot as a species).

So Air NZ can only token/fudge - can't do it real-time. Nor can we as a society. And trying to do it via artificially tokens key-stroke issued, is like pushing your car home with a limp piece of spaghetti, drunk. The joke is that those who holler, worry about losing said artificial tokens. I'd be worried the way Churchill was circa 1936.....

by Beanie | 11th Feb 21, 12:18pm 1612999112

Something to be wary of with neighbouring farms upstream being converted to forestry.
A local farmer has had significant damage to his property from a wall of slash coming down a small stream from a recently felled foreign owned forest during a normal flood. The logs took out all the fences and destroyed culverts and his main access bridge. Despite acres of radiata slash being left behind, the forest managers have denied liability. Awesome neighbours to have.

by youngdumbandbroke | 11th Feb 21, 12:22pm 1612999353

You forgot to add all the pest plants and animals that leech out e.g. gorse, possums, blackberry etc

by Beanie | 11th Feb 21, 12:27pm 1612999670

Yep. Pigs, and lost pig dogs that have attacked his sheep.

by Hook | 11th Feb 21, 6:27pm 1613021248

That's a bit unfair. If you're referring to the Tai Rawhiti area floods, a lot of fault was laid at the local (and regional) council failure to police the consent conditions. The forest was in offshore ownership but it was local harvesting companies that ignored the basics.

by Philby | 11th Feb 21, 3:54pm 1613012094

GT “Climate Change Commission's daft report“ was that a typo or what you really think of it.

by james108 | 11th Feb 21, 5:22pm 1613017377

If my back of the envelope calculations are correct (they may not be), this has increased the price of 91 by circa 5 cents/liter. No one tell the Aucklanders.

by profile | 11th Feb 21, 5:52pm 1613019145

It's double that. Wealth transfer from the fuel user to the landed gentry - to appease the clueless suburban green.

by Hook | 11th Feb 21, 6:22pm 1613020962

Really?? Is that the best you can come up with?? Please explain how an increase in the price of fuel ( and ultimately most consumer goods) somehow translates into a wealth transfer to the landed gentry (whoever they are)
Disclaimer: I do agree with your comment about clueless suburban greenies - Auckland Central electorate would be a prime example

by profile | 11th Feb 21, 6:49pm 1613022580

Sure. The government collects $0.10/litre to fund the Emission Trading (ETS) scheme to fund climate rent seekers boondoggles. It really is that simple. If only they had a child poverty trading scheme or a basic literacy trading scheme that I could get on board with.

"ETS (approximately 10cpl)"
https://www.aa.co.nz/cars/owning-a-car/fuel-prices-and-types/how-petrol…

"The New Zealand Emissions Trading Scheme (NZ ETS) is the Government’s main tool for meeting international and domestic climate change targets."
https://www.mfe.govt.nz/ets

"The One Billion Trees Fund provides grants directly to landowners, and those with a right to plant and wanting to establish small and medium-sized forests.

Direct Grants contribute to the costs of planting trees, or of managing your land to revert to native forest."
https://www.mpi.govt.nz/forestry/funding-tree-planting-research/one-bil…

" Our landed gentry is worth $1.2 trillion

New Zealand has seen itself as an egalitarian society, but new statistics show how wealth and opportunity have diverged dramatically around the pivot of who owns property and who rents in the last 20 years."
https://www.newsroom.co.nz/2017/04/02/17747/housing

by Jack Lumber | 11th Feb 21, 7:29pm 1613024991

There is an impression that all farmers are super wealthy and creaming it. The reality is rural poverty is rife. Most hill country farmers are doing it hard as returns fall. Wool - worthless in fact a cost. Meat - not bad but still hard. The reality is we need to find new ways to improve profit or else no one will be on a lot of land. I had a farm owner 1.5 hrs from a larger NI town ring last week. He’s throwing in the towel as his farm is an “isolated, remote location” and they can’t get staff to live there. It’s only going to get worse based upon demographics.

by Hans Brink | 11th Feb 21, 9:23pm 1613031816

You are dead right JL trucking companys won't send trucks unless they will be full. Getting anyone to come out to do any job they charge the earth. Life in the back country is all cost plus.

by powerdownkiwi | 12th Feb 21, 11:35am 1613082959

There will be a 'great re-set'. Globally, there is too much debt ant not enough remaining planet. For a short while there, dumb folk shot themselves in the foot, on multiple levels. They bought shoddy cheap crap, and undermined the production of better versions from their own countries. But for the sake of a $2 plastic trinket, they turned their societies into essentially taking in each other's washing. House-prices became the only game in town. That bargain-hunting also drove down food prices (everyone shops cheaper at the supermarket) but that drove farms to biggen, merge, corporatise.

That process has just about run its course. Too much debt, not enough underwrite, no real growth (only growth in speculation on houses and shares; essentially betting in a zero-sum game. From a physics POV, cities and societies are just giant Heat Engines; The Laws of Thermodynamics and the inexorability of Entropy, apply. (An example is the 10 tons of overburden once needed to be removed - using oil at 100:1 EROEI - to get at a ton of copper. Now it's 400 tons per ton, and the EROEI is down to perhaps 17:1 (average, there's still some 100:1being pumped but next-options are perhaps 3:1). And all the infrastructure we built - never more, never older, all decaying, requires more and more of that energy too. Yet the burn is ALREADY changing our habitat - threatening to take it outside the parameters we can cope with.

We see all this, through a glass darkly - through fiat-levered, keystroke-issued debt. Which at the end of the day, is just a bet - a forward bet that there would be 'more' in the future. Well, there won't be, and worse than that we weren't mitigating our way real-time. The options are collapse, or rampant inflation (followed by collapse?) or serious war over 'what's left. Whichever way, a serious re-set is coming. What we need to be is able to supply NZ with food and energy, long-term resiliently. Forget the $ numbers, this is a 'if we don't we die'