New Zealand must quickly come to grips with how agricultural-sourced methane and nitrous oxide are going to be managed within the ‘Zero Carbon Act’, more formally called the ‘Climate Change Response (Zero Carbon) Amendment Act 2019’. This Act brings both gases into the Emission trading Scheme (ETS) in 2025 unless an alternative charging system can be devised in the meantime.
Initially, the ETS charges will be only 5% of the full carbon charge at that time. However, the percentage will then increase at 1% of the full price each year. Initially, it will only be a few cents per kg milksolids, and a few cents per kg of sheep and beef carcass. But over time it will build up and become painful.
Given the media negativity to dairy, most people probably don’t realise that it will actually impact on sheep and beef profitability more than on dairy profitability.
In response to the situation set out in the Zero Carbon Act, a 13-sector pan-industry group called He Waka Eke Noa is beavering away, with Government encouragement, on alternatives to put back to Government. On 23 November, He Waka Eke Noa released a document setting out where their beavering has been heading.
The document is called a discussion paper. It is an interim document setting out their explorations to date. Constructive comments for improvement are welcome but they are not calling for formal submissions at this stage. The document could also be described as a testing of the waters, both with Government and the rural community.
New Zealand’s unique situation
The background is that New Zealand is in a unique situation among developed countries. New Zealand has high greenhouse gas (GHG) emissions because the export economy is underpinned by pastoral farming, with the food that is produced sold mainly to other countries. Although the food is consumed overseas, the emissions occur in New Zealand and hence it is New Zealand that gets debited with the emissions.
The emissions arise from the natural body-functions of ruminant animals. The important species in New Zealand are cattle, sheep, and to a lesser extent red deer.
Most of these ruminant animals are farmed on hill country that is unsuitable for cropping because of topography and climate. New Zealand has only small areas of flat land and much of this lacks the fertility and soil depth needed for continuous cropping. This reality is not well understood within the urban community.
Ruminant animals have a special advantage in digesting grass using specific stomach bacteria to extract the energy and make it available to the ruminant host. In the process, the bacteria produce methane which the ruminants then belch up. In contrast, if humans with different intestinal bacteria were to try a grass diet, then the humans would get a very sore stomach and quickly wither away from malnutrition.
Grass diets under New Zealand conditions tend to be high in protein and low in energy. Consequently, ruminants use most of the energy therein but excrete a considerable amounts of nitrogen. A small amount of this nitrogen then gets converted to nitrous oxide which is a particularly powerful greenhouse gas. On average, nitrous oxide lasts in the atmosphere for about 120 years. Hence even small amounts of nitrous oxide are a problem.
Both the international system and the NZ emission trading system convert all emissions to so-called ‘carbon dioxide equivalents’, with the accepted metric relating to warming potential over a 100-year period, labelled as GWP100.
The validity of this metric depends on an unstated assumption that global society has concerns as to what happens to the planet over the next 100 years, with each year of equal importance, but doesn’t care a brass razoo as to what happens thereafter.
This assumption would not matter much if all of the greenhouse gases had similar lifetimes in the atmosphere. But that is not the way that nature works. Much of the carbon dioxide and nitrous oxide will still be warming the atmosphere well beyond 100 years, whereas the short-lived methane will have long since gone.
This anomaly does not matter much for most countries, where methane is much less important than carbon dioxide as the major greenhouse gas, and where the anomaly does not have much effect on inter-country comparisons of total emissions. But it sure does matter in New Zealand.
I first wrote about this way back in 2006, with that article published in what was then called ‘Primary Industry Management’. At the time I was the only person talking about it. I took some media flak from those who were already locked into hostility towards pastoral agriculture, but in relation to industry thinking, the article was ahead of its time.
I had many other topics to work on and so it was not until 2018 that I started writing again about the importance of separating out short-lived from long-lived gases. The rural industry now increasingly understands the importance of this separation and many people are writing about it, but the urban community has yet to come on board with basic understanding.
New Zealand’s methane cloud has stabilised
The key issue with atmospheric warming from New Zealand’s methane emissions is that those emissions have been essentially static for around 20 years. Hence, with an approximate 12-year average residence time in the atmosphere, the amount of methane entering the atmosphere and the amount of methane that is leaving are approximately in balance. This means that if New Zealand continues to emit methane at the same levels, then the ‘atmospheric cloud’ of methane from New Zealand’s agricultural emissions will not increase.
This is in great contrast to the emissions from carbon dioxide where each year’s emissions pile up on top of the existing ‘atmospheric cloud’, leading to greater warming.
Whereas the GWP100 metric gives a flawed message in relation to agricultural-sourced methane, that is not the case with nitrous oxide which has a long life. Just like carbon dioxide, the ‘invisible cloud’ of nitrous oxide is building up. So, if climate change is perceived to be a problem, then nitrous oxide is also a problem.
Coming back to methane for a moment, other non-pastoral sources have been increasing around the world. A lot of those emissions come from the natural-gas industry. Some come from thawing of northern-hemisphere permafrost. But the increase is not coming from New Zealand.
Split-gas charging alternatives
At this point I return to the He Waka Eke Noa (HWEN) document setting out two alternative charging scenarios that would lie outside the ETS. Both of the HWEN proposals would have a split-gas approach appropriate for the specifics of the New Zealand situation.
The first option is a farm-based levy where each farm would need individual monitoring and auditing and be charged accordingly. This would involve lots of monitoring, plus everything associated with monitoring that farmers hate. Big farmers might be able to tolerate the amount of work but for small farmers it would be a real big burden.
The second option is that levies would be collected from processors per unit of processed product, based on average farm emissions across the industry, and then inevitably passed back to farmers via product prices. So, farmers would still end up paying for it but without the direct monitoring and auditing.
With this second option, farmers who considered their situation to be typical would have no further paperwork to do relating to methane and nitrous oxide. However, farmers who considered they were doing something specific to reduce their emissions could put in a claim together with the evidence as to what they were doing. They would then get a rebate on their product-levy payments.
A lot more work is required yet as to the specific items that would lead to farmers receiving payments for their GHG reductions. The remainder of the levy payments would then be used to fund a lot more research into GHG reduction strategies for pastoral farms. An important feature is that none of the levies would leave the agricultural sector.
Some farmers are going to say that they don’t agree with either system. Those farmers might need to reflect on the political reality that the alternative is for agricultural greenhouse gases to be included in the ETS. That is likely to be much more of a straitjacket, and the levies won’t come back to the industry. Once in the ETS, farmers will have lost control of their destiny.
Following further refinement, HWEN will be taking the proposals out to farmers in the new year before putting a formal proposal to Government. My advice to farmers would be that, if at all possible, agricultural methane and nitrous oxide issues should be kept outside of the ETS. In my opinion, the second of the two non-ETS options requires fewer dead rats to be swallowed. But my guess is that there will be plenty of venting at the farmer meetings.
*Keith Woodford was Professor of Farm Management and Agribusiness at Lincoln University for 15 years through to 2015. He is now Principal Consultant at AgriFood Systems Ltd. You can contact him directly here.