A 20-year stand-off with farmers over charging for emissions is about to end, with sector leaders today signalling support for a new system as soon as 2025.
But the industry is still against a more immediate proposal for processors to be hauled into the Emissions Trading Scheme (ETS), and wants Kiwis' feedback on its own one.
Agriculture now contributes around half of New Zealand's greenhouse gas emissions, largely through methane breathed and burped from livestock.
How to account or charge for that has long been a policy headache and a point of contention among farmers.
One of the newly formed Interim Climate Change Committee's first tasks was to look at how this heavyweight emitter might be brought into the ETS – something the sector, with its 20,000 to 30,000 small farm businesses, has long resisted.
But instead of dropping the industry directly into the ETS, the committee has recommended a special levy and rebate scheme, avoiding the need for farmers to trade units.
However, that scheme would still be broadly part of the ETS, and agricultural emissions covered would be part of the same decision-making process and rules for setting ETS caps.
It was estimated the average dairy farm, with a 95 per cent discount on emissions in line with other industries, at the current NZ ETS price of $25 per tonne, would incur $0.01c per kg of milk solids.
The average cost on beef production was estimated at $0.01c per kg of beef, $0.03c per kg of sheep meat, and $0.04c per kg of venison.
In the interim, the committee suggested that agricultural emissions should be priced through the ETS at a processor level, and that all fertiliser manufacturers and importers should also be fully included in the ETS to cover emissions from nitrogen.
What was collected from processors would be recycled back to farmers and growers over the next five years through a farmer-led $47 million a year fund, allowing them to set up measurement tools before 2025.
While industry leaders agreed emissions should be accounted for and priced by that deadline, they were against processors being pulled into the ETS, describing that as a broad-based tax on farmers.
"A new and blanket levy at the processor level wouldn't incentivise any on-farm changes and would be seen as farmers as a new tax, which would undermine farmers' efforts to make positive changes, especially as individual farmers wouldn't reap the benefits of any improvements they may make," Beef + Lamb New Zealand chairman Andrew Morrison said.
Farming leaders were instead offering an alternative sector-led proposal, which it would manage, to get the agricultural sector into an emissions pricing system by 2025, funded through the sector's levy organisations.
In any case, today's announcements have been lauded by all sides as a breakthrough.
"The co-operation and consensus between the farming sector and the Government is an incredibly important shift from farmers and growers on the need to tackle climate change compared to nearly 30 years ago," Agriculture Minister Damien O'Connor said.
"We are now agreed on the outcome; Government and farmers want emissions to be calculated at the farm level where farmers have the most control over how they can manage their own emissions on their property."
Climate Change Minister James Shaw said the significance of that could not be under-stated, "when you consider how things stood a few years ago".
"Of course, there is a significant amount of infrastructure that needs to get laid down across tens of thousands of farms to make that work."
Shaw said both the ICCC's and industry's options were being put out for public consultation over the next four weeks.
While he noted the ICCC had expressed doubt over the ability to implement a proposal like the industry's, by consulting on it, the Government was allowing it to be examined further.
DairyNZ chief executive Tim Mackle said the stakes were high.
"New Zealand's primary sector contributes one fifth of our GDP, generates one in 10 jobs and produces 75 per cent of our merchandise exports - we want to avoid shocks like the 80s and make any changes in a stable and considered way," he said.
"While appropriate pricing mechanisms for incentivising emissions reductions at farm level can have an important role to play in incentivising change, creating an environment that enables and supports farmers and growers to make changes on-the-ground is equally important to prepare for farm-based pricing from 2025."
DairyNZ was among a range of major sector groups behind the counter-proposal; others included Federated Farmers, Beef + Lamb New Zealand, Horticulture New Zealand, Deer Industry New Zealand and Apiculture New Zealand.
The announcement comes as DairyNZ has released its own submission to the Government's Zero Carbon Bill, calling for its proposed methane reduction range for 2050 to be reduced from 24 to 47 per cent to up to 24 per cent, and arguing that farm profits could otherwise fall by 42 per cent.
Renewables goal questioned
Meanwhile, the ICCC has also recommended the Government pick accelerating electrification of transport and process heat over its goal of making 100 per cent of electricity renewable by 2035.
The Government should set up a "clearly defined timetable" to phase out fossil fuel process heat – with coal as a priority – while reducing regulatory barriers to electrification, and forcing regulators to take emissions reductions into account, the ICCC found.
The ICCC looked at how New Zealand's level of renewable electricity might be pushed from 82 per cent today to 100 per cent by 2035, but found that this would require an over-build of infrastructure for a relatively meagre drop in emissions, and a much higher price for household electricity.
Any decisions around freshwater should also consider the value of existing hydro generation, the Interim Climate Change Committee says. Photo / File
The committee pointed out that, while electricity represented just 5 per cent of the country's greenhouse gas emissions, fossil fuels used in transport and process heat accounted for about 20 per cent.
And under the current system, the percentage of electricity was tracked to rise up to 97 per cent anyhow.
Specifically, the ICCC recommended the Government investigate the potential for pumped hydro storage to eliminate the use of fossil fuels in the electricity system.
Any decisions around freshwater should also consider the value of existing hydro generation, it found.
In transport, the Government should set a target to slash emissions by at least six metric tons of carbon dioxide equivalent (MtCO2e) in 2035 relative to today, and ensure that New Zealand didn't become a dumping ground for fossil-fuelled vehicles.
"Accelerated electrification will be a crucial step towards eliminating fossil fuel emissions in New Zealand," committee chair Dr David Prentice said.
"But to make it happen, the Government must act urgently. Every petrol or diesel vehicle imported into the country will be around for the next 10 to 20 years and a new fossil fuel boiler can last for over 40 years."
Energy Minister Megan Woods accepted the recommendations, and stated that further work, such as further storage solutions, exploring a transport emissions reduction target and revising the National Policy Statement for Renewable Electricity Generation would be investigated.
But the Government was still focused on the 2035, 100 per cent, goal – and Woods said it would be carrying out five-yearly assessments to ensure the energy "trilemma" of affordability, sustainability and security was well managed.
"A simplistic trade-off won't be needed," she said.
"We will move our country towards a zero-carbon future while keeping power prices in check for households.
"An investigation into customer electricity pricing is under way with decisions on that to be released imminently."