Introduction to the NZETS

Introduction to the NZETS

The NZ Emissions Trading Scheme in a snapshot
Under the NZ Emissions Trading Scheme ('ETS'), industrial sectors are limited in their greenhouse gas emissions (carbon dioxide, methane and nitrous oxide) to the amount of gases backed by Emissions Trading Scheme units (NZUs) they hold. Businesses are allocated units annually by the Government in accordance with what the Government has decided is their sector's appropriate contribution towards New Zealand's overall emissions. The allocation decreases over time to encourage businesses to carry out their operations in a manner that emits fewer greenhouse gases. The business surrenders units in accordance with the emissions it calculates it has made (which it must report).  If the business wishes to emit in excess of its allocation, it needs to buy more units from another participant in the scheme who has more units that it is obliged to surrender. Alternatively the business could earn NZUs by planting trees which sequester carbon.

Agriculture and the ETS

The government and farming leaders have agreed to implement farm-level pricing of climate change emissions by 2025. The plan for doing this is included in a Ministry for the Environment consultation document based on the work of Interim Climate Change Committee (ICCC).

There are two alternative proposals being considered for how the transition to 2025 should be handled. The ICCC proposes this should be done by levying a flat carbon charge on farm products from 2020. This would involve deer farms being levied at $0.04c per kg of venison. This assumes a 95 per cent discount on emissions and a NZ ETS price of $25 per tonne.  DINZ is opposed to this.

Along with other primary industry leaders, we see this as a flat tax that won’t incentivise on-farm changes. Instead, DINZ believes the government should adopt a range of measures as outlined in The Primary Sector Climate Change Commitment, He Waka Eke Noa.

The government has welcomed this commitment from farming leaders and has put it up for public consultation, as an alternative to the ICCC proposal.  

A Ministry for the Environment discussion paper Action on agricultural emissions reflects the shared government and primary sector view that emissions should ideally be calculated at the farm level. This will enable farmers to manage emissions on their own property.

However the paper makes it clear that there is no guarantee this will happen. The tools, technology and infrastructure first need to be developed and put in place across thousands of farms. It’s a big ask.

DINZ believes that if farmers are to face carbon charges, then the system must be capable of recognising the things they might do to reduce net emissions, including the ability to offset with carbon credits earned by trees planted on the farm. Trees planted in shelter belts, riparian areas and for erosion control should all be counted. 
In the meantime, DINZ believes the fastest progress will be made by establishing the farm-based framework focused on practice change as proposed by industry leaders. This means farmers from all sectors will need to make a substantial investment in levies to research, develop and implement a 5-year programme of action, so they are ready to enter the ETS in 2025. DINZ will probably need to reallocate some of its resources and increase funding into climate-related activities, if the deer industry is to play its full part. 

The ICCC proposal was released on 16 July, as was the He Waka Eke Noa commitment by primary industry leaders. These two differing visions will now be the subject of intense debate over the next four weeks, when public feedback on them closes. 

Also on 16 July, public submissions closed on the Zero Carbon Bill, which provides the framework upon which the ICCC has based its proposal. DINZ has made a submission on the Bill alongside other primary industry groups. One of its main concerns is the inclusion in the ZCB of specific methane targets. 

Rather than enshrining arbitrary targets in legislation, DINZ would like the law based on the principle that emissions targets should be set at levels that achieve the objective of the Bill – namely, no further atmospheric warming. These targets then need to be set in a transparent way by the Climate Change Commission and be the subject of scientific peer review.

DINZ is pleased that the Zero Carbon Bill recognised that methane has quite different properties to other, long-lived greenhouse gasses.  Now we just need a more scientifically robust approach to thinking about methane reduction targets.

Further Information

The DINZ submission on the Zero Carbon Bill here >>

The combined DINZ and NZDFA submission on the discussion document "Action on agricultural emissions"  click here >>

The Primary Sector Climate Change Commitment, He Waka Eke Noa is here >>