Pricing Agricultural Emissions
VIEWS FROM OUTSIDE THE APIARY: IAN FLETCHER
Few, if any, New Zealanders have the insight into global trade networks and connection to primary industry which experienced international trade negotiator and now apiculture industry advisor and horticulturalist Ian Fletcher can offer. The former top bureaucrat runs the rule over the Government’s contentious plan to price agriculture emissions with some damning conclusions and advice for improvement…
By Ian Fletcher
The Government published its ‘Pricing Agricultural Emissions’ document on 11 October. It has not been well-received. The proposals drew on the work of the He Waka Eke Noa (HWEN) partnership of primary industry groups (itself controversial), as well as input from the Climate Change Commission, and the Government’s own work.
The outline is familiar: a farm-based, split gas (ie methane separately) levy, converging over time with NZ Emission Trading Scheme (ETS) pricing. Levies could be offset by approved (by Government) mitigation technologies, or vegetative sequestration (planting trees). All to start in 2025, with an transitional processor levy (essentially a rural carbon tax) if the timing is too tight. Levies set by Ministers. A complex, semi-independent governance arrangement, and separate arrangements for Māori land and landowning arrangements, at least so far as levy distribution is concerned. And all trumpeted as a world first that will somehow make our products more attractive.
How should it be viewed? Let’s consider the substance, the process, timing, governance, and global context.
On substance, this is close to the HWEN framework. What will the impact be? There must be some impact, otherwise the scheme would not be effective. Already, there is a lot of pushback, with opponents pointing to the number of farming enterprises (and families) displaced, significant hectares lost to exotic forestry, and reduced production. The Government document repeatedly sets the goal of actual changes at farm level as its test. They want production to fall.
Farming in New Zealand is economically efficient. So production grows until the marginal cost of production is the same as marginal revenue. These proposals raise costs (that’s their intent). So at any given level of technology, production will fall, and that loss of production will be concentrated on marginal land or otherwise affect the least efficient enterprises, where marginal returns are the least. Only if we have enough market power to impose price increases on overseas consumers will production not fall – and if we had that power we would already be using it. This makes farming less profitable. And it’s all in addition to economy-wide policies like fuel taxes and road user charges.
The International Monetary Fund’s recommended approach is for countries to pursue these goals through whole-economy carbon pricing, balanced by transfers to the vulnerable, and to allow for transitions. This is at odds with the Government’s sector-specific approach – why not provide an on-ramp to a beefed-up ETS, with compensating changes in other taxes, so economy-wide price signals are clear and the result is efficient and effective (biggest emission cuts at least cost), and capable of being linked to similar schemes globally? The Government’s answer is that, firstly, they really want farmers to change (this feels a bit vindictive), and, secondly, because there’s no time to get a wider scheme right. They don’t mention the election – but a wider scheme would be a big change to the whole tax framework, which would be a target for the Opposition.
Which leads to process and timing…
On process, the HWEN partnership had potentially done a lot of the government’s heavy lifting: getting a lot of organised farming groups at least grudgingly onside (including Apiculture New Zealand). Yet, the Government seems to have blown that earlier advantage, acting as if HWEN’s work has been over-ridden. The tighter rules on sequestration and role of Ministers setting the levy rates seem to be the main targets of industry reaction, but the real point is the HWEN’s work has been devalued and set aside – ‘disrespected’ would be the teenager’s word, and that seems right. A lot of hard-earned goodwill lost. The opponents of HWEN had looked a bit shrill and marginal; now they look prophetic and like the ones with integrity. Industry groups look to have been duped.
And timing. The Government’s consultation document is breathless with urgency: good ideas or better policies are repeatedly dismissed or delayed to get a scheme started quickly. The document has a fall-back, the proposed interim processor levy. Given a fallback, why not consult properly on that, implement it calmly, and spend the time needed to get a farm-levy system right? The urgency might make sense if there was no fall-back, but it looks politically contrived and the resulting levy scheme is obviously half-baked.
Yet again (like Three Waters) a potentially workable system is to be burdened with top-heavy and over-complex, introverted governance. This is called a levy, but it’s a tax. The government will set the rate, and the consultation makes clear they will set the rate to meet emission targets. That goal is likely to override industry inputs. Over time the levy rates will converge with the ETS prices. (“If you want someone to accept the thin end of the wedge, don’t show them the thick end”, as a colleague once said).
I think the Government needs to come clean and say what the actual levy rates would be, at least for the first few years (the proposal links them to evolving ETS pricing, for non-methane gases). Otherwise farmers are asked to agree to something in principle, without the numbers to actually know what it means for them, individually. This feels manipulative. As a community we should be able to come clean with each other.
Secondly, this is a tax. It should be set by the Parliament, not Ministers. This is an arrogation of power.
What could be done better?
Sequestration is a mess. The treatment of small blocks, existing forest, shelter belts, and riparian plantings all needs clarification. This proposal will, if it works, lead to a huge increase in exotic forestry plantings. The economic, social and environmental consequences all need better consideration. But the Government should also look beyond trees. Carbon capture technologies are advancing, and we should not exclude new developments that do better than trees. The Government should not see reduced agricultural production as the only route to reduced emissions, otherwise it’s just punitive. The prospect of a future glut of forestry production has also not been considered.
The same applies to mitigations – technologies that reduce emissions within the farming system. It’s a good idea. But the Government is only funding the development of existing ideas. That seems very static. Why not fund innovation prizes for the development of better ideas, or practices?
Finally, the Government insists it’s all a world first and that others will gratefully look to our lead. I think others will gratefully take our markets as our prices rise and production falls. Others will implement their own policies, and set compensating tax adjustments in place to protect local production as far as they can (the EU has explicitly said this; there is real debate in Ireland and the Netherlands now on agricultural emissions proposals – and they won’t see New Zealand as a leader, but as a competitor). It’s naïve (at best) or disingenuous (at worst) to argue otherwise.
Overall? 4/10 - could do better; see me after class. I think the rural electorate will come to a similar view. This is an important issue, and deserves a serious process that builds consensus. Whatever the (limited, in my view) merits of the proposal, the rushed and ill-conceived process has set it all back.
Ian Fletcher is a former chief executive of the UK Patents Office, free trade negotiator with the European Commission, biosecurity expert for the Queensland government and head of New Zealand’s security agency. These days he is a commercial flower grower in the Wairarapa and consultant to the apiculture industry with NZ Beekeeping Inc and chairperson of the Manuka Honey Appellation Society.