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The New Zealand Emissions Trading Scheme – information for farmers and landowners

How you can lower your energy costs and reduce greenhouse gas emissions.

“The ETS gives incentives to plant trees, replace thermal with renewable energy and invest in energy efficiency so we can do our share to cut emissions.”

Hon Dr Nick Smith – Minister for Climate Change Issues

What is the problem?

The burning of fossil fuels and clearing of forests is changing the chemical composition of the atmosphere. CO₂ levels are 35 per cent higher than they were before industrialisation. If the current rate of increase continues, we could see a doubling by 2050. Other gases like methane and nitrous oxide from agriculture are also increasing in concentration.

Source: UK Department of Energy and Climate Change

Scientists’ concern is that these greenhouse gases will raise global temperatures, increase sea levels and lead to more extreme weather events. The risk to future generations justifies action now to curb our growth in emissions.

Why should New Zealand curb its emissions?

Eighty per cent of the increased concentration in these gases has come from 20 per cent of the world’s population in developed countries like New Zealand. Our emissions are small globally (0.2 per cent) but are the 12th highest per capita at 18 tonnes of CO₂ equivalent.

How does our ETS relate to the Kyoto Protocol?

The Kyoto Protocol is a United Nations agreement aimed at reducing global emissions. It requires that the 38 developed countries like us take the first steps to reduce our emissions for the period 2008 to 2012. While most countries have to cut emissions, our target requires us to stabilise our emissions at 1990 levels. New Zealand’s emissions today are 23 per cent above our 1990 levels, mainly due to growth in transport and electricity emissions. This is one of the highest increases in the developed world.

Why is acting now in New Zealand’s interests?

New Zealand brands itself as clean and green. We put this reputation and our market access at risk if we do not do our share. The world is on a path to reduce emissions and at some point we are going to have to adapt. The sooner we start, the easier the transition.

How does an ETS work?

The scheme requires businesses who emit (like fuel and power companies) to buy units from businesses which have cut emissions or can store carbon (like foresters).

On 1 July 2010 the energy sectors enter the ETS. This means there will be a price on carbon in petrol, diesel, gas, coal and electricity and this price will pass through to all consumers, including farmers. Amendments to the ETS last year halved these price increases to around 1 cent/kWh for electricity, 3.1 cents/litre for petrol and 3.3 cents/litre for diesel. Also on 1 July 2010 the industrial sectors enter the ETS. This will impose additional costs on all processors.

The Government deferred agricultural emissions coming into the scheme until 2015 and has said this will only occur if our trading partners make progress. From 1 July 2010 MAF estimates the impact of the ETS on an average dairy farm will be $3335 per year, and for the average beef and sheep farm, $1183 per year. Some cost will also fall on processors although they may get an allocation of emission units where the costs significantly impact their international competitiveness.

What can I do to reduce the impact?

You can offset some or all of your emissions by planting trees on your least productive land. For an average dairy farm 6 ha of Pinus radiata will offset the cost of the ETS from 1 July 2010 to 31 December 2012.

Energy efficiency and technology upgrades will reduce on-farm consumption and the cost of emissions. It also makes sense to shop around fuel and electricity suppliers to obtain the most competitive price.

Are there liabilities for changing land use from forestry?

Yes, if forest was planted prior to 1990. There is no liability for normal harvesting and replanting except when the land use is changed. Exemptions can be applied for areas less than 50 ha planted prior to 1990. Forest planted after 1990 carries a liability for normal harvesting if the forest owner has opted in to the ETS and received emission units. However, the liability is capped at the value of units received.

Who receives the money?

Forest owners and some businesses with allocations that have invested in renewable energy or carbon-efficient technology will have units they can sell. This includes farmers who plant trees and enter the scheme.

What is the difference between the ETS and a carbon tax?

The ETS puts a market-based price on carbon and is designed to be cost-neutral over time. It is not a tax because it doesn’t raise revenue for the Government. Transactions in the ETS occur in the market between willing buyers and sellers. The price is set by supply and demand just like any commodity market. A carbon tax has a predetermined price level and all revenue goes to the Government which then decides how it is spent.

Are there alternatives to an ETS?

Other options might be to regulate allowable emission levels, mandate the introduction of new technologies or introduce large-scale public funding. Some countries have hybrid schemes with an ETS covering some emissions and a carbon tax imposed on others.

These options require the Government to decide what to regulate and how, which winners to pick and what carbon price will achieve the desired reductions in emissions.

A transparent price for carbon gives some certainty as to the level of liability a business faces. This allows businesses to make their own decisions regarding future investment and the ability to seize new market opportunities.

Are there signs the ETS is working?

Yes. Planted forest area switched from a loss to a gain in 2009.

Source: Ministry of Agriculture and Forestry and Ministry for the Environment

Investment in renewable power is increasing.

Source: Ministry of Economic Development and Electricity Commission

Investment in forestry and electricity is long term. Businesses need certainty to make that investment and the ETS will provide this.

Will the ETS reduce emissions?

Yes. It will reduce emissions by an estimated 19 million tonnes by 2012 and, with forest plantings, will enable New Zealand to meet its Kyoto target. Without the ETS New Zealand may exceed its Kyoto target by 11 million tonnes.

Is New Zealand’s ETS leading the world?

No. Twenty-nine developed countries have introduced an ETS before us. Most started in 2005 and their schemes cover more of their emissions than New Zealand’s will in 2010.

The only area the Government is seeking to lead the world is in its work with the Global Research Alliance on agricultural greenhouse gases.

The world faces the challenge of feeding an additional 3 billion people while not increasing agricultural emissions. This is very significant for New Zealand with agriculture accounting for 48 per cent of our greenhouse gas emissions.

New Zealand launched the initiative at Copenhagen in December 2009 and committed NZ$45 million to it. We won the support of 22 countries including the United States (US$90 million over five years) and Canada (CAD$27 million over four years). Many more countries have now joined and more are likely to do so.

Are changes to the ETS planned in future?

The legislation requires a review in 2011, and regularly thereafter, to enable the scheme to be refined in response to progress internationally and the latest science. The Government has said that moving from a half to full obligation and adding additional sectors is conditional on our major trading partners making progress.

Farmers act now to secure their future

Case study

“If we’ve got a property where we can plant some trees we should be doing that now.”

South Taranaki farmer Shelley Dew-Hopkins will be one of the many farmers who will have to meet the additional costs of the Emissions Trading Scheme from 1 July 2010. Shelley Dew-Hopkins, a former Federated Farmers provincial president, and her husband Ian Hopkins, own a mixed dairy, deer, sheep, beef and cropping farm in the Waverley area.

Shelley and Ian have investigated a number of energy-efficiency measures for their business. They are also planting trees and have applied for regional council funding.

“A lot of farmers aren’t even thinking about tree planting yet, but we’ve got a great opportunity right now with the Afforestation Grant Scheme. If we’ve got a property where we can plant some trees we should be doing that now.”

“The time is right for farmers to look at making their shearing and cow sheds more efficient by lining vats and hot water cylinders, improving pumps and using solar panels where possible. There are other opportunities to generate power on the farm from water, solar and wind.”

For more information go to the MAF website: www.maf.govt.nz/sustainable-forestry/

Are there financial incentives to plant trees?

Planting your less productive land into forest – indigenous, exotic or both – has economic opportunities: by sequestering (storing) carbon in newly planted forest, you could be eligible for emissions units. Each hectare of trees on average could earn $575 per year that could go towards offsetting increases in on-farm costs.

To earn emission units, you must register in the ETS. Participation is voluntary. To be eligible for the ETS, the forest must be a minimum area of 1 hectare, a minimum average width of 30 metres, a forest species capable of growing to five metres plus, and established after 31 December 1989.

Forest carbon stocks increase over time, then decrease at harvest. The longer you leave your trees to grow, the greater the volume of carbon sequestered and the greater the return on investment.

You will need to surrender units when you harvest. You can stagger your planting to help manage any liability from loss of carbon through harvesting or damage.

Other financial incentives to plant forests include the Permanent Forest Sink Initiative and the Afforestation Grant Scheme.

As a landowner, you don’t have to join any scheme to plant trees on your property – you may plant independently.

See www.maf.govt.nz/sustainable-forestry and www.carbonfarming.org.nz.

What can I do to cut emissions and save money?

To reduce costs and emissions:

Commission an energy audit to identify areas where you can reduce energy use. www.eecabusiness.govt.nz
Save on fuel by improving driving habits and planning journeys. When it’s time to upgrade, choose a more fuel-efficient vehicle. www.fuelsaver.govt.nz
Reduce hot water use and improve irrigation efficiency – heating hot water is the largest energy cost in a dairy shed; for irrigation focus on soil moisture, monitor water use and target pump performance. www.maf.govt.nz
Use renewable technologies like solar water heating and solar panels, mini wind turbines, biogas and mini hydro energy to generate energy. www.eecabusiness.govt.nz/renewable-energy