Carbon Farming News

Newsletter of the Carbon Farming Group

Issue 4, October 2009

Welcome to the Carbon Farming Group newsletter.

There have been some significant changes proposed for the Emissions Trading Scheme as a result of the recent review. This newsletter focuses on these changes by providing a summary and an overview of the likely impact for farmers.

Summary of proposed ETS changes

Changes to the Emissions Trading Scheme which would apply to all sectors:

• There would be a NZ$25 price cap on units for all sectors from 1 January 2008 to 31 December 2012 on the domestic market.
• All sectors would be allowed to bank their units. Banking credits is for those who have surplus credits or have purchase credits in anticipation of perceived shortages in supply or potential prices increases.
• Align phase out of industry allocation to a target of 50% reduction on 1990 levels by 2050. Previously this was 100% by 2030.
• Forestry units can be sold off-shore but units allocated to other sectors can only be traded domestically during the price cap period.

Sector specific changes

Agriculture

The agriculture sector entry date would be moved back from 1 January 2013 to 1 January 2015. This new time frame is in alignment with current policy in Australia.

Free allocation would be 90 % of the emissions at 2015 and will phase out at –1.3 % per annum from 2016. The baseline would be set using the industry average emissions per unit of output. The baselines will be linked with the emission factors for determining the obligation and are likely to be kg/meat or kg/milk solids.

The target is:

• Emissions reduction down to 50% of 1990 levels by 2050.
• Point of obligation will initially be at the processor level, not farm level.
• Voluntary reporting commencement to remain at 1 January 2011 and mandatory reporting to commence at 1 January 2012.

Forestry

The forestry sector entry date of 1 January 2008 is unchanged.

Forestry units can be exported subject to New Zealand not breaching its commitment period reserve.

Subject to New Zealand securing offsetting rules internationally, offsetting (harvesting and clearing one site, say for dairy and planting another area not previously forest into trees) would be introduced in the ETS after 2012.

The level of allocation to pre-1990 forests, to eligible landowners who purchased their forest before 1 November 2002, is fixed at 60 units per ha which remains unchanged from previous policy.

Those who have undertaken tree weed eradication will now be able to apply for a retrospective exemption for deforestation undertaken since 2008.

Industrial processes, liquid fossil fuels and stationery energy

The entry date for these sectors is 1 July 2010.

There would be a "progressive obligation" (the ability to surrender 1 unit for every 2 tonnes of emissions from 1 July 2010 until 31 December 2012). This will apply to stationary energy, liquid fossil fuels and industrial emissions.

The target is:

• Emissions reduction down to 50% of 1990 levels by 2050.

What does this mean for the agricultural sector?

A dairy case study has been completed to compare the old ETS rules with the new ETS rules and can be found on our website here.

Costs per kg of product

Initially the point of obligation would be at the processor, therefore it is assumed that the cost of compiling with the ETS legislation will be passed on from the processor to the farmer, by way of a reduction in price paid for the product. The price impact per product in the table below is an interpolation of the data provided by the Ministry for the Environment and the Ministry of Agriculture and Forestry. This shows the impact of the new ETS legislation over time, in 5 year bites until 2030. It is assumed that the price of carbon is constant at $25 per NZU.

Table showing $/kg of compiling with the ETS legislation over time

	2015	2020	2025	2030
kg milk solid	$0.027	$0.045	$0.062	$0.08
kg beef	$0.028	$0.046	$0.064	$0.08
kg lamb	$0.065	$0.11	$0.15	$0.19
kg venison	$0.099	$0.16	$0.23	$0.29

The table above shows that the impact on farming is going to be lower than expected, particularly in the early years.

Those with any amount of forest on their property will be in a strong position to offset the costs incurred by the ETS on live stock emissions and possibly earn a modest income from surplus credits.

CFG visits...

Last month, the Carbon Farming Group Trustees held their AGM at the Synlait dairy factory near Dunsandel in Canterbury. We enjoyed a tour of the state of the art factory and visited one of the company’s farms. The factory produces milk powder from farms in the mid Canterbury area. The factory produces milk powder from farms in the mid Canterbury area. Synlait own and operate 14 dairy farms totaling 5000 hectares, with 15,000 milking cows. These farms supply around 25% of the milk to the factory. The balance of milk is supplied by other local farms. There is an emerging environmental focus on both the Synlait owned farms and contract farms. There is also a strong R&D component of the factory with a second "mini dryer" being installed for small runs of milk powder production to test various new products.

Information sheets

The information sheets have proved very popular and over 2000 of these have been downloaded from our website, although there have been changes to the ETS they still remain a very good source of general information. (https://www.carbonfarming.org.nz/articles.html)

Website updates

Checkout the recent updates to the Carbon Farming Group website including:

• ETS changes summary
• ETS On-farm implications document.

If you have any questions about climate change and the rural sector, or have ideas/suggestions that you’d like to share please contact us on 0800 123 733 or [email protected]

Best Regards,

Clayton Wallwork
Carbon Farming Group
Trustee

Ministry for the Environment Emissions Trading Bulletin # 11 - http://www.mfe.govt.nz/publications/climate/emissions-trading-bulletin-11/
Projected impacts of the New Zealand Emissions Trading Scheme at the farm level http://www.maf.govt.nz/climatechange/reports/