Climate change minister Tim Groser describes pricing agricultural carbon emissions as “utter environmental and economic madness”. The madness is his.
At the recent National Agricultural Fieldays, climate change and trade minister Tim Groser defended NZ agriculture’s exclusion from the emission trading scheme, calling any attempt to price agricultural emissions “utter environmental and economic madness”. No doubt this went down well with his audience, but it’s just another example of how out of touch with reality — and economic sanity — Groser and his cabinet colleagues have become. Here’s why.
First, some context. Agricultural greenhouse gas emissions are the biggest single sector in New Zealand’s emissions profile, making up 47% of the total. That’s unusual in international terms. The European Union’s agricultural sector, for instance, only accounts for 10% of their emissions. That disparity means that how agricultural emissions are treated has very important implications for the NZ economy.
Let’s assume for the sake of argument that at some point in the next few years the international community are going to agree on a programme of emissions reductions, a successor to the Kyoto Protocol. New Zealand will, I presume, be a good global citizen and play its part, committing to a substantial cut in emissions in coming decades. Our emissions trading scheme will play its part by placing a cost on the half of national emissions it covers. All well and good. What about the other half?
If NZ has committed to emissions cuts but excludes agriculture from the accounting, then the rest of the economy will have to make all of the emissions reductions required. This amounts to a huge, and almost certainly very expensive, economic distortion. Transport fuel and energy prices would have to rise far more than they would if agriculture were playing its part. In effect it would be a significant transfer of wealth from the rest of the economy to the agricultural sector.
That’s bad enough, but one of the key principles of putting a price on greenhouse gases is to send an economic signal — to encourage investment in emissions reductions, or to encourage businesses to adopt lower emissions pathways. In agricultural terms, this might mean slowing down or stopping the expansion of the high emissions dairy sector, shifting investment into other high value sectors that don’t carry the same carbon penalty. Without carbon pricing, the agriculture sector can continue to expand in high emissions activities, locking not just agriculture but the whole country into a higher emissions pathway, costing everyone more money in the long run.
Choosing a higher emissions pathway also increases NZ’s vulnerability to climate change. Pastoral agriculture is responsible for most emissions from the sector, and is the most vulnerable to drought. During last summer’s drought, pastoral farm incomes dropped and GDP took a substantial hit, while the nation’s grape growers basked in the sunshine and harvested a record crop in terms of both quality and quantity. If we expect droughts to become more common in future — and we do — then would it not be a good national strategy to nudge farmers away from drought-exposed crops to those that are much more resilient?
Farmers argue, of course, that if they have to pay carbon costs while their competitors in other markets do not, then they will lose business. That would be true if the carbon cost they had to bear was large, but that need not be the case. The ETS is designed to allow existing emissions to be “grandfathered” — effectively free — while new sources of emissions carry a cost. What’s important is that the price signal operates at the point where decisions on investment or best practice are made.
Nor is it fair to assume that farmers overseas are not already facing costs. In the EU, for instance, where agricultural emissions are not directly priced, emissions have nevertheless been falling. The biggest contribution to that reduction came from the introduction of a “Nitrates Directive”, a set of regulations designed to reduce and prevent water pollution by nitrates from agricultural use.
So where’s the economic and environmental madness here? With a government and climate change minister whose policies lock the country into a high emissions pathway, one that will impose high costs on the economy and make it more vulnerable to future climate changes? Or with those who advocate that agriculture play its fair part in dealing with the problem that’s going to shape all our futures?
The irony here is that New Zealand’s farmers are amongst the most efficient and adaptable in the world, and have already made great strides in reducing emissions per unit of output, as Groser pointed out in his speech. To believe that they can’t cope with a carbon constrained future and need to be featherbedded while the rest of the economy pays their bills is to treat them with contempt. If NZ’s agricultural future depends on innovation, as Groser told his Fieldays audience, then that innovation needs to be deployed in meeting the challenges of climate change and emissions reductions.