Agriculture and the ETS

Agriculture and the ETS There are still some policy details to be confirmed by Government, however those that have been confirmed are detailed below.

Direct agricultural emissions will not be brought into the ETS until 2015. This means that emissions from livestock (methane and nitrous oxide) will not be included in the ETS until this time, but other indirect emissions (such as emissions from fuel and electricity consumption) will be included from July 2010.

A free allocation of units (tradable units on the ETS) will be allocated to the agriculture sector in 2015. This Free allocation will be 90 per cent of the emissions at 2015 and will phase out at –1.3 per cent per annum from 2016. The baseline will be 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.

To assess the likely impact of the ETS on your farm try using our carbon calculator.

On-Farm Implications

Changes to all sectors under the Emissions Trading Scheme will have an impact on the farm, particularly if there is a forest or woodlot on the farm. However to show the impact of the recent ETS changes, a dairy farm with no forestry has been chosen. This example is based on the data in Info Sheet 9 on our articles page – (http://www.carbonfarming.org.nz/articles.html).

This analysis is done using the following inputs.

Source	Quantity	Emissions (NZU)
Petrol	1,500 litres	4
Diesel	11,000 litres	29
Electricity	62,240 kWh	14
Nitrogen	39 tonnes	221
Cows	535	1321
Heifers	260	340
	Total	1,929

Assumptions

For the purposes of free allocation this data is industry average data.

All costs associated with meeting emissions requirements for fuel, electricity and fertiliser have been passed onto the farm. This also applies to the on-farm emissions from the processor.

Table showing the application of the new ETS rules:

Cost implications

Using the data in the above example the total cost to the farm under the old ETS rules at 2030, 1929 units at a price of $25 per NZU would be $48,225 per annum. This compares with the new ETS rules of around 676 units at $25 as at 2030 would cost $17,168 per annum. This 65% reduction in costs reflects the change in emission reduction targets from 100% by 2030 to 50% by 2050.

The Ministry for the Environment has estimated at 2015 costs, at a carbon price of $25/tonne CO2-e, dairy farmers will face costs of around 2.5 cents per kilogram of milk solids. Sheep and beef farmers 6 cents and 3 cents per kg of sheep meat and beef respectively, and deer farmers around 6 cents per kilogram of venison on average.

Point of Obligation

It has been decided that the point of obligation for the agriculture sector will initially be at the processor level. This will mean that the processor will account for all emissions and the cost is likely to come directly off the price paid for the product. The intent is then to revert to an on farm point of obligation, once tools and techniques enable this to be a simple process.

The implications of the point of obligation being at the processor level mean the farmer won’t have to bother with extra paper work. However, those farmers who are proactive in investing in emission reduction technologies and techniques may not have this recognised in their carbon balance.