Climate Change Policy: Measures to address - Agriculture Sector GHG Emissions
2. Background
2.1 Policy background
In November 2005, officials reported to Government on a Review of Climate Change Policies. A key conclusion identified by that Review was a need to reconsider the appropriate mix of price-based, regulatory and support-based measures to achieve New Zealand's climate change policy objectives.
The policy framework under review comprised:
• A carbon charge on the transport and energy sectors;
• Projects to Reduce Emissions (the PRE mechanism);
• Exemptions from the carbon charge for:
• Large emitters whose economic viability would be at risk from the carbon charge and that entered into Negotiated Greenhouse Agreements (NGAs);o agriculture, but with government/industry co-funding of a Pastoral Greenhouse Gas Reduction Research Consortium (PGHGRR consortium).
Officials assessed this package of measures would not have been effective in:
• Reducing GHG emissions to the extent previously envisaged; nor
• Enabling New Zealand to meet its Kyoto Protocol CP1 obligations at least economic and fiscal cost.
This changed assessment, from when the policy framework was developed in 2002, appears to have stemmed from at least two factors:
• Changed economic circumstances, notably in the forestry and dairy sectors, where there has been a sharp reduction in afforestation, a shift from (lower emissions) sheep farming to (higher emissions) dairying, and, potentially, significant deforestation, in favour of dairy farming;
• Downward revisions to assessed contributions to GHG reductions from the PRE mechanism, from NGAs, and from the PGGRC (which now appear likely to make little contribution to reducing GHG emissions in CP1).
A further consideration appears to have been a concern that the carbon tax was insufficiently broadly-based to play the pivotal role envisaged for emissions’ pricing. Exemptions for agriculture, which contributes 50 per cent of New Zealand’s GHG emissions, and for NGA emitters, which contribute a further 20 per cent, meant that only about 30 per cent of total emissions would have been subject to the carbon tax. Loading those remaining emissions with a carbon charge potentially would have caused ignificant economic distortion.
Looking ahead, the Review concluded that in a situation where New Zealand has binding emissions targets, the more closely a domestic GHG emissions charge approximates the international price of emissions, the less rationale there is for additional regulatory or supporting measures in the sectors of the economy subject to the charge. The Review also pointed to four strategic options for going forward:
• A low level broad-based charge, implemented in the near future, and gradually increased over time;
• A broad-based charge at the world price, with targeted re-cycling of revenue (eg, energy efficiency, structural adjustment);
• Deferral of any decision on a price-based measure;
• A charge on (individual) large industrial emitters that do not meet (ie, are worse than) world-best practice emissions intensity. In December 2005, in response to the officials’ Review, Cabinet, inter alia:
• Agreed that the government will not introduce the current carbon tax model or any other broad-based greenhouse tax before the end of the first Kyoto commitment period (2012), but noted that this would not preclude putting in place a more narrowly based tax on large emitters if that was deemed appropriate (nor, implicitly, from moving to a broad-based pricing regime after 2012);
• Noted that a programme of work was required to provide further analysis to inform government decisions in the light of the Review, and would include work on land-use and the links between forestry and agriculture policies and on the treatment and reduction of agricultural emissions including research. (The Review had noted on agriculture that cost-effective emission reduction options were currently limited and were likely to remain so, at least over the next decade, and that the price measures that appeared most feasible and practical during CP1 were a tax or other controls on nitrogen fertilizers and/or incentives for the uptake of technologies to reduce emissions.)
2.2 Agriculture emissions
The main sources of GHG emissions from agriculture are illustrated in table 1 and figure 2 (reproduced from section 1.2).
Table 1: Agriculture emissions3
| Emission category |
1990 | 2004 | 2010 (estimate) | CP1 emissions> 1990 level | ||||
|---|---|---|---|---|---|---|---|---|
| MtCO2 | $m | MtCO2 | $m | MtC02 | $m | MtC02 | $m | |
| Enteric methane | 22.2 | 355.2 | 23.7 | 355.5 | 26.0 | 390.0 | 19.0 | 285.0 |
| Nitrous oxide | 10.0 | 150.0 | 12.3 | 184.5 | 13.8 | 207.0 | 19.0 | 285.0 |
| Total | 32.2 | 505.2 | 36.0 | 576.0 | 39.8 | 597.0 | 38.0 | 570.0 |
3 The data in this table are taken from inventory calculations for 2004, whereas those shown on figure 1 are for 2003. Hence some of the data do not exactly correspond. All $ amounts in Table 1 are based on a CO2 price of $15 per tonne.
Methane emissions
Methane emissions are generated from the process by which cellulose plant matter is digested by ruminant Live stock; mainly cattle, sheep, and deer. Currently no animal technologies or farm management practices to materially reduce methane emissions from these livestock are available, although improvements in animal genetics have resulted in improved livestock productivity, which is reflected in a trend decline in emissions per unit of output (milk solids, meat). That is, enteric methane emissions have been growing less rapidly than output, as output per head of livestock has increased, and this trend is expected to continue. Longer term, there is potential for the rate of growth of enteric methane emissions to be slowed further, through adoption of more specific methane emission-reducing animal technologies, but these remain at a very early and uncertain stage of development. Nitrogen emissions The main sources of N2O emissions (with quantities, measured in the equivalent Mt CO2, 003 inventory data, in parentheses):
• Livestock (10.6 Mt): Nitrogen taken from the atmosphere into plant matter by way of the nitrogen fixing process and from nitrogen fertilizer is recycled back the soil as livestock excrement, mainly in urine deposits. The urine interacts with soil to form nitrates, which volatilize from within the soil and from water bodies into which the nitrates have leached. (The nitrate formation process is muted considerably, however, if the urine is spread over a large area of pasture, rather than being deposited in concentrated patches.)
• Nitrogen fertilizer. This generates N2O emissions as the result of:
• Volatisation of the fertilizer on application (0.2 Mt );
• Volatisation of nitrates formed directly from the interaction of the fertilizer with soil compounds, in essentially the same way as urine deposits generate N20 emissions (1.8 Mt); and
• The additional pasture growth promoted by nitrogen fertilizers, and hence additional N20 emissions via increased livestock urine deposits, as above (0.3Mt).
In New Zealand’s GHG inventory, N2O emissions attributable to nitrogen fertilizer exclude those from the livestock excrement that can be traced back to the additional pasture growth promoted by fertilizer; these instead are counted as livestock-attributed N2O emissions. One way to think about nitrogen fertilizer emissions is as the N20 that would be emitted if nitrogen fertilizer was spread on pasture that is, and remains, un-stocked.
N2O emissions can be reduced by breaking the nitrogen cycle at a number of points (identified in figure 2). These are by:
• Reducing application of nitrogen fertilizer;
• Reducing stocking rates and hence excrement deposits;
• Increasing application of nitrification inhibitors.
Nitrification inhibitors are products that reduce the extent to which both fertilizer and animal excrement form soil nitrates and hence N2O emissions from both within the soil and from nitrates leached into water bodies. Moreover, they increase the production efficiency of the nitrogen cycle, with more nitrogen being available for, and hence taken up in, pasture growth. Also, to some extent, nitrification inhibitors, besides contributing to emission reductions, can additionally serve as a substitute for nitrogen fertilizer, and in this way make a dual contribution to emission reduction goals.
Nitrification inhibitors come in two forms, either as a coating to nitrogen fertilizer, or as a separate product (eco-nTM , manufactured by Ravensdown Co-operative Fertilizer Company Ltd) which is applied in a fine suspension form. The latter appears to have greater, or at least more established, N2O emission mitigation properties, although neither is yet recognized as having such properties for GHG inventory calculation purposes.
Reducing rates of application of nitrogen fertilizer similarly contributes to emission reduction goals in two ways. Emissions attributable to the fertilizer itself are reduced, as are livestock-attributed emissions, of N2O and methane, owing to the reduced pasture growth. The lower level of livestock-attributed emissions, however, is achieved only at the expense of less livestock production.
The third means to reduce N2O emissions is directly to reduce stocking rates, but that too, of course, results in less production.
2.3 Policy objectives
A prerequisite for the design of any policy is clear definition of policy objective(s). With respect to agriculture emissions, a number of – overlapping and complementary, but not identical – objectives can be identified. These include:
• An absolute emissions reduction objective, that is, achieving a specified reduction in emissions in New Zealand, as a contribution to the global climate stabilization objective in its own right.
• A qualified emissions reduction objective, that is, achieving emission reductions in New Zealand but subject to the cost of that not exceeding the cost of purchasing emission credits abroad (that is, paying for emission reductions abroad rather than in New Zealand). This objective dovetails with the Kyoto Protocol framework, which has been designed to enable global emission reduction targets to be achieved wherever they can be achieved at least economic cost.
• A strategic ‘national interest’ objective, in effect, positioning New Zealand to best advantage for post-CP1 Kyoto Protocol negotiations. Alternative general classes of policy instrument for achieving emission reductions, including at least economic cost, are outlined in section 3 below. The broader strategic context is discussed next.
Strategic considerations
The strategic context for maximizing New Zealand’s national interests in relation to climate change policy has at least two, inter-related, elements.
First, New Zealand has a strong interest in an effective international response to climate change, given the potential costs of climate change to New Zealand and given that, as a small economy, there is next to nothing New Zealand itself can do to avoid those costs (even if New Zealand was to totally eliminate its GHG emissions, that would make virtually no difference to the climate facing New Zealand).
We also have a strong interest in seeking to ensure that the international response does not result in the imposition, directly or indirectly, of an undue burden on New Zealand.
Managing uncertainty
Another complicating factor is uncertainty. Leaving aside the scientific uncertainties – which now appear to be more about when and by how much, rather then whether, GHG emissions will result in climate change – the international policy environment is highly uncertain. To be sure, a policy framework for CP1 is in place, but there remain uncertainties about how it will be applied. These and other uncertainties, in turn, cloud the outlook both for the evolution of emission credit prices and for the development of the markets in which those emission credits are expected to be traded. Faced with these uncertainties, short-term policy needs to be sufficiently flexible to leave open a range of options for the future and, in particular, avoid locking-in what could turn out to be high-cost policy interventions.
Co-benefits
Related to, but different from, climate change policy objectives are concerns about water quality, particularly in ‘sensitive’ catchments, and soil conservation in erosion-prone hill-country regions. These environmental issues overlap with climate change policy objectives, although by no means completely. The main overlaps are with respect to soil nitrates, which are both a GHG emissions source and a water contaminant, and with respect to land-use choices for hill country, where livestock farming can contribute both to emissions and erosion, while afforestation helps on both fronts. For the purposes of this paper, the main co-benefit of interest is that relating to water quality. This corresponds with its primary focus on N2O emissions. But also to be noted is that nitrate leaching is only one of the sources of contamination to water bodies, the principal others being phosphate and microbial contamination, neither of which are linked to GHG emissions. Also, water quality objectives have a strong regional, of not local dimension, whereas the focus of climate change policy is national if not global. These overlaps of climate change and water quality objectives give rise to policy opportunities and risks. The opportunities arise from the potential to capture co-benefits – to ‘kill two birds with one stone’. Risks arise because policy objectives can end up becoming muddled and hence compromised. It is unusual for a single policy instrument designed and calibrated for one purpose also adequately to meet the needs of another, different, purpose. For example, it is possible that certain policy instruments could be effective in meeting Kyoto obligations at least economic cost, but fall well short of achieving the reduction in nitrate leaching required to meet water quality objectives. A general principle in policy design is that there should be at least as many policy instruments as there are objectives.
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