It is “more likely than not” agriculture will join the scheme during the term of this Government, Climate Change Minister James Shaw said.
But the sector will be given a free allocation of units equivalent to 95% of its emissions to “soften the landing”.
Previous governments have exempted agriculture from the ETS while scientific answers to address greenhouse gas emissions were sought but farmers have paid the ETS tax on inputs such as energy.
Shaw said there are still decisions to be made on whether the costs of agricultural emissions will be calculated on production or stocking rate intensity and whether farmers or processors will pay.
Actual costs depend on variables such as the price of carbon but the proposal would see farmers accountable for two million of the 40 million tonnes of carbon dioxide equivalent emitted by the sector annually.
At the current carbon price of $22 a tonne, information provided by his office put the cost to farms at $44 million a year or $1500 a year for an average dairy farm and $700 for an average sheep and beef farm.
How and where the charge will be collected is still to be determined. While, ideally, it should be on individual farms, technically that was not yet possible, he said.
Adding agriculture to the ETS was part of broader Government policy to make New Zealand a net zero emitting economy by 2050 and, as part of that, an interim Climate Change Commission will be appointed in April or May ahead of a permanent commission a year later.
It will be formed with the passing of the Zero Carbon Act next year.
Public consultation on the Act will begin later this year and Shaw said the commission will be based on a similar structure in Britain that provides its government with independent advice on climate change policy.
It would be made up of scientists and economists rather than industry representatives.
“If it is led by a combination of scientists and economists – experts in their field – people will look and see clearly they are not making ideological decisions. It takes some of the heat out of it,” Shaw said.
While the commission will decide if agriculture joins the ETS, Shaw said it was always intended the sector be included.
“If the recommendation is that it does join the ETS it would initially have a 95% free allocation (of units) and any revenue generated from the 5% would be ploughed back into agriculture to aid the transition.”
Emissions per unit of agricultural production have fallen since 1990 but research to reduce emissions had not found a silver bullet.
The Parliamentary Commissioner for the Environment found that even if all six areas of research yielded results and were fully implemented, NZ would still fall short of meeting its international carbon reduction commitments.
“There is a gap there and we’ve got to address that gap but clearly changing technology, changing science, changing production and onfarm management practices are all things that are already making a difference and will continue to do so in the future.
“It is not as simple as livestock reduction and I think that needs to be made clear.”
Reducing greenhouse gases has to be viewed as an investment, not a cost that can never be recovered, and he believes research can make NZ a leader with technology it can sell to the rest of the world “should we crack that nut”.
Allocations to the Sustainable Farming Fund and similar independent bodies will be increased to help farmers transition to lower carbon emissions management systems.
Farming and businesses need certainty with climate change policies, Shaw said..
