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Emissions reduction policy options released for agricultural and transport fuels/industrial processes sectors

July 17, 2019

Contacts

Partners Gerald Lanning, Don Holborow, Sarah Scott, Nick Wilson
Special Counsel Chris Browne
Senior Associates Joanna Lim, Victoria Anderson

Climate change (inc Zero Carbon Act and Emissions Trading Scheme) Government reform and public policy

The Government has just released some Interim Climate Change Committee (ICCC) reports (originally issued on of 30 April 2019), together with opening consultation on partner documents from the Ministry for the Environment and Ministry of Transport, which are relevant to those with emissions in two key areas: agricultural methane and transport fuels and industrial processes.[1]

These reports relate to the policy needed to achieve the targets in the Zero Carbon Bill[2], and their release indicates the Government’s readiness to consult on that policy. The key policy options, and some comments on them, are discussed below.

Agriculture

The Ministry for the Environment is now consulting[3] on a proposal aimed at establishing policies that enable the agriculture sector to start working towards the biogenic methane reduction targets in the Zero Carbon Bill - the most immediate being a 10% reduction[4] by 2030.

Here are the Government’s proposals:

From 2025:

  1. Price livestock emissions at the farm level.

  2. Price fertiliser emissions at the processor level.

In the interim:

  1. Legislate the following process to implement a price on livestock emissions at farm level:
    1. farmers pay for their emissions and can receive credit for reductions by 2025
    2. all farmers must report their emissions by 2024
    3. farmers can voluntarily report their emissions to the Government from 2023
    4. Government reports in 2022 on further details of farm-level pricing and regulatory changes needed to implement it. If the report shows farm-level pricing by 2025 is unfeasible, emissions would be priced at processor level from 2025.
       
  2. EITHER Option 1: pricing livestock and fertiliser emissions at processor level via the New Zealand Emissions Trading Scheme (NZ ETS), with:
    1. 95 per cent free allocation
    2. an action plan that sets out steps for implementing farm-level pricing
    3. recycling of funds raised back to the sector to incentivise emissions reduction and support implementation of the action plan (approximately $47 million per annum).

OR Option 2: a formal sector-government agreement including:

  1. a programme of action to support reductions in farm emissions and progress for implementing farm-level pricing
  2. industry resourcing and funding to a level necessary to implement a programme of action (including the reprioritisation of existing levy body funds of $25 million per annum over the five-year period).
  1. Investigate other opportunities and barriers for on-farm greenhouse gas mitigation:
    1. options to recognise and reward carbon removals from on-farm vegetation
    2. barriers to reducing emissions created by non-climate regulation and options to remove them
    3. how to facilitate opportunities to create new markets for low-emissions products.

Simpson Grierson comment

The proposals largely derive from ICCC recommendations and include provision for a 95% discount promised to farmers by the coalition Government.

However, it is not clear whether the “pricing” of livestock emissions in the NZ ETS would be by way of a levy and rebate system, as suggested by the ICCC, or rather would require farmers to surrender emission units (using a free allocation plus additional units they would have to buy). The ICCC considers a levy as less of an administrative burden for this large sector (similarly to the synthetic greenhouse gas sector, which also pays a levy rather than trading directly in the NZ ETS).

The consultation also includes “Option 2” for the transition to the measures to be in place from 2025. This option is for a sector-Government agreement approach to determining actions to drive emission reductions, and is preferred by some agricultural leaders. The ICCC acknowledges that its recommendation for the transitional period to 2025 (to use the ETS at livestock processor level) is a blunt tool, but considered it was preferable to an industry agreement which could be difficult to implement, distracting and costly.

Consultation on the agricultural emissions options closes on 13 August 2019.

Transport fuels and industrial processes - and the target for 100% renewable electricity by 2035

The Ministry of Transport has recently opened consultation on a proposed “clean car standard and clean car discount”.[5]

This links to the ICCC’s suggestions in its “Accelerating Electrification” report for imposing fuel economy standards on imported cars and provide for financial assistance to encourage electric vehicles.

Consultation on the “clean car” options closes on 20 August 2019.

Simpson Grierson comment

The bigger picture is the ICCC’s conclusion that although it is technically feasible to achieve 100% renewable electricity by “overbuilding”, such a solution is very costly.

The ICCC has instead investigated an “alternative future”, showing that accelerated electrification of transport and process heat “could achieve large emissions reductions while keeping electricity affordable”. Clearly, enhancing light vehicle electrification is an important step along the way.

Energy and resources Minister Dr Megan Woods is standing by the 2035 goal, but is reported as saying she won’t “die in a ditch” if the goal is not reached.[6]

Much more policy is required if a 100% renewables goal, or even the “accelerated electrification” alternative future, is to be achieved.

The ICCC has acknowledged this, recommending prioritising several other measures, in addition to vehicle electrification, including:

  • electrification of process heat (eg boilers)
  • considering a pumped hydro storage scheme
  • reducing regulatory barriers to electrification
  • valuing hydropower when making trade-off decisions relating to freshwater, and addressing regulation that actively discourages the development of windpower (eg district plans that require developments to avoid visual effects on a landscape).

The ICCC recommends that regulators be required to take the objective of reducing emissions into account in policy relevant to renewable energy (such as Government Policy Statements). This is a much stronger position than the Zero Carbon Bill takes, with its provision that the 2050 emissions targets in the Zero Carbon Bill may be taken into account when performing a public function - subject to other requirements that apply by or under law.

It is notoriously difficult to make a wholesale change that prioritises one issue in future policies, but there is clearly an appetite for climate change response policies having a greater priority and urgency than they have had.

To discuss how you are impacted by the consultations underway, please get in touch with one of our contacts.