Agricultural Option 6: Tradeable permit regime for agricultural emissions
Description
The Government would allocate a number of permits to existing industry members to cover all or some of their current greenhouse gas emissions. This is called a tradeable permit option because farmers would be free to buy or sell emission permits as they needed them.
Under a tradeable permit option, farmers would be required to meet the cost of all excess agricultural emissions estimated to have resulted from their operations. They could, for example, meet that cost by:
- Relinquishing an appropriate number of general (Kyoto compliant) emission units
- Making a cash payment based on the international price of greenhouse gas emissions at the time the payment was made
- Relinquishing an appropriate number of New Zealand agriculture-specific emission permits.
This option could be applied to all agricultural greenhouse gas emissions or just to nitrous oxide.
Advantages
The key advantage of this tradeable permit option is that it would provide a flexible means for farmers to reduce agricultural emissions in the most cost-effective way.
This option also has the benefit of:
- Allowing the Government to more easily specify and control the emission costs it will meet in a given commitment period
- Giving landowners the ability to manage future changes in the price of greenhouse gas emissions by being given or buying permits in advance of their being needed.
Disadvantages
It is difficult to accurately measure agricultural greenhouse gas emissions at the farm level. It is currently possible only to estimate emissions through proxy measures, such as the level of fertiliser use, animal numbers, and productivity. Until more accurate measurement tools are devised from research, there is a risk that a tradeable permit regime would not work as effectively for agricultural emissions as it could elsewhere.
It would be difficult to determine how to allocate emission permits. Previous experience with the allocation of emissions permits indicates that the process could be contentious and time consuming. One possible option in the dairy sector would be to allocate permits to dairy companies, which are owned by farmers.
If permits were allocated to individual farms there would be high transaction costs in estimating the emissions of approximately 40,000 farm businesses. A system of self-reporting, supported by audits, would probably be required.
Because of the time that would be needed to address these complexities, there is a high risk that a tradeable permit scheme for the agriculture sector could not be implemented before the beginning of the first Commitment Period of the Kyoto Protocol in 2008.
Implementation issues
If the Government were to proceed with the tradeable permit option, the key issues would be:
- How to administer, monitor and enforce the regime
- How to measure farm-based emissions or what proxies to use to estimate emissions
- Whether to apply permits to all agricultural greenhouse gas emissions or just to nitrous oxide
- The number of permits to allocate, and how to allocate them.
There are other implementation issues that apply equally to a tradeable permits regime for agriculture and for deforestation. These are set out in Deforestation Option 2. See page 64
Agricultural Option 7: Offset schemes for agricultural emissions
Description
Under this option, the Government would allow farmers to meet any obligations arising from growth in emissions by offsetting activities through other means. These could be either on- or off-farm. These reductions, called ‘offsets’, could include a range of activities such as planting trees, using nitrification inhibitors or improving the energy efficiency of farm operations, thereby reducing emissions from electricity generation. They could also potentially involve the purchase of emission units from other project schemes, such as the Permanent Forest Sink Initiative.
An offset scheme could be mandatory, requiring that any increase in emissions above a specified level be offset. Alternatively, an offset regime could be used in conjunction with another option, such as a tradeable permit regime, and made voluntary. In this situation farmers would be able to meet their obligations under the tradeable permits regime by providing an offset if they chose, instead of by making a cash payment or relinquishing a permit.
The Government would specify the types of activities that could be used to offset farm-based emissions, and whether they had to be undertaken by the farmer or could be sub-contracted.
Any activity to reduce emissions that was claimed as an offset would not be eligible to receive support through any other government scheme. For example, forest planting claimed as an offset would not be eligible to receive funding under, for instance, the Afforestation Grant Scheme.
Advantages
Under an offset scheme, farmers would not necessarily have to reduce their farm-based emissions. Instead, where it was more cost-effective, they could fulfil their obligations by supporting an activity that led to a reduction in emissions elsewhere.
Disadvantages
Under an offset scheme, it is very difficult to determine whether the activity being claimed as an offset is new and additional, or whether it would have occurred anyway.
An offset regime would also require the measurement of farm-based emissions, and the offsetting emission reductions would need to be registered, validated and audited. It would take time to develop suitable measurement and reporting systems.
Mandatory offset schemes are not considered as effective as tradeable permit schemes because they do not give farmers the freedom to choose lowest-cost solutions for emissions reductions.
Implementation issues
If the Government were to proceed with an offset regime for the agricultural sector, the most critical issues to be addressed would be:
- How to administer, monitor and enforce the regime
- What range of activities could be used as offsets
- Whether to require that offset activity be carried out directly by the farmer (instead of contracted out) or on land not owned by the farmer
- Ensuring that forest planting used for an offset had not been established under one of the afforestation options.
How to measure farm-based emissions, and any emission reductions provided through offset activity, in an internationally acceptable and scientifically robust way e.g. by using models[16] to estimate greenhouse gas emissions
[16] Such as Overseer – see: http://www.agresearch.co.nz/overseerweb/
Contact for Enquiries
Sustainable Land Management and Climate Change
MAF
Pastoral House
25 The Terrace
PO Box 2526, Wellington
Tel: 0800 CLIMATE (254 628)
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