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EXECUTIVE SUMMARY

IMPACT OF GHG POLICIES ON AGRICULTURE

Objectives
  1. The objectives of this study are: firstly, to assess the impact of the Government's Greenhouse Gas (GHG) policies on New Zealand agriculture, and secondly, to make recommendations on a strategic policy stance on GHGs that could be adopted by MAF.
  2. The GHGs considered in this study are C02 and methane. The third GHG of particular significance in agriculture is nitrous oxide, but although this is a strong GHG, little is known about its sources. Furthermore while atmospheric methane has increased 2.5-fold in 200 years, nitrous oxide has increased by only 10% and so is presumed to be less influenced by human activities. For this reason it is not appropriate to consider nitrous oxide in relation to current policy.
Government Policies on GHGs
  1. Subsequent to the Rio Earth Summit. the Minister for the Environment released a press statement containing a series of policies relating to New Zealand's commitment to reducing net emissions of GHGs. These policies fell into four groups:
Group I Actions already committed
  Further actions to be investigated
  Work to increase C02 absorbtion
Group II Proposed actions
Group III Least cost measures
Group IV Monitoring of progress towards C02 goals
  1. Groups I and II contained the so-called 'no regrets' policies. It is expected that adoption of these policies would have net economic benefit or zero cost to the New Zealand economy. The policies are aimed mainly at increasing the efficiency of energy use. As a result of implementing these policies it is expected that there would he 15% lower C02 emissions in the year 2000 compared to 'business as usual'. This would mean that emissions of C02 in the year 2000 would be constrained to around 1990 levels.
  2. Group III 'least cost' measures were aimed at investigating policies, including taxes and incentives, that would impose possible costs, as yet undetermined, on the New Zealand economy. It was estimated by the Ministry for the Environment (MfE) that adoption of the policies including Group III could reduce emissions of C02 by around 35% of 2000 levels compared to business as usual. This would result in a 20% reduction in emissions compared to levels in 1990.
  3. While current Government policy has addressed only C02 reduction targets (15% and 35%), this report anticipates similar reduction targets for total GHG emissions (ie. C02 plus the global warming potential of methane).

REVIEW OF NZ AND IPCC SCENARIOS FOR GHG EMISSIONS

New Zealand GHG Impacts in World Context
  1. Direct emissions of C02 from the agricultural sector are low and New Zealand is no exception in this regard. Emissions of methane and nitrous oxide by agriculture are much more significant from a greenhouse effect perspective.
  2. New Zealand has relatively low C02 emissions for our energy intensity, but high methane emissions due to high livestock numbers (on a per capita basis), thus nationally we have one of the highest ratios of methane to C02 emissions.
Direct Implications of Physical Climate Change for New Zealand Agriculture
  1. The impact of changes due to trends in physical climate prior to 2025 will be comparable to year to year variability currently experienced. This means that the possible change in climate due to the GHG phenomenon is expected to be within the normal climate variation currently experienced. The production balance between different regions in New Zealand is more likely to change than our total production.
  2. Other countries will experience larger changes in agricultural productivity as a result of climate change than New Zealand, thus the strongest impact on New Zealand is likely to be through shifts in actual and potential markets.
International Policy Issues
  1. The main political pressure to act on climate change in the short term will come through compilation and publication of GHG emission inventories, broken down by economic sectors.
  2. New Zealand is free to choose its own approach to limiting GHG emissions, the only external pressure being that these should be seen to be effective. There is still a debate over the relative merits of "emission taxes" or "tradeable emission permits" both nationally and internationally.
  3. New Zealand should anticipate international agreement on a methodology for combining emissions of different GHGs to arrive at a total greenhouse forcing figure for each economic sector, including agriculture. This will weight methane emissions about 15 to 20 times more heavily than emissions of the same mass of CO2.
  4. There may become an international market in greenhouse gas emission quotas which will provide export potential for greenhouse gas "sinks" particularly to heavily industrialised countries.

COSTS AND BENEFITS TO AGRICULTURE

  1. The analysis of the GHG problem is one of quantifying a public externality (social cost) over time under conditions of uncertainty. Two policy instruments which show promise for introduction as a means of reducing emissions are emission taxes and absorbtion credits. However. it will be some time before there can be any degree of confidence that implementation of such instruments will result in an increase in net social benefit. Particular issues that should be considered in a comprehensive analysis are covered in Sections 3.1-3.4 and Appendix 11.
  2. As far as policy is concerned in New Zealand, only 'no regrets' measures have been approved for implementation to date. Measures that could result in net social costs are under study, but the implementation of such measures is not expected before international agreement is reached. This is likely to be a number of years away.
  3. The major impacts on agriculture of possible policies to reduce GHG emissions are expected to fall into four main areas.
Cost Increases from Energy Taxes
  1. Increased costs of production resulting from energy taxes. An energy tax on liquid fuels, equivalent to a 10% increase in liquid fuel costs, would impose direct initial first and second round cost increases on farmers of between 1-3% of farm working expenses. When upstream and downstream costs are passed on the impact would be considerably higher.
  2. Such a tax could only be entertained on the basis that there was global implementation. Structural adjustment would not be expected at the 10% level but, at higher levels this may be an issue. It is difficult to assess the impact in the medium to long term because global adjustment could change world demand and supply factors considerably. 35% of 2000 levels compared to business as usual. This would result in a 20% reduction in emissions compared to levels in 1990.

SOCIAL AND ENVIRONMENTAL IMPACTS

  1. As far as the rural sector is concerned, there are no policies which contain mandatory measures that will cause any noticeable social or environmental effects on farmers, rural communities or the agricultural industry at the national level.
  2. At the local level, it could be expected that those farmers who take up the option to participate in the East Coast Forestry Project are likely to be significantly affected. Where forestry is a new component of the activities conducted on the farm, it may have implications such as, the introduction of casual labour, slightly less stock numbers, more intensive stocking on the lowlands and the acquisition of knowledge concerning the management of trees.
  3. It is important to recognise that the ultimate decision to plant plantation forests under the auspices of the project is one of choice, and not compulsion. Therefore, it could be expected that the effects of implementing this policy are perceived to be for the overall 'good' of the farm.
  4. It can be safely assumed that there will be other external factors which will have far greater impacts on rural New Zealand than the actions that could eventuate from the implementation of this particular set of policies (for example, the outcome of the Gatt talks, contamination of food produce, dumping by another country, and seasonal production fluctuations experienced by our trading competitors or catastrophic climatic events, such as Cyclone Bola, the East Coast droughts or the 1992 snow storms).
  5. However, in the event that the effects of GHG emissions become more evident in the next few years, then these policies could look rather tame compared with the type of actions that New Zealand may be forced to take if the Rest of the World should enter into a more stringent round of emission reduction measures.

AGRICULTURAL METHANE EMISSIONS

Methane Emissions from Livestock
  1. Out of a total New Zealand methane emission of about 1.5 Mt/year, some 80% are produced by New Zealand's ruminant livestock; only about 5% are naturally produced emissions. Of the ruminant emissions, 58% are from sheep and lambs, 28% from beef cattle, 18% from dairy cattle.
Methane in Terms of CO2 Equivalents
  1. Every kg of methane emitted is equivalent to about 11 kg CO2 as far as its greenhouse effect accumulated over the ensuing 100 years is concerned. This estimate ignores indirect effects which will increase the C02-equivalent emission by an unknown amount. Consequently emissions of CO2 by New Zealand agriculture can be ignored compared to methane and other sources of CO2.
Options for Reducing Methane Emissions
  1. The best prospects for decreasing ruminant emissions without a decline in agricultural production lie in improving nutritional performance. The most promising avenue would seem to be in improving pastures and pasture management, enough even this is limited in New Zealand compared with Australia which has much larger areas of poor grazing land. Selecting animals for methane efficiency, with the goal of sustaining productivity from a smaller national herd/flock is a long term aim.
  2. Increased methane emissions can be mitigated by increased afforestation. About 17 ha of grazed farmland is offset by each ha of new forestation in terms of the GHG balance. Planting pine trees on pasture may well have no net economic cost or at least be a relatively low-cost option for as long as farmland remains available for forestation.
Future Monitoring and Data Requirements
  1. Direct field measurements of on-the-farm emissions would be desirable, not only to validate emission estimates which assume the representativeness of sparse nutritional studies, but also to track the effectiveness of future methane -reducing strategies.
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