Submissions closed yesterday on a Productivity Commission study which has the capacity to define one of the central issues for the next Government – how to deal with Climate Change.
As part of the investigation, which was commissioned by Climate Change Minister Paula Bennett back in April and is due to report in June next year.
But between now and then the Government formation talks will have to be concluded.
And climate change is likely to be an item on the agenda for most of the parties and one which could easily derail the talks.
At the heart of the Commission’s study are two huge issues – the future role that agriculture will be required to play in emissions control and the future role (if any) of the Emissions Trading Scheme.
These issues cut across current party policies.
The discussion paper is critical of the Emissions Trading Scheme.
It says OECD modelling work (based on a carbon price of $5 per tonne of CO2 over the next 15 years) suggests that the NZ ETS will only contribute towards a 0.4% reduction of gross domestic emissions and a 4.1% reduction of net domestic emissions by 2030 as compared to business-as-usual activities.
“Two-thirds of emitters in the NZ ETS considered it has did not affect reducing their emissions,” it says.
“The Ministry for the Environment’s own evaluation of the NZ ETS found it has “not significantly influenced domestic emissions or business decisions.”
The Commission looks at a number of options including direct regulation and market-based solutions like ETS but which impose a cap on the total quantity of emissions which may be allowed.
“Allowance scarcity via a cap is critical because this enables a price to be set on GHG emissions that are high enough to incentivise abatement,” it says.
But regardless, the overall conclusion is that the ETS as it stands is not working, and either substantial modification or replacement is required.
Only ACT and National are committed to the ETS as it currently stands – though, of course, it was a National Government which commissioned the Productivity Commission report.
Changing the ETS will be controversial enough but what to do about agriculture is a potentially highly divisive political issue with all the potential to derail the coalition negotiations on either side.
NZ First opposes the ETS.
It does not currently include agriculture. Labour proposes that it should.
And NZ First has a backdoor solution to deal with agriculture.
It wants a UK style Climate Change Act.
The Productivity Commission includes an evaluation of the UK Act in its discussion papers.
Essentially the Act requires the Government to have a “whole of Government approach to carbon emissions which would require it to set carbon budgets which would be met through a number of measures ranging from subsidies and government purchasing through to taxes and penalties.
This would leave the discretion of how much to include agriculture with the Government of the day.
Speaking at the Agriculture Field days this year, NZ First Leader Winston Peters said “We stand for a UK-Norway style Climate Change Act.
“Savings from no longer having to buy $1.4 billion worth of emission units off shore every year, will be redirected into R&D and adaptation in our own economy.”
But Dairy NZ, in a submission to the Commission, warned against allowing the debate to become politicised.
“Clarity is required regarding the dairy and wider agricultural industry long-term low emissions pathway and how this interlinks with the expectation on the other sectors of New Zealand’s economy,” it said.
“ This certainty must extend beyond the current three-year political cycle, climate change is a long-term issue, which requires a long-term plan.
“Political uncertainty simply creates an environment where inaction perpetuates.”
The problem, the Commission points out, is that by 2050, nearly half of all New Zealand’s greenhouse gas emissions will come from agriculture.
Even that figure is not straightforward because the emissions are a mix of the long-lived atmospheric gas, carbon dioxide and shorter-lived gases like methane and nitrous oxide.
There are some proposals to separate the two groups for ETS purposes.
It is in many ways an intractable problem which was the point Federated Farmers made in their submission.
“There are a number of potential technologies and practices that can reduce emissions, but significant emissions reductions are not currently possible without reducing production which would have significant financial impacts on farmers and wider economic impacts,” the said.
That leaves the prospect of substantial land use change which the Greens support.
Essentially this would involve turning what is now pastoral land into forestry.
The Commission says New Zealand’s forests currently sequester carbon that offsets 30% of gross GHG emissions,
“Yet, between 2000 and 2015 the area of commercial forests declined from 1.77 to 1.72 million hectares
“ In 2015 only around 2 400 hectares of new forests were planted, while over 5 400 hectares of forest land was converted to other uses.
“The Royal Society concludes that recent new forest planting rates in New Zealand have been too small to significantly offset future CO2 emissions.”
But in a submission to the Commission, the Forestry Leadership Group, which involves most of the major forestry companies, says It is pointless to even expect the forestry sector to plant new forests without addressing the issue of land prices.
“Differential treatment of agriculture under the Resource Management Act and the Climate Change Response Act inflates land prices and discourages forest investment.
“A level playing field could only be created by subsidising the forest sector to a similar extent.
“The alternative is to introduce a meaningful emissions cost to agriculture and enforce environmental legislation.
“The resulting market signals would encourage some farmers to plant woodlots, purchase land for afforestation and /or find ways to reduce emissions; and depress agricultural land prices allowing forestry to become relatively more attractive as an investment.”
Federated Farmers though say that land use flexibility, which enables land to be used to its best economic return,” has been a key factor behind New Zealand’s competitive advantage in agriculture and its impressive productivity growth compared to the rest of the economy.”
“Productivity gains have enabled emissions to fall, especially on an intensity basis, and these gains could well have been impeded if we did not have land use flexibility.”
So the Feds are cautious about any policy which would direct investment towards forestry at the expense of farming.
It would be expected that National would agree with them.
“A related bigger question that policy makers need to consider is the social and economic impacts of greater afforestation at the expense of pastoral agriculture.
“ This includes impacts on farm employment and on services to agriculture, which flows on to population and prosperity of local rural communities.”
What all this shows is that behind some of the headline policies to be debated – apparently within five days – ove the formation of Government talks, there are substantial and challenging policy decisions to be made.