Published 5 September 2018
The Productivity Commission released its final report yesterday on transitioning to a low-emissions economy – a 620-page work which points heavily at changes to rural land use.
One side of that is more forestry, and the other is a switch from cows to horticulture & crops.
Farmers – including “Queen St farmers” (investors from downtown Auckland, not the shop) – moved strongly into dairy in the early 1990s, converting much of Southland from sheep & beef. After Graeme Hart took control of forestry company Carter Holt Harvey Ltd in 2005, he sold land & forests and, in 2010, 29 farms converted to dairy were taken to market.
Converting less productive land to forestry has the obvious downside of a long lead time to harvest, but the Productivity Commission cited evidence to show horticulture was providing better returns than dairy on some land types & locations.
The other key factor the commission cited to achieve a low-emissions economy was a switch from fossil fuels to electricity & other low-emission fuels. While the fuel factor would affect everybody, changes in rural land use would wreak fundamental revisions in rural life – products, downstream production, community lifestyles, the required skills. Into the bargain there would be questions of land price, timeframes for phasing from one product to another, and finance.
Dairy farmers have been benefiting from very high returns and would be loath to switch to a less profitable future.
How, then, might this transformation happen?
The Productivity Commission turned first to a need to change if emissions were ever to be reduced, and therefore to apparent options – forests & crops.
Afforestation “will require sustained rates of planting over the next 30 years – mostly on land currently used for sheep & beef farming – potentially at an annual rate approaching the highest ever recorded (100,000ha in 1994).
In city-dweller terms, that’s like convincing yourself the building industry will produce 10,000 new homes at the flick of a switch because they’re needed, when the sector isn’t set up to construct at such a high rate – and the builders themselves see profits in expensive homes, not at the cheap end.
Construction has steadily risen over the last 5 years, but is nowhere near a level that would satisfy politicians, and will only escalate more rapidly through the government intervention starting to be seen in the KiwiBuild programme. As in a switch of product on the nation’s farms, intervention will be required to provide the necessary expertise.
Changes to emissions pricing needed
The way forward, according to the Productivity Commission report, is through more appropriate emissions pricing – the price an emitter pays for every unit of greenhouse gas they release to the atmosphere: “Effective emissions pricing provides a strong incentive to reduce emissions at least cost and provides a clear & credible signal to investors contemplating long-term investments in new production assets that have different emissions consequences.
“New Zealand already prices emissions through the emissions trading scheme (NZ ETS). But the NZ ETS needs reform to be effective. Specifically, higher emissions prices, increased coverage across the economy, and greater clarity about the future supply of emission permits are needed.
“The inquiry’s modelling suggests that New Zealand’s emissions price will need to rise to at least $75/tonne of carbon dioxide equivalent, and possibly over $200/tonne, over the next 3 decades.
“Greenhouse gases have different atmospheric lifetimes. Some gases, such as carbon dioxide, are long-lived. They accumulate in the atmosphere so any current emissions irreversibly warm the planet. Others, such as methane, are short-lived so that the bulk of the warming effect of current emissions lasts for less than 20 years.
“All long-lived gases should be included within the NZ ETS. But biogenic methane from agriculture and waste should be treated differently. Putting biogenic methane within either a dual-cap NZ ETS or an alternative methane quota system will incentivise reductions of biogenic methane in recognition of its nature as a short-lived greenhouse gas.”
The report says New Zealand lacks clear & stable climate change policies, which has weakened incentives for change and undermined confidence in existing policies. It says the Government should establish:
- legislated & quantified long-term greenhouse gas emissions-reduction targets
- a system of successive “emissions budgets” that, separately for short- & long-lived gases, translate long-term targets into short- to medium-term reduction goals, and
- an independent climate change commission to act as the custodian of New Zealand’s climate policy & long-term climate-change objectives.
And the carrot
To encourage uptake, and catalyse the transformation to a low-emissions transport system, the report said the Government should:
- introduce a “feebate” scheme, in which importers would either pay a fee or receive a rebate, depending on the emissions intensity of the imported vehicle
- continue to provide funding for some electric vehicle infrastructure projects, to fill gaps in the charging network that are commercially unviable for the private sector
- raise awareness and promote uptake of low-emissions vehicles through leadership in procurement, and
- require imported new & used fossil-fuel vehicles to meet fleet-wide emissions standards – the report said New Zealand was one of a handful of developed countries without vehicle emissions standards, and risked becoming a dumping ground for high-emitting vehicles from other countries that are decarbonising their fleets.
Are the required rates of land-use change feasible?
The modelling suggests New Zealand can move to a low-emissions economy (ie, 25 megatonnes of net CO2e emissions by 2050) at an emissions price rising to $75-150/tonne of CO2e by 2050: “New Zealand could reach the more ambitious target of net-zero greenhouse gas emissions by 2050, with emissions prices rising to between $150-250/tonne of CO2e by 2050. While far above the current level of around $24/tonne of CO2e, these prices are comparable with the emissions prices that it is estimated will be needed in other developed countries to deliver the objectives of the Paris Agreement to limit global temperature rise to under 2˚C.”
The report poses the question of feasibility, and says it could be done – but that requires landowners to be convinced there’s benefit in switching land use.
“The transition pathways (in chapter 3 of the report) require substantial changes in land use. Forest land will need to increase by up to 2.8 million ha, with a corresponding shift out of beef & sheep farming. A smaller area of land (up to 1 million ha) may also need to shift to horticulture (including cropping). Some of the shift to horticulture will be from dairy farming. For most pathways, the shift out of pastoral farming is substantially less than the fall of roughly 3 million ha between 1990-2015. Yet a large proportion of this fall was a shift to non-farming uses, and a significant proportion was the transfer of very low intensity high-country leasehold land into the conservation estate.
“The transition pathways will require an average of between 44-90,000ha of new forests to be planted each year over the 32 years to 2050. This is far higher than the average net 18,000ha planted each year between 1990-2015. New planting did reach a brief peak of 100,000ha in 1994 and averaged around 50,000ha over the decade from 1990-2000. While planting at the modelled rates is technically feasible, availability of suitable land for planting, and profitability are key determinants of further afforestation. Models always involve some uncertainty, especially when they are extended far into the future and beyond the historic price ranges of the data on which they are based.
“The modelled increase in horticulture land (100-200% under some scenarios) is also substantially faster than the 44% (or 38,000ha) increase in horticulture land between 1990-2015. Also, while ample land suitable for horticulture is likely available, apparently profitable opportunities are not currently being taken up.
“Overall, the rates of change in land use required to move to a low-emissions economy are comparable to the rates of change New Zealand has experienced over the last 30 years. While circumstances are different, this suggests that the changes are feasible and that the rural economy will likely have the capacity to adjust positively to new opportunities as they emerge.”
The report cites one submitter, Dr Andy Reisinger, deputy director (international) of the NZ Agricultural Greenhouse Gas Research Centre, who observed several factors that might slow the uptake of promising horticultural opportunities: “On paper, horticultural enterprises appear to have higher profitability than dairying in parts of New Zealand, but horticulturalists are not buying out dairy farms in large numbers. This is likely to be influenced by hidden costs, skills barriers, infrastructure, investment costs, risks, along with more systemic influences in terms of attitudes of banks, international markets, export and training mechanisms.”
Attribution: Productivity Commission.