Implications of global emission policy scenarios for domestic agriculture: a New Zealand case study

Abstract

Agricultural GHG mitigation policies are important if ambitious climate change goals are to be achieved, and have the potential to significantly lower global mitigation costs [Reisinger, A., Havlik, P., Riahi, K., van Vliet, O., Obersteiner, M., & Herrero, M. (2013). Implications of alternative metrics for global mitigation costs and greenhouse gas emissions from agriculture. Climatic Change, 117, 677–690]. In the post-Paris world of ‘nationally determined contributions’ to mitigation, the prospects for agricultural mitigation policies may rest on whether they are in the national economic interest of large agricultural producers. New Zealand is a major exporter of livestock products; this article uses New Zealand as a case study to consider the policy implications of three global policy scenarios at the global, national and farm levels. Building on global modelling, a model dairy farm and a model sheep and beef farm are used to estimate the changes in profit when agricultural emissions are priced and mitigated globally or not, and priced domestically or not, in 2020. Related to these scenarios is the metric or GHG exchange rate. Most livestock emissions are non-CO₂, with methane being particularly sensitive to the choice of metric. The results provide evidence that farm profitability is more sensitive to differing international policy scenarios than national economic welfare. The impact of the choice of metric is not as great as the impact of whether other countries mitigate agricultural emissions or not. Livestock farmers do best when agricultural emissions are not priced, as livestock commodity prices rise significantly due to competition for land from forestry. However, efficient farmers may still see a rise in profitability when agricultural emissions are fully priced worldwide.

Policy relevance

Exempting agricultural emissions from mitigation significantly increases the costs of limiting warming to 2 °C, placing the burden on other sectors. However, there may be a large impact on farmers if agricultural emissions are priced domestically when other countries are not doing the same. The impacts of global and national climate policies on farmers need to be better understood in order for climate policies to be politically sustainable. Transitional assistance that is not linked to emission levels could help, as long as the incentives to mitigate are maintained. In the long run, efficient farmers may benefit from climate policy; international efforts should focus on mitigation options and effective domestic policy development, rather than on metrics.

Keywords:

• agricultural emissions
• economic impact
• methane
• metrics
• mitigation costs
• nitrous oxide

Acknowledgements

A huge thank you to Hugh McDonald for his direction and assistance throughout, and to Andy Reisinger and Adolf Stroombergen for their very helpful comments during the drafting process. Thanks also to the anonymous reviewers, whose extensive comments were extremely useful in greatly improving the paper. This work was done during an internship at Motu as part of the ‘Coordination and Cooperation for Effective Climate Policy Design and Implementation’ programme funded by the Ministry for Primary Industries Sustainable Land Management and Climate Change Fund. All opinions, errors and omissions are the responsibility of the authors.

Disclosure statement

No potential conflict of interest was reported by the authors.

ORCiD

Zack Dorner http://orcid.org/0000-0003-4216-6714

Notes

1 Using 100-yr fixed GWP.

2 New Zealand's official target for 2020 is 5% below 1990 levels. Its Intended Nationally Determined Contribution is equivalent to net emissions that are 11% below 1990 gross emissions by 2020.

3 This transitional assistance policy was originally proposed under the NZ Emissions Trading Scheme (NZETS) as no other countries were pricing agricultural emissions. Agriculture was scheduled to enter the NZETS in 2015 with a 10% liability on their emissions, increasing by 1.3% per year. Current policy is to include agriculture when farms can be reasonably expected to mitigate, and trading partners make more progress on mitigation in general.

4 Details of these prices in NZ$ amounts are given in Stroombergen and Reisinger (2012), which are derived from Reisinger et al. (2013).

5 RGNDI measures NZ's income from all sources (domestic and offshore investments) minus income flowing overseas. Overseas income flows includes the purchase of international emission units if NZ's net emissions exceed the national mitigation target. It also includes any changes in NZ's terms of trade.

6 Stroombergen and Reisinger (2012) assume a 10% liability in 2015 for NZ's agricultural emissions, increasing by 1.3% per year, and unpriced in Scenario 3. As the assumption is the same across Scenarios 1 and 2 (and will increase costs at a national level through lowered economic efficiency) it should have no material impact in terms of interpreting the results for the purposes of this paper.

7 In terms of RGNDI, it is still better for NZ to price agricultural emissions in Scenario 2 as this is more economically efficient when faced with liability for all emissions.

Additional information

Funding

This work was supported by the New Zealand Ministry for Primary Industries Sustainable Land Management and Climate Change Fund under the ‘Coordination and Cooperation for Effective Climate Policy Design and Implementation’ grant.