New Zealand abandons plans to price farm emissions – for now

Designed as part of the sector partnership He Waka Eke Noa, the plan intended to tax agrifood producers including dairy and meat farmers based on the greenhouse gas emissions they produce.

The world-first scheme was proposed by the Labour government of then-prime minister Jacinda Ardern and was going to start rolling out from 2025 in a bid to reduce the country’s total greenhouse gas emissions.

The current government has now shelved the plans, but there’s little clarity over what comes next.

What’s the issue with New Zealand dairy’s climate impact?

According to the Ministry for Primary Industries, around 50% of New Zealand’s greenhouse gas emissions come from agriculture. Agriculture is also the source of 91% of biogenic methane emissions.

Dairy makes up around 46% of New Zealand’s ag emissions, with an average farm emitting 9.6 tons of GHG/ha/year, AgMatters data shows. Measures such as soil sequestration, manure storage and once-a-day milking can mitigate some of this impact.

But banishing enteric methane remains a challenge for farmers, in large part due to New Zealand’s pasture-based production system that’s not well-suited for the use of methane-suppressing feed additives and other technical solutions aimed at minimizing enteric fermentation in the cow’s rumen.

Why was the emissions pricing plan controversial?

Unveiling the policy in 2022, Jacinda Ardern explained the emissions pricing measures would help safeguard the country’s export growth, stating that major buyers were putting increased emphasis on environmental sustainability.

“Tesco, the biggest buyer of New Zealand products in Britain, wants all their products to be environmentally accredited and reach net zero across their entire supply chain by 2050,” she said. “And Fonterra has warned farmers it risks losing customers and facing trade barriers if it doesn’t meet sustainability expectations, prompting the co-operative to look at setting a target for reducing emissions across its supply chain.

“If we don’t establish a credible plan to reduce agriculture emissions, the future of our exports are at stake.”

But the plan was met with backlash from trade bodies​ such as the Federated Farmers, who warned that an on-farm emissions levy would price 5% of the country’s dairy farmers and 20% of sheep and beef producers out of business; this would be ‘the equivalent of the entire wine industry and half of seafood,’ the trade organization said.

Amidst growing political tensions and plummeting approval ratings, Ardern resigned in 2023.

The new National-party led government has now confirmed the ag emissions pricing policy won’t come into force from 2025. Moreover, the cabinet is opting  for ‘practical tools and technology’ to mitigate on-farm emissions.

Agriculture minister Todd McClay said the cabinet wanted to meet its climate change obligations ‘without shutting down Kiwi farms’, adding: “It doesn’t make sense to send jobs and production overseas, while less carbon-efficient countries produce the food the world needs.”

The government is also disbanding the existing sector partnership and will engage directly with levy bodies and sector organizations, including DCANZ and DairyNZ.

What is New Zealand’s new ag emissions reduction strategy?

But questions remain over when emissions pricing could kick in, and what the government is planning to safeguard agrifood exports’ sustainability credentials.

The National party-led government recently committed to investing NZ$400m (US$248m in current currency) in improving cattle breeding, developing a methane vaccine, and accelerating on-going work on methane and nitrous oxide inhibitors.

As for export, associate minister of agriculture Andrew Hoggard said that the government would ‘future-proof out export growth to ensure the success of dairy and sheep and beef farmers who produce high-quality protein which is sought after by customers all over the world’; but no specific policy measures related to that were shared at the time.

According to the National party's manifesto, the cabinet’s target is to double the value of exports in 10 years, including from agriculture; pursue free trade deals to increase access to foreign markets; and make India a strategic destination for trade and investment.

DairyNZ chair Jim van der Poel stressed that the government must offer clarity on a future pricing system.

“As a sector, we need clarity around targets and how a pricing mechanism would work with appropriate timeframes and incentives, as well as a selection of practical solutions for use on farm, before any emissions pricing system can be effective.”

Industry reaction: ‘Goodbye and good riddance’

Federated Farmers have welcomed the decision to scrap the ‘fatally flawed’ sector partnership He Waka Eke Noa saying: 'goodbye and good riddance'.

The organization's president Wayne Langford said the Labour government had been ‘too focused on pricing farmers, driving blindly towards unachievable, political, unscientific methane reduction targets’.

“There was a complete disregard for the significant and unjustifiable costs this would place on hardworking farming families and the wider New Zealand economy."

Langford added that the trade organization wanted assurances that methane targets would be reviewed, viable and cost-effective tools would be available for farmers, and no emissions leakage would occur.

“We can see those bottom lines explicitly reflected in [the] Government announcement and that gives us a lot of confidence for the future. There is a clear acknowledgement that Kiwi farmers are going to need tools and technology so we can reduce emissions without reducing our production or exports.”

DairyNZ chair Jim van der Poel added that the announcement had addressed a huge amount of uncertainty for dairy farmers.

“New Zealand’s dairy farmers are among the world’s most GHG-efficient producers of milk, and inclusion in the NZ ETS could have shifted production to less-efficient producers offshore, hurting farmers, the economy and the country. That outcome would also increase global emissions.

He acknowledged however that there weren’t any significant technologies to reduce methane emissions from pasture-based farms but added “DairyNZ continues to work alongside farmers and research partners to accelerate affordable and effective tools and technologies for reducing emissions at farm level – including testing methane-reducing compounds and delivery options for our pasture-based farms, and exploring low-emissions forages and genetics.

“We also welcome continued investment in R&D across the agriculture sector to develop new technologies – but it remains critical that a well-resourced and co-ordinated extension effort sits alongside this work.”