Framework to Regulate On-farm Emissions

He Waka Eke Noa: Developing NZ’s Framework to Regulate On-farm Green House Gas Emissions

Significant new climate change obligations are coming down the line for New Zealand’s primary sector, with work underway to develop a farm-level carbon reporting and pricing mechanism for the agricultural sector as an alternative to the NZ Emissions Trading Scheme (ETS).  As part of this new system, farmers and growers will soon be required to measure and report their Greenhouse Gas (GHG) emissions, and  have a plan in place to manage these on-farm GHG emissions as part of their integrated farm plan.   This work is being led by He Waka Eke Noa, the Primary Sector Climate Action Partnership (Partnership).   These changes will significantly impact farmers and growers across NZ. We take a look at the major changes below:

Who is He Waka Eke Noa, the Primary Sector Climate Action Partnership?

Formed in January 2020, the Partnership is a voluntary partnership of 12 partners[1]  from the Government, Primary Sector and Māori  to advance work on climate change action in the Primary Sector.  The role of the Partnership is: 

• To implement a framework by 2025 to reduce agricultural GHG emissions and build the agriculture sector's resilience to climate change; and
•  Empower farmers and growers to measure, manage and reduce on-farm emissions; recognise, maintain or increase integrated sequestration on farms; and adapt to a changing climate.

To achieve this, the Partnership is underway on a five year program to 2025, broken down into the following key work streams: 

1. Farm-level emissions pricing;
2. GHG emissions reporting;
3. GHG farm plans; and
4. On farm sequestration.

Key deliverable: Developing a farm-level emissions pricing scheme

The key deliverable for the Partnership is to develop an alternative farm-level carbon emissions pricing scheme to the NZ ETS which will include biogenic methane  and nitrous oxide.  Currently agriculture does not have obligations under the NZ ETS at the farm level, and biogenic methane[2] emissions are not captured under the NZ ETS. 

Current design elements

Agreed principles for the new farm-level GHG pricing mechanism include:

• The obligation for biogenic methane emission reductions are to be placed at farm level (rather than the processing level), as farmers are best placed to control emissions from their farm systems.

• Any emissions charge on nitrous oxide or methane should  only apply to the extent that those emissions are in excess of emission targets, and to the extent that there are economically viable opportunities available which can be up taken to reduce emissions.

• Farmers are able to interact with the pricing system based on a “net farm-gate point of obligation” for their businesses including offsets.  This means that their obligations are for net farm emissions, and can therefore take advantage of sequestration and reduction opportunities on their farms that are supported by science.  Sequestration of native planting and forestry on farms should be credited to that farm, therefore the system foresees that farmers will be able to take advantage of reforesting steep slopes and small marginal areas, riparian strips, shelter belts and orchards on their farms which are currently excluded from the NZ ETS, but can make significant reductions to net farm emissions. 

• It remains to be seen how this will fit with NZ’s current targets for biogenic methane emission reduction under the Zero Carbon Act which is not a net target (i.e. emissions cannot simply be offset, but must be reduced).   It might be that sequestration can be used to offset nitrous oxide or other on farm GHG emissions but not biogenic methane - this is not clear at this stage.

• The mechanism is flexible and allows for voluntary aggregation of farmers and growers for emission obligations and reporting. This would allow, for example, farmers within a catchment or association to manage their emissions, reporting and obligations collectively on a voluntary basis.  This would enable more productive farms that have less GHG abatement potential to group with farms that are more marginal and have more sequestration potential to report together.

• The system is not retrospective, minimises administration and is practical for farmers and growers, and does not duplicate requirements of other on farm policy initiatives such as for fresh water and biodiversity.

Process forward

The Ministers for Climate Change and Agriculture are required to table a report by December 2022 to Parliament, outlining a system to put a price on emissions from agricultural activities as an alternative to the NZ ETS.[3]   As a stepping stone, by early 2022 the Partnership is required to provide recommendations on the core design features of an alternative pricing system to the Climate Change Commission (Commission).  The Commission in turn is required in June 2022 to report to the Ministers on the progress made towards the milestones of the Partnership[4]  and the establishment of a farm level reporting and pricing mechanism.  The Commission’s report will also identify any barriers and further steps required to enable compliance by  the primary sector with those obligations. [5] The Partnership is currently working on its recommendations to the Commission.

Still possible for Agriculture to be brought under NZ ETS

Despite the intention for an alternative GHG emissions pricing mechanism for agriculture outside of the ETS, it is still possible for the Government to roll the agricultural sector (livestock and fertilizer) into the NZ ETS prior to 2025 if, after receiving the Commission’s Report, it considers that progress has not been sufficient.[6]   Much will depend on the Partnership’s progress and the degree of  consensus reached among the various parties.

Farm level GHG emissions reporting

As part of the package, 100% of NZ farms will need to know their total annual net farm GHG emissions by the end of 2022. [7]    The Partnership is developing an on-farm GHG calculator and reporting methodology to facilitate standardised calculation and reporting of net on-farm emissions.  This is to ensure farmers understand their GHG emissions footprint, including sources and sinks.

A system for farm-level accounting and reporting agricultural emissions at farm level is to be in use by all farms by 1 January 2025.  It is expected that the farm-level accounting and reporting system will support the new farm-level pricing mechanism and this will be implemented by 2025.

To further this work stream, the Partnership  released guidance earlier in the year to help farmers and growers measure, manage and reduce their GHG emissions, identify on-farm sequestration opportunities, and  include managing GHGs into farm planning.  For more details on current tools and guidance for estimating on-farm emissions and integrating carbon into a farm plan see https://hewakaekenoa.nz/guidance-and-tools-factsheet/

Mandatory GHG farm plans

The reporting and management mechanism for farm-level GHG emissions is a GHG farm plan, which is intended  as a module of a farm’s integrated farm plan, which would  cover reductions, offsets and adaptation. A quarter of farms are required to have a written plan in place to measure and manage their GHG emissions by 1 January 2022 and all farms are required to have a written plan in place to measure and manage their greenhouse gas emissions by 1 January 2025.[8]

On farm sequestration
Another work stream is to enable farmers and growers to identify opportunities to sequester carbon on their farms, and to be recognised for any positive on-farm carbon sequestration (both above ground biomass and in the soil).  Unless there is a registered ETS forestry project on land, these emission reductions are not caught in the current NZ GHG accounting framework.

Support for farmers
The Partnership is also developing practical measures to support farmers which includes:
• Investment in research, development and commercialisation of tools and technologies to reduce GHG emissions;
• Increasing farm advisory capacity and capability; and
• Encouraging innovation and early adoption of tools, and recognising early adopters.

Next steps

It is expected that preliminary recommendations for the pricing system, including recognising on-farm sequestration, will be shared more broadly with farmers and growers by industry partners in November this year with the Partnership to present its recommendations in March 2022.

Get involved

Given these reforms will affect all farmers and growers, it is important that they are involved and have input into in the development of the new on-farm GHG pricing mechanism and calculation methodologies.  Farmers should  ensure rules are flexible enough to allow switching of on farm activities, co-operation between farmers, and ensure that any framework for sequestration opportunities can be continually updated and expanded as new techniques are accurately accounted for and included, such as improved grazing, regenerative agriculture techniques, soil carbon, restoration of blue carbon[9] , wetland and peatland ecosystems.

Want to find out more?

If you’re interested in finding out more about changes in climate policy and how they may affect you please contact Rachael Zame or another member of the Sustainability and Climate Change team.

Latest Update:   6 May 2022

[1] Partners are Beef + Lamb New Zealand, Dairy NZ,  Federated Farmers of New Zealand, Horticulture NZ, Federation of Māori Authorities (FOMA), Ministry for the Environment (MfE), Ministry of Primary Industries (MPI), Foundation for Arable Research (FAR), Dairy Companies Association (DCANZ), Deer Industry New Zealand (DINZ), Meat Industry New Zealand (MIA), Irrigation New Zealand, and Apiculture NZ.

[2] Biogenic methane means methane gas produced from the agriculture and waste sections

[3] Climate Change Response Act 2002 (CCRA), s215, introduced by s179 of the Climate Change Response (Emissions Trading Reform) Amendment Act 2020.

[4] These are set out in Schedule 5 to the CCRA, and are the GHG reporting and accounting frameworks and farm plan requirements for the agriculture covered in this article.

[5] CCRA s 220.

[6] CCRA s219(4)(c).

[7] These obligations are set out in Schedule 5 to the CCRA.

[8] These obligations are set out in Schedule 5 to the CCRA.

[9] Blue carbon refers to mangrove, saltmarsh, sea grass and other tidally affected ecosystems. These are not currently accounted for in our National GHG inventories, however are understood to have large sequestration potential.