The agriculture sector can meet its share of the nation’s Kyoto emissions reduction target at a profit. As livestock farming accounts for 49% of New Zealand’s emissions, such cuts would in turn remove about half the nation’s excess emissions, based on the Government’s current projections. Assuming a price for carbon credits of $30/tonne, that level of savings has a value of over $550 million.

These are key conclusions from a Sustainability Council report released today entitled “A Convenient Untruth”.

This level of savings can be achieved simply by abating nitrous oxide emissions in the dairy industry. While methane makes up two thirds of livestock emissions, the nitrous oxide N2O accounts for the other third.

A recently developed product known as a nitrification inhibitor can cut the majority of N2O emissions when sprayed on pasture and can also prevent the majority of nitrate runoff that pollutes waterways. Assuming all the nation’s dairy pasture were treated in this way and savings were in line with trials across the country, some 3.7 megatonnes of carbon equivalent emissions would be saved each year. That is equal to cutting around half the nation’s current emissions from electricity generation.

A further benefit offered by inhibitors, and the one that makes them profitable to apply even before considering greenhouse gas emissions, is that they generally boost pasture growth more economically than the urea fertiliser typically used now. Other emission reduction techniques can be used in combination with inhibitors to lower emissions a good deal further, and at least one of these also more than pays for itself.

The ready availability of inhibitors and other cost-effective techniques means there is no basis for exempting the dairy industry in particular from taking responsibility for its full share of emissions in excess of the 1990 levels the Kyoto Protocol targets.

Yet Fonterra states it would be unfair to expect it to account for its growth in emissions from 1990, as the taxpayer is obliged to. The industry’s business strategy is focused on growth in output so it has an incentive to reserve the emission reductions it can make to apply to that additional growth, while leaving the taxpayer to pay for its past growth since 1990. If the dairy sector were to take responsibility for its emissions growth only from 2005 (one date that has been floated), this would equate to a taxpayer subsidy on its excess emissions of between 68% and 85%. At a carbon price of about $30/tonne (well below the current EU exchange price), such an exemption would be worth at least half a billion dollars to the dairy industry. (See note below)

If the dairy industry is to further significantly expand in pursuit of commercial gain, sustainability has to be a core business requirement. That means fully pricing environmental effects such as greenhouse gas emissions and nitrate runoff for at least the additional growth. Only then will environmental costs register in the new investor’s equation, instead of being implicit subsidies.

In particular, if the Fonterra price forecast results in dairy industry expansion beyond what current projections allow for in the clear knowledge of the cost this generates under the Protocol, then the industry also pays for that emissions growth, regardless of whether it has a sufficient quantity of cost-effective savings available to cover all its additional growth.

Emission reductions available from the dairy industry are large in relative terms and can be achieved quickly. After seventeen years of targets without measures to achieve them, and a lack of time to get serious emissions reductions from many other options, the availability of a cornucopia of cheap and rapidly adoptable agricultural options is a remarkable break.

As a result, agriculture should be the first, not the last sector, to have its excess emissions priced. There is a range of ways a price can be set for 2008, including establishing a tradeable permits regime, as Government has signalled is its preference. Government can however assist the agriculture sector at no cost to the taxpayer by ramping the introduction of the obligation – so that less savings are required in earlier years than in later years.

Note: The savings potentials have been derived by integrating information available from published New Zealand research. The inputs used in the Sustainability Council’s calculations are essentially either Government projections or published research findings. The costings are drawn from published research and market prices.


Read the Sustainability Council Report: A Convenient Untruth

Postscript, 30 June: The figure of a half a billion dollars or is calculated in the report as the value of the excess emissions for the agriculture sector as a whole and while the dairy industry accounts for virtually all the additional agricultural emissions since 1990, the exemption should have referred to its value to the sector.