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  • Split Gas Approach Confirmed For Emissions Pricing

Split gas approach confirmed for emissions pricing

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The Government has released its Section 215 report on agricultural emissions pricing. This report outlines a system to put a price on emissions from agricultural activities as an alternative to the New Zealand Emissions Trading Scheme (NZ ETS).

The report confirms that He Waka Eke Noa has been successful in putting the case for a farm-level split-gas levy instead of including agriculture in the NZ ETS.

FAR agrees with the other HWEN partners that the Section 215 report shows the Government is moving in the right direction on the pricing system. However, we also acknowledge that the Section 215 report is a high level, direction-setting, report which does not provide all the detail farmers and growers will need.

Read full section 215 report here.

What next?

The Section 215 report will go to Cabinet for approval in early 2023. Assuming it is approved, it will move into the Parliamentary law-making process. It is important to note that the recommendations in this report are not yet final; Cabinet could still ask for changes before signing off the report.

Key features of the proposed pricing system:

  • A farm-level split-gas levy for agricultural emissions that would price emissions from biogenic methane and nitrous oxide (including from fertiliser) separately.
  • The legal point of responsibility for reporting and paying for emissions would be GST-registered business owners who meet the emissions thresholds (equivalent to ~200 tonnes CO2-e per year).
  • Reporting could be done at either the individual farm level or via a collective.
  • It is proposed that relatively low, unique prices could be set initially for both biogenic methane and nitrous oxide based on set criteria.
  • It is proposed a price pathway for both biogenic methane and nitrous oxide would be set for five years, with a review after three years.
  • The price of nitrous oxide would be capped for the first five years at a level that the sector would be no worse off than if the sector had entered the ETS at this point.
  • Payments would be available to reward the uptake of incentives and eligible sequestration (removals).
  • The NZ ETS would be reformed and interested parties incentivised to conduct science and research to include new categories of sequestration into the New Zealand Greenhouse Gas Inventory and NZ ETS.
  • An interim approach would be taken for rewarding sequestration through a declaration-based system from 2025, followed by a transition to the NZ ETS. At the minimum, sequestration from riparian plantings and from increases in carbon from indigenous forest linked to specific management interventions will be included from 2025.
  • A sequestration strategy would be developed to determine the details of how sequestration is accounted for and rewarded within the pricing system.
  • Revenue raised from the levy would be recycled back in the system, in line with a strategy outlining spending priorities to mitigate agricultural emissions and operate the system. The strategy would include operating costs, incentive and sequestration payments, and a dedicated fund for Māori landowners.
  • Oversight of the pricing system would include the Climate Change Commission (the Commission) and an Oversight Board with representation from the agriculture sector and Māori.
  • Implementation of the pricing system could involve agencies such as the Ministry for Primary Industries, Ministry for the Environment and Inland Revenue.
  • Information requirements would be detailed in primary legislation and regulations.
  • An interim, processor-level levy would be proposed only as a transitional step if the farm-level pricing system could not be operationalised by 2025.

The proposed pricing system design will continue to be developed following Treaty of Waitangi|Te Tiriti o Waitangi (Te Tiriti) analysis and conversations with Māori, and further consideration of submissions received during public consultation.

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