He Waka Eke Noa (HWEN ) is a proposed pricing scheme for livestock emissions.
This is a four-part series explaining the big four mistakes it makes and what it needs to do to fix these.
Part 1 HWEN misunderstands the science of methane in particular what net zero methane means
Part 2 HWEN works on the premise that farmers have to pay for methane emissions without examining alternatives
Part 3 HWEN does not allow for the IPCC scenario the Government adopted to set its emission reduction targets which does not require nitrous oxide to reduce in the manner HWEN does
Part 4 HWEN promotes its pricing scheme as better for farmers than the ETS and that either the ETS or HWEN are needed to satisfy overseas markets. HWEN’s conclusions are questionable and we examine these.
Part 4(a) Is the ETS option worse for farmers than HWEN?
The short answer is no one knows. The details of HWEN are too sketchy at this stage and the future settings of the ETS are unknown.
What we do know is that both would cost farmers a considerable amount of money and have a significant impact on profitability.
The indications are that HWEN expects the ETS cost and HWEN cost to be similar in the short term and the ETS to become more expensive over time as the price of carbon rises. However, without knowing who is controlling the price farmers pay under HWEN and what limitations they face this is speculation.
The one difference between the schemes is that the money farmers pay in HWEN is recycled back to farmers who claim credits for stands of vegetation that are currently not eligible under the ETS. Fruit growing enterprises get a credit as well. Unfortunately, most of the money farmers pay goes to administer the scheme but the rest, if there is any, will go to Dairy NZ and Beef and Lamb and others for research work etc. The money farmers pay in the ETS on the other hand just goes to a forester or the Government and while some might be channelled in to benefit farmers with research this is not certain.
The ETS has a major flaw in that it uses the CO2 equivalent system which denies the scientific reality of the cyclical nature of methane emissions, and HWEN should be better for farmers because it takes a split gas approach but while HWEN makes a big deal about its split gas system, at no time do the HWEN proposals take into account that most methane emissions are at net zero and not causing warming.
The previous posts in this series all highlight the lack of scientific rigour that has been applied in the design of HWEN. It works under a split gas approach but completely fails to grasp the basic science behind it. HWEN therefore is working on the premise that all livestock emissions are polluting and causing a catastrophic climate crisis and the only way to address this is for farmers to plant their gullies in some sort of scrub. Consequently, farmers will benefit financially by getting some money back if they can plant some gullies or have some bush and while that is a good thing in terms of recognising the contribution to the climate these activities have, they come at a cost. The cost is that farmers will pay huge amounts of money each year and possibly get a little bit back in a scheme they supposedly agreed to which means giving up the ground we have clawed back over many years from the methane misinformation that has polluted the mindset of our politicians and the public and more importantly consumers. Farmers will find it harder to say they got it wrong about methane, because they will be in a scheme they agreed to.
FARM has no opinion as to whether farmers would be better off in the ETS. That is a political decision for farmers. Our job is to point out that they are both disastrous for farmers, for science and for the climate. What we do want to point out is that farmers should not accept HWEN because they think the ETS will be worse without deciding that for themselves.
If farmers are placed in to the ETS, as is threatened by the Government if they do not agree to HWEN, they will receive a 95% free allocation of these bullshit carbon units. Some media have described this as a sweetheart deal. What this media forgets is that all emission intense trade exposed industry received a free allocation on entering the ETS of 90% with a two for one surrender deal. That equates to a 95% free allocation. The two for one deal is now gone but the 90% free allocation remained until it started to reduce by 1% per year last year.
The big flaw both HWEN and the ETS have is that farmers will pay whether they reduce emissions or not. There is no incentive to reduce emissions on an individual farm basis. As long as the penalty for each unit of production is lower than the net income from that unit there is no incentive to reduce production to reduce emissions. Emissions will only reduce if and when HWEN or the ETS make particular farms uneconomical, and they go out of production.
The ETS provides protection for farmers that HWEN does not because the price of emissions in HWEN will possibly be heavily influenced by the Government with only farmer resistance to temper it, whereas the price of carbon in the ETS will be set by the market as well as the Government. There are limits to how high the carbon price can go because the ETS is designed to reduce emissions by transferring the ability to emit carbon from the poor to the rich, as the price of carbon climbs. There will always be a limit to how high the carbon price will go because of the devastation the ETS will bring upon the poor. If one wanted to design a scheme that will increase inequality and poverty the ETS would be hard to beat, so it has limitations. We have just seen the Government cut the fuel tax because the political pressure on them to alleviate the hardship high fuel prices brought was too much. What will happen when the carbon price reaches the $250 per tonne the Climate Commission expects it to? The price of fuel will be through the roof. The Government thinks that we are going to transition to a low carbon economy by slowly reducing the amount of carbon allowed to be emitted, but as we have just witnessed, as the devastation to the poor becomes more apparent the Government will cave and release more carbon units to lower the price. In short in HWEN farmers are on their own, the price if it is determined by the Government can just be put up and up until enough farmers have gone out of business to lower emissions by what they want. The ETS price on the other hand cannot be increased without devastating the poor which provides some protection for farmers as increases in the price of carbon will be limited.
In addition, the ETS may even benefit farmers depending on how the free allocation is handled. Currently all emission intense trade exposed industry got a free allocation of 90% of their emissions when they entered the ETS. Some have since reduced their emissions one way or another and they are now emitting less than 90% of their original emissions. They still receive their original allocation so that means they receive more emissions in free allocations than they need to surrender and so they are able to sell some of them.
If the ETS free allocation for farmers is handled in the same way, given the expected drop in emissions caused by other environmental regulations, once emissions have dropped by 5% farmers will soon be receiving more in allocation than they emit. The 95% allocation may not be based on historical emissions and will reduce by 1% per year mind you so don’t count on a windfall, but don’t count on having to pay a whole lot either. It depends on how the free allocation is set up and should farmers go in the ETS our industry leaders should be advocating hard for the same deal other industry gets at least.
In addition, if farmers are in the ETS they will have to be in the carbon market and if they act collectively, they should be able to outbid industries that are smaller than the combined agricultural industry of NZ for credits, forcing them to close? Carbon trading can be profitable and forcing New Zealand’s biggest industry into it, might be sufficient to disrupt it so much it collapses. Let’s hope.
All this is pure speculation on our part, and we are not giving any advice on which scheme is better. What we do want to say is that both HWEN and the ETS are undesirable outcomes for farmers. HWEN may be able to be improved in time under a different government and the ETS may not be as bad as the promoters of HWEN say it will be. None of this is known. One thing farmers should not do is accept HWEN because it is better than the ETS. Not enough is known about ether scheme to make that call yet.
Next week part b of part 4 will deal with the claim by HWEN that overseas markets demand some sort of scheme like HWEN.