NZ carbon tax will damage dairy competitiveness, Fonterra warns

18-Sep-2011 - Last updated on 19-Sep-2011 at 11:22 GMT

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Dairy giant Fonterra is concerned that applying ‘carbon costs’ to New Zealand's agriculture sector will make it harder for dairy firms to compete and push production to less emission-efficient countries.

Despite affirming Fonterra’s commitment to cutting emissions, Kelvin Wickham, group director for supplier and external relations, warned the move could result in “no reduction in global emissions”.

The New Zealand Emissions Trading Scheme (ETS) aims to incentivise businesses and households to reduce greenhouse gas emissions by, effectively, taxing them.

Forestry, liquid fossil fuels, stationary energy and industrial processes industries are already taxed. New Zealand’s waste and synthetic greenhouse gas sectors will enter the scheme from 2013 and agriculture from 2015.

But Wickham said the agriculture sector was concerned about emissions attracting carbon costs, despite government measures to soften their effects.

Competitiveness hit?

Under the ETS, companies must buy so-called 'New Zealand Units' (NZUs) from the government to offset emissions, and a beneficial two-for-one arrangement is likely to apply to the agriculture sector from 2015-2017.

This will allow ETS participants to spend only 1 eligible emissions unit to offset every 2 tonnes of carbon emissions, rather than 1 tonne under the normal arrangement.

But despite this contingency, Wickham said the dairy sector remained worried: “These new costs, that will average over $4,000 [€2,406] a farm from 2017, come on top of the $7,500 [€4,511] in carbon costs on farm fuel and energy and will impact on competitiveness.”

There had been promising research into agricultural emissions mitigation, Wickham said, but he warned that there were no “ready-made, game-breaking solutions” .

Research investment was the most practical path towards cutting emissions and reducing associated carbon costs, he added.

“It would make sense if the carbon costs placed on agriculture were to be invested to accelerate the research into on-farm mitigation tools,” Wickham said.

Fonterra noted that its shareholders had contributed 23 per cent of the NZ $43m (€25.7) being invested in emissions mitigation research.

The firm’s farmers had cut per-litre emissions by around 8.5 per cent since 2003, Wickham said, and also reduced energy usage by 13.9 per cent over the period.

‘We can do more’: Fonterra

Progress to date meant Fonterra was “confident we can do more”, said Wickham, who said the firm believed a 30 per cent cut in emissions associated with each litre of milk sourced and processed in New Zealand was possible.

Achieving this goal would mean a 4.9m tonne reduction in global emissions upon a yearly basis, he added.

Assessing New Zealand’s ETS scheme in June, a government-appointed review panel (the Caygill Review) overrode industry objections to conclude that agriculture should be subject to the ETS from 2015.

“There are both short‐term and long‐term benefits to including agriculture in the ETS. In the short term, the ETS will encourage the use of existing technologies to improve productivity,” the review panel concluded.

"In the longer term, the ETS will support efforts to develop and drive the use of new abatement technologies.”

But in a savage attack on the Caygill Review, the New Zealand Climate Science Coalition rubbished government claims that the nation was aligning its emissions policy with trading partners.

Noting New Zealand’s struggle to exit economic recession, chairman Barry Brill said: “[The] USA, China, Japan, Canada and South Korea, have all considered and rejected a national ETS.

“That leaves Australia, where an electorate that voted against carbon pricing might, (or might not) have a temporary tax imposed by a single vote.”