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Agribusiness News July 2022: Management Matters – Net Zero

30 June 2022

A challenging goal

The evidence is overwhelming: humans are seriously damaging the climate.  Without urgent action, life on earth will become ever more difficult, if not impossible.  While targets have been set to limit the rise in emissions driving climate change; the  tricky bit is persuading people to take the actions necessary to deliver these targets.


Target for Scottish agricultural emissions

The plan is for Scotland to be carbon neutral by 2045 – so called ‘Net Zero’.  In 2019, Scottish agriculture accounted for nearly 16% (7.5mt CO2e) of Scottish emissions with a target of reducing this by nearly a third to 5.3mt by 2032.  Although the industry cut its emissions by 13% between 1990 and 2019; it highlights the size of the task now facing Scottish farmers.  A recent Ricardo report reviewing a number of studies, highlights the difficulty in achieving the 2032 target with uncertainty of uptake of mitigation actions by farmers a key factor.  So how are other countries nudging farmers to do the right thing?


New Zealand’s polluter pays approach

New Zealand has a big problem because farming accounts for nearly half (48%) of the nation’s emissions, but it also underpins most of the country’s export earnings.  Meeting NZ’s international climate change commitment without wiping out the economy is a tough circle to square.  The agricultural industry has just presented a plan that involves taxing farmers to encourage actions that cut emissions.  The government is currently assessing whether to adopt it from 2025.  If it does not, farmers will join the whole economy Emissions Trading Scheme which will result in a higher emissions tax.

The proposal is to use a standardised carbon audit to calculate each farm’s emissions tax.  Importantly, the tax bill is based on net rather than gross emissions, so the incentive is to sequester carbon (mainly through tree planting as soil carbon is deemed stable under grazing) as well as adopt actions that minimise emissions per se (e.g., improve lamb growth rates).  The other big idea is to tax methane separately from nitrous oxide and carbon dioxide owing to its short-term nature.  At emission prices modelled for 2025, the cost will account for £5,700 (2.2% of “profit”) for South Island hill farms rising to £10,700 (5.5%) in 2030 given an assumed lift in emission prices.


Northern Ireland approach

Northern Irish agriculture accounts for 27% of the region’s total emissions with methane the most important gas thanks to the big cattle and sheep population.  A KPMG report calculated that meeting emission reduction targets could not be achieved with currently available actions, so a big cut in livestock numbers would be necessary.  So, like New Zealand, Northern Ireland is planning to treat methane differently and take sequestration into account when calculating each farm’s carbon footprint, though not by introducing an emissions tax.  Both modifications challenge the internationally agreed approach to setting emission reduction plans.


Challenging the status quo

Methane is a very potent greenhouse gas, but its warming effect only lasts around 12 years in the atmosphere.  Whereas the warming effect of nitrous oxide and carbon dioxide last hundreds of years.  If the revised warming coefficient metric GWP* were used, the drop in Scottish cattle and sheep numbers since 1990 will have lowered the industry’s warming effect by more than the current estimate.  The good news is that the IPCC now recognises the limitation in the calculation used to date, suggesting a revision is possible.  For countries where ruminant numbers have risen in recent years, however, the revision will amplify the warming impact of their ruminant livestock industries, so some will resist change.

Adopting a net approach to calculating a farm’s emissions makes practical sense.  Most farms have room to plant trees and hedgerows, so recognising sequestration will help persuade farmers do so.  The problem is that a net approach is inconsistent with how emissions are calculated at the national level.  In short, currently a farmer planting trees does not benefit the agricultural sector based on the territorial calculation used to produce the national inventory.  Resolving this inconsistency between national and farm level emissions measurement is important.  Yet even if the measurement of emissions is revised, Scottish farmers will still need to act smartly this decade to lower emissions.


Which approach will deliver?

The big question is: could the taxing (stick) approach being considered in New Zealand be more effective in driving the on-farm change needed to meet emissions targets, than the carrot approach likely to evolve here and the EU?  Lowering direct support across the EU and England will not only free up funding for on-farm climate change actions, but also allow market forces to work.  For Scotland, attaching conditions to area and coupled payments appears the preferred approach.  For Scotland, attaching conditions to area and couple payments appears likely to become the core approach.

Kev Bevan, 07368 825877

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