Climate change and New Zealand farming

[Address to Federated Farmers national council meeting on climate change]

Thank you for the opportunity to speak here today.

It’s very important that we improve the quality of the dialogue between the Government and the farming sector over climate change.

The Government is being accused of rushing to ratify the Kyoto Protocol early, without properly considering the impacts. I want to intrude some facts into the debate.

Yes, the Government has stated its intention to ratify by next September. So have most other western nations.

There is nothing “early” about that target – it has become pretty much the standard goal for developed nations as they move towards ratification, and it is likely the protocol will come into force internationally around that time.

We have many big decisions ahead of us on the shape of New Zealand’s policy response to climate change. The first of them, the formal Cabinet decision on ratification, is due about February.

We need organisations like Federated Farmers to inform our decisions by engaging constructively. That is how you will protect your interests. Shroud-waving is a waste of your time and lately there has been a bit of it going on.

Our intention to ratify has powerful reasons behind it and I ask you to weigh them carefully.

The world's climate is changing, and will change more and more, because of greenhouse gas emissions caused by human activity. The scientific evidence for this is robust, despite uncertainties around the degree and pace of change.

The global mean temperature went up by about 0.6 degrees in the last century and a half. In the coming century it is projected to rise by a further 1.4 to 5.8 degrees.

Climate change sceptics are still around, and they include some good scientists, but they are more and more in the minority. The debate must continue, because it is essential for robust science. But we are well past the point where scepticism can be raised as a substantial reason to delay action on global warming.

The effects on New Zealand are still uncertain, but temperatures are likely to be higher and the effect on water resources will be significant. Rainfall is expected to increase in the west and decrease in the east. Floods after major downpours are expected to become even more of a risk than they are now.

There may be some initial benefits for agriculture. A warmer climate would probably increase the growth rate or range of some crops.

But climate change threatens New Zealand agriculture too. Besides the risk of more floods and droughts, some established activities may need to move south if they need cold winters, like kiwifruit.

Biosecurity is likely to come under increasing pressure, especially from subtropical pests and diseases.

Sea level rises could create further problems with saltwater intrusion into aquifers in regions such as Hawke’s Bay and Canterbury.

In the longer run, the effects of climate change on agriculture are predicted to be overwhelmingly negative. More extreme weather, alone, would ensure that – let alone the water, habitat and biosecurity threats.

Doing nothing would mean sleepwalking into these hazards. For a country as dependent on primary production as this one, that would be nothing short of negligence.

There isn’t another developed nation that depends on an equable, stable climate for its prosperity as much as New Zealand. We still buy our place in the developed world with grass. On a global scale we contribute next to nothing to the emissions that cause climate change. But we stand to suffer economically from the effects much more than the more heavily industrialised western nations.

Given this context, it’s disappointing that the analysis of climate change issues by some commentators, including Federated Farmers, has been uniquely on the costs of action. There is a curious reluctance to consider the costs of inaction, or the benefits of a constructive response.

The costs of inaction are an open cheque.

Think about the costs of floods and droughts in this country, think about those millions or hundreds of millions of dollars, and then think about multiplying them. Think about the $120 million a year we already spend on biosecurity. Think about the costs of maintaining soil moisture in the face of lower rainfall, salinisation and depleted aquifers.

Remember too that we are a major supplier of food to world markets, many of them sophisticated and increasingly influenced by perceptions of environmental integrity. A positive response to climate change will underscore that integrity. But ducking responsibility on climate change will not go unnoticed.

The possible economic opportunities to come from the protocol, on the other hand, we have barely begun to explore.

Leaving aside our forest sinks, which alone will mean the net national effect of Kyoto will be positive, opportunities are likely to come from two main sources. First, increased domestic and international demand for climate-friendly products and services. Second, a demand for products and services to prepare for, or mitigate, the impacts of climate change.

I confidently predict that these opportunities will be a significant new part of the New Zealand business scene.

The New Zealand Business Council for Sustainable Development is alert to these opportunities and is now investigating them. The council reflects the approach taken by forward-thinking business leaders overseas, who prefer the vanguard to the bunker.

What about the costs? They depend on the policy mix we adopt and the future international price of carbon. The policy mix is now up for discussion. The price of carbon we will not know until the market is established.

The first round of policy consultation that is now under way is kind of open-ended. We are seeking comment on a range of options including carbon charges, emissions trading, levy-based mechanisms, projects and hybrids of these. We also need detailed feedback on the framework we should put in place to deal with carbon sinks.

On all these issue we actively seek the engagement of Federated Farmers.

Following the current consultation programme the Government will settle on a preferred policy package by March next year, which will then be open for public comment in a second round of consultation.

The policy options on the table range between two extremes.

At one end the Government would take all the costs and benefits of ratification upon itself, managing centrally all the assets and liabilities created by the protocol. At the other extreme the Government would devolve all assets and liabilities to individual greenhouse gas emitters, relying entirely on market mechanisms to let the costs and benefits lie where they fall.

The path we take will inevitably lie somewhere between those extremes, with a mixture of market and regulatory measures. There is no single approach that suits every sector of the economy and society.

I have seen a Federated Farmers analyst reported saying that livestock emissions will have to be taxed for New Zealand to meet its Kyoto obligations, a measure that he estimated would cost farmers between $1 and $5 billion dollars in the five years after ratification.

This analysis, although I am not sure that is the right word, implies that the most extreme possible measure must be adopted. That is the only way to lump such a ludicrous cost on the farming sector. It is so clearly nonsensical that I can only wonder what Federated Farmers is trying to achieve by advancing it.

One tonne of methane, the chief agricultural greenhouse gas, has the global warming potential of 23 tonnes of carbon dioxide. A dairy cow produces about 75 kilograms of methane a year, equivalent to over 1.5 tonnes of carbon dioxide. Atmospheric concentrations of methane increased by 150% globally over the last 250 years, while carbon dioxide concentrations increased by 30%.

Clearly the farming sector will have to bear its share of the costs of responding to climate change, just as it will have its share of the benefits. The Government’s interest is in getting the balance right. You can help achieve that by contributing serious arguments and analysis — and I invite you to start doing so.

I would like to know if you have a considered view, for example, on the option of a levy on agricultural emissions in excess of the benchmark 1990 levels.

We also need a considered view from the farming sector on the extent to which you want to see market mechanisms used, on the transaction costs involved and so on. Conceiving the most extreme possible application and then waving the numbers around in a manner calculated to get the dogs barking is less than useful on that score.

Further, it is certainly past time, in my view, for Federated Farmers to show some leadership in the formation of research consortiums on emission reduction. Rather than talk about imaginary costs of $1 to $5 billion from the protocol, I would be pleased to hear Federated Farmers talking about investing $1 to $5 million in ruminant phyisiology and forage research.

We already know that ruminant methane production varies with diet, feed intake, animal size, age and species. And it represents an inefficiency in the conversion of feed into animal performance. Between 5% and 7% of gross energy consumed as feed is lost as methane.

So if you invest successfully in research to reduce agricultural emissions, three things happen: First, you make or save money by reducing emissions, when emissions have a price attached. Second, you improve food conversion efficiency, and therefore productivity. And third, you stand to make money if the research produces valuable intellectual property in New Zealand ownership.

The Government committed $1 million of new funding in the last budget to the investigation of mitigation opportunities for ruminant methane, transport and energy. When the payoff for farming is potentially so good, I suggest the reasons for you to come up with your own research strategy and funding are overwhelming.

That’s what looking ahead means. From 2008 onwards — the beginning of the Protocol's first commitment period — we will be operating in a different world. So we need to start adapting now. Putting off decisions until 2007, or even 2003, will simply reduce our adaptation time. The protocol is not going to go away.

A final point about uncertainty, which Federated Farmers has cited as a reason for backing away from the Kyoto Protocol.

The Government will be starting to reduce policy uncertainty when we produce a preferred policy package early next year. But we will not be eliminating uncertainty altogether — not next year, nor the year after that, nor the year after that.

Big questions about climate change risks and policy consequences will stay with us for a long time. The price of carbon will not be discovered until an international carbon market is well established. That price will have a fundamental impact on the economics of responding to climate change, and will itself change as the years turn into decades.

Kyoto presents many uncertainties and some of them will be persistent and considerable. Other countries, businesses and individuals are getting used to this fact when it comes to climate change. The situation for New Zealand is no different.

The question is: What mechanisms best help us to deal with uncertainty? Clearly research and development will be crucial. So will contingency planning. So will an inclusive and transparent policy development process.

What won't help is doing nothing. "Wait and see" is not a strategy.

What we can do is start out with practical policy solutions — ones that address growth in emissions, use wisely the benefits of our Kyoto forests, recognise and deal with the impacts of the principal measures we put in place, and create or enhance opportunities for New Zealand business.

That is the way this government means to go. We are taking a broad and long view of New Zealand's interests in responding to climate change and the Kyoto Protocol. You can help us, and help yourselves, by doing the same.