Wednesday, November 17, 2010

Emissions trading and agriculture

It is a mistake to consider emissions trading industry by industry, because we are all interconnected. Take, for example, the recent announcement by Hon. Nick Smith, Minister for the Environment, that entry of New Zealand's agricultural sector into the emissions trading scheme (ETS) will be delayed until such time as we see similar progress from other countries on greenhouse gas mitigation. Hon. David Carter, Minister of Agriculture and Forestry, has assured us that the ETS is here to stay, and that investors in new forest should not concern themselves about a premature end to the scheme. It turns out that investment in new forest is overwhelmingly influenced by whether or not agriculture is in the ETS, because so long as farmers' greenhouse gas (GHG) emissions are subsidised by tax payers, agricultural land prices will remain high. The price of land is a critical consideration for forest investors, and so this policy will reduce investment in new forests. It will also mean that farmers who might otherwise consider offsetting their GHG emissions with farm woodlots will be less likely to bother. A high profile politician commented to me that many people in the farming community are in denial about climate change, a denial which is no doubt manifesting itself in the ETS policy announced this week. This policy will influence our capacity to respond to climate change, and it may also ultimately affect foreign buyers of our agricultural products, who will rightly perceive that New Zealand's agricultural produce comes with an extra, pollution price tag.

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