Moving forward with methane levies

Split-gas breaks the link to charging methane emissions based on contentious carbon dioxide equivalence. It opens the door to a levy based on research, development, extension and education (RDE&E) needs rather than simply a tax

In my last article I asked whether, in seeking a way out of the current policy mess relating to agricultural greenhouse gases, we might agree on two overarching principles.  

The first principle is that pastoral agriculture must remain vibrant and prosperous. This is essential, not because farmers have any right to a protected future, but because New Zealand’s export-led economy is highly dependent on pastoral exports.

Pastoral exports comprise approximately 50% of merchandise exports, with primary industries in total comprising approximately 80% of merchandise exports. It is in the interest of all New Zealanders that pastoral agriculture thrives.

The second principle is that we have international commitments to do whatever we can to reduce greenhouse-gas emissions consistent with maintaining that vibrant pastoral industry.  Underlying that commitment is the evidential science that methane and nitrous oxide are indeed greenhouse gases, and that each additional molecule does lead to a warmer world than if those molecules were not emitted.

I then laid out that if those principles are accepted, then the journey starts with defining the industry needs for research, development, extension and education (RDE&E) that are consistent with those principles, and then setting a farm-based levy in relation to that agreed programme. The key idea here is that in sorting out the mess, defining a focused RDE&E programme comes first.

This contrasts greatly with both HWEN and the Government proposals, where the focus is on a tax that hobbles profitability without a clear focus driven by a problem-solution strategy. 

Among many emails of strong support that I received, particularly notable were unsolicited communications from several Members of Parliament. These people hold leadership roles in both the Government itself and across the parliamentary pit in the Opposition. 

I also received unsolicited communications from influential people in Groundswell, which was no real surprise, as they had told me many months ago they would support such an approach. 

In terms of politics, Groundswell’s recent petition to Parliament containing more than 100,000 signatures, is clearly of relevance. In a political context, the days when Groundswell perspectives could be brushed aside have passed.  

As for the HWEN partners themselves, I heard nothing, but that did not surprise me. I knew that my original submission to HWEN, prepared jointly with Graham Brown and Jane Smith close on six months ago, had been forwarded at that time by the HWEN secretariat both to the steering group and also to the HWEN governance group. Supposedly it was the only one of some hundreds of submissions where the full submission got through to the top level.

The dominant response in private at that time from individual HWEN partners was that they too were in agreement with our submission on this and other key points. But alas, in all the horse trading that subsequently went on within HWEN, these fundamental principles were lost.

If I were an optimist, then consequential to the support I received I would think that the prospects of making good things happen would be strong. However, I have learned that as the old proverb says, there can be many a slip between the cup and the lip. That is particularly the case when tribal groups and parties are more skilled and attuned to fighting rather than finding a consensus pathway.

Nevertheless, still trying to be optimistic, it has struck me as worthwhile to sketch out something as to how such a scheme might work and how the benefits might be achieved. In doing that, it is important to recognise the importance of the split-gas approach which now seems to have been widely accepted by all key decision-makers.

This split-gas approach was flagged in the 2019 Climate Change Response Amendment Act as a potential alternative to the Emission Trading Scheme (ETS) pathway, but dependent on further development within HWEN. My own assessment is that in recent months any substantive opposition in Wellington to a split-gas approach for methane has faded away.

Split-gas means that methane will be charged per kg of methane, not per unit of carbon dioxide equivalence (CO2e).  What happens to the carbon dioxide price within the ETS is no longer relevant to the pricing of methane.

Consistent with this, Rod Carr in his role as Chair of the Climate Change Commission (CCC) has said publicly on multiple occasions that the issue for the CCC in advising on appropriate pricing for a methane levy has nothing to do with carbon dioxide pricing, CO2e, GWP100 or GWP*.   

From here through to 2030, the key ongoing agriculture-related task of the CCC will be to advise on whether agriculture is ‘on-track’ to reduce its 2030 methane emissions by 10%.

That 10% figure is already set down in legislation agreed to on both sides of the parliamentary pit. There is potential for reconsideration to occur in 2024, but changing the figure will be challenging.

Ironically, the key implications of ‘split-gas’ have not been fully understood within the agricultural sector itself.  Instead, many within the sector are still hung-up on CO2e thinking in relation to methane emissions.

So, how can methane be reduced by 10% by 2030 with pastoral agriculture still thriving?

The first reduction can and will come from retirement of steep erosive low-productive backcountry out of sheep and beef. There can be debate about the precise area, but there is certainly more than one million hectares that is not only low producing but is expensive to farm with high costs fighting pests and weeds.

The only reason this land is not already in production forests is that it is too distant from ports and also has high harvest costs. Its future lies in carbon farming of one type or another.

Taking this essentially uneconomic country out of pastoralism should reduce methane emissions by more than five percent.

The second opportunity to cut emissions is through the emerging Lincoln University and Ravensdown ‘ecopond technology’ to stop methane emissions from effluent ponds.  This technology is now at the level of farm-scale testing.  It has potential to reduce total dairy farm emissions by about eight percent if fully implemented, and hence total pastoral emissions by about four percent.

Further reductions will be harder to come by, with none of the hyped technologies such as vaccines, 3-NOP or seaweed extracts having a clear path to success. Breeding for low-emission sheep and cattle shows promise but my own assessment is that caveats are appropriate as to how this might play out.

Progress can also be made with more productive animals. However, this plays out rather differently as less methane per unit of output rather than less total methane. It is all about channelling more of the eaten feed into meat and milk rather than into body maintenance. Improving the ratio of output per unit of methane is key to retaining a social licence for pastoral agriculture.

In dairy this means further increasing the ratio of milk solids to liveweight. Great progress has already been made over the last 30 years but there are known pathways to further improvement, albeit needing reinforcement from RDE&E.

With sheep, the way forward is through higher lambing rates, higher carcass weights, more hogget mating and lower death rates. Of course, all of these are easier said than done.

With beef cattle the path relies on better use of surplus calves from the dairy industry.

 The next big issue is deciding who should determine the focused RDE&E program. This is not a job for the RDE&E organisations themselves. Nor is it a job for industry politicians. Rather, it has to be people who have a strong applied-science understanding of farming systems. It needs a team who can engage in robust discussion to sort the wheat from the chaff.

The reason that RDE&E organisations such as the Crown Research Institutes (CRIs) and universities cannot themselves be given these responsibilities is that these organisations are driven by the need to create and capture the funding honey-pots. The perfect outcome for these organisations is if a project keeps identifying potential at the end of a rainbow needing more and more funding to capture.

As for industry politicians, they typically lack the science underpinnings to take a lead role in determining the focused programme. However, there are individuals within industry who have insight, experience and independence, and who could be shoulder-tapped to play a shaping role within the team.

As for what this might cost, I reckon a ball-park figure for a levy might be 10c per kg of methane. That would work out at about $1.10 per sheep, about $10 per dairy cow, and an in-between figure for beef cattle. Perhaps some of it could come from existing industry R&D levies.  It would create a fund of about $100 million per annum which would go a long way in a properly focused programme as long as overseen by the right team of individuals with in-depth applied-science understandings relating to farming systems.

Well, that is enough for this article. I trust I have given people something to think about.

About Keith Woodford

Keith Woodford is an independent consultant, based in New Zealand, who works internationally on agri-food systems and rural development projects. He holds honorary positions as Professor of Agri-Food Systems at Lincoln University, New Zealand, and as Senior Research Fellow at the Contemporary China Research Centre at Victoria University, Wellington.
This entry was posted in Dairy, greenhouse gases, Meat Industry, Uncategorized. Bookmark the permalink.

12 Responses to Moving forward with methane levies

  1. Tim Davison says:

    Let’s be realistic. How is methane formed? Grass takes CO2 out of the atmosphere by the process of photosynthesis, to basically grow. The ruminant animal eats the grass and converts the sugars in the grass to methane, not forgetting that the grass took the CO2 out of the atmosphere in the first place.

    We are told that methane degrades naturally over 10 years. On a stock unit basis NZ stock numbers have decreased by 4.2% compared with 10 years ago. So, methane is degrading faster in the atmosphere than we are currently producing it, so where is the problem. If I have got this wrong, I would really like to know how?

  2. Paul says:

    A few thoughts to add.

    Your key principles to agree on is missing a fundamental part.
    – to be prosperous, most effort needs to be placed on supporting farmers with their climate resilience & adaptation approaches.
    We can reduce & price ag emission to do our bit but it is not much good if detracts from the first principles above. The climate is changing & it is out of our control.

    Second. You are suggesting moving the pricing around taxing to what RDE $ needs are. I agree, but again these are bout outcomes. They should never had been the starting points of ICCC & HWEN. We have spent 5yrs focused around these questions ‘how do you price ag emissions’? (ICCC). Then, same question but at farm level (HWEN). Then ‘are farmers ready for farm level pricing (CCC).
    The starting point missing is: what is our Climate Action Plan for the sector?
    That would lay out the things you mentioned around marginal land, carbon farming, retirement, reduced emission intensity, emissions reductions.
    – the outputs under this Plan would be areas of Resilience / Adaption, RD&E, levy price to support programme etc.
    Importantly it would provide future aspiration & something to strive for.

    Third. Yes each additional molecule of methane emitted contributes to warming above if it wasn’t emitted. And yes, you split gas price for a levy can be done on a unit emitted.
    That is a split gas treatment. But it doesn’t line up with the science of why we have a split gas target. It’s actually just the same approach as CO2 equivalents as it is treating methane emissions as a pulse emission. This treatment favours farm types that have better emissions efficiency over less intensive systems that emissions efficiencies are lower.
    The whole point of split gas approach & target is to recognise methane is different. A key thing on that as you need to look at methane emissions over time.
    So sure, take the CH4 emissions in a given year as a pulse emissions view and apply a levy for RD&E.
    But know it doesn’t represent what is really happening on a temperature basis, it impacts less intensive / emissions efficient farmers more, and at $10/cow actually supports increasing emissions for business reasons, not reducing them. And again your ‘split gas’ approach doesn’t capture this accurately temperature wise.

    Pastoral food production is a biological system that moves with time. Methane is very much hardwired to this.
    Looking at it as a year ‘pulse’ or ‘marginal warming’ view can work for a small levy take, albeit having uneven impact across the sector. But just like CO2 equivalents it doesn’t provide the story for the strategic plan level that shows what the sector is achieving with such ‘10% reduction by 2030’. A ‘levy’ doesn’t provide the market position for our customers either.
    And no doubt it will continue with the ever increasing ‘Ag is 45% of NZ emissions’, ‘Ag is 48% of NZ emissions’, and in the future ‘Ag is 65% of NZ emissions’.

    One for another day… Any offsets are for ETS, which is for offsetting fossil fuels transition. That means they aren’t available for use for pastoral farming offsetting….. we seem to forget that N2O target is ‘Net zero’. That forestry is a better offset of methane than CO2 (as per PCE).

    • Tim Davison says:

      Is the climate really “out of control”? Don’t forget that the world population has increased dramatically. In heavily populated areas, most of the safe places to build have already been taken, so more and more houses are being built on what was previously considered to be unsafe locations. So, in extreme weather events, which have always happened, and will continue to do so, the damage is intense. Add social media to that, and the whole world knows about it in 5 minutes. Years ago, many of these events would not have even been reported.

  3. Marcus & Georgie says:

    Hi Keith

    Always enjoy and learn a lot from your articles and views- thanks for that.

    one question around ets and second rotation, post 1990 pine plantations.

    We are about to replant a 20ha block, harvested last year and iam perplexed to say the least as to reasoning around the ets rules. Do you know if the rule that “only a permanent plantation pine crop, in its second rotation, is able to be put in ETS-“, as oppossed to a crop planted,thinned and pruned for timber,- is that an international rule or NZ?

    I cannot find anyone who can show me the science as to why..

    the second rotation pine crop (20ha) cannot be put in ETS, but apparently third rotation can ? 2. and accepting that rule, why are we not able to then use that sequestration that is happening over the next 25-30 years to offset our own farm emissions.

    Do you have an answer to this question and in your view do you think there is any hope of that second rotation pine crop being able to be used to offset out on farm emissions?

    Any help would be much appreciated.


    Marcus Peacock

    Hononga Farming Ltd

    M & G Peacock

    614 Mangatarata Rd

    RD 5

    Waipukurau 4285

    Marcus 027 5705 546

    Georgie 027 381 3183

    • David Janett says:

      Hi Again Marcus

      Sorry we didn’t have time to delve further into this earlier this week so I will attempt to explain why.

      Firstly a few key principals

      1. When looking at carbon stored in a forest the first thing to understand is that this is done on a mathematical, scientific basis. It is blind to any financial consideration or who planted it the first time.

      2. In recording carbon the question is “what extra carbon has been stored as the result the land use changing to store carbon?”- in this case trees on land that was not in forest at 1990.

      3. If you remove that forest at maturity the carbon stock reduces back to zero. It is assumed if you remove the 1st forest planted the majority of the carbon is vaporized at harvest back into the atmosphere – the balance of roots etc decays over the next 10 years to eventually end up back at zero stored.

      4. You then start a new rotation, grow to maturity and over the life between zero and maturity the average (16 years for a 28 yr rotation on radiata) is achieved again – the process is repeated for every rotation thereafter.

      Once you have this average volume credited to the land/forest in the first rotation it is then necessary to maintain the unders (clear site)and overs (mature trees) to maintain the average volume credited.
      (Note I talk about volume credited not cash – as noted this is a process of accounting for carbon volumes stored.)

      Once the average has been credited to this land area it can’t earn anymore – (well it can if you increase the rotation age upwards and change management but this is at a micro level when looking on a national basis). The model adopted in NZ now is a very simple model – if we allowed for people to run say a 40 year rotation instead of 28 you could probably claim another 4 to 6 years of carbon – but you then need to maintain a 40 year rotation – very difficult to administer on a national scale.

      The key point is you can only credit the average once in the first rotation against the trees on that land – hence no new carbon on subsequent rotations as we have to maintain the average credited in the first rotation.

      Why do we use averaging now?

      Averaging is what is traditionally used overseas so we are aligning ourselves with the majority. We can use sawtooth and account for the ups and downs but this results in large fluctuations in accounting for the national carbon stocks – we are entering this now as the large areas of early 1990s forest are felled and we (NZ Inc) have to account for the carbon loss – in fact forests will be one of the biggest contributors to NZ carbon deficits in the next 10 years before it starts to re earn carbon.

      So using averaging makes international accounting much smoother and easier for NZ inc – you could cynically say we used the peak and now will only go to the average and not have to account for the full loss – it’s a short term gain but remember we cant then ever go back to the peak.

      This is why if you go to permanent forest you are saying to the international reporting system – I’m not going to have an average as the forest wont be removed – its function of maths and carbon stored.

      I hope this helps – I don’t make the rules!!

      As to what can be used to offset well watch this space – the announcement that some other areas proposed for HWEN will be put into the ETS going forward on Wednesday will be interesting – it of course means any sequestration farmers want will need to be earned by some means through the ETS – welcome all farmers to the ETS!!!

    • Keith Woodford says:

      Marcus and Georgie
      I am cautious about advice relating to specific situations because I may not have all the relevant information to your situation. Also, the rules are sufficiently complex that advice really needs to come from someone who is working on these issues full time.

      But as a general rule it is correct that for a second rotation crop there will only be credits if it is a long term permanent crop. And I think there will be zero credits in the initial years until the carbon builds up past the average for a short term crop.
      If you wish to email me ( I can put you in touch with a professional adviser.
      [Edit: Given that it seems you are also now talking directly to Dave Janett then you are already in touch with a professional.]
      Keith W

  4. Keith Woodford says:

    I plan to get back to you (and some other commenters). But the answers are not just one sentence. And today I am more than a little time stressed.

    • Paul says:

      10c levy per kg methane emitted might be ‘split gas’.
      But it price will have to be pinned to something. And with this annual ‘pulse emission’ treatment ‘marginal warming’ (over that if it wasn’t emitted), is nothing more than just CO2 equivalents.
      10c is just $80/t CO2e at 95% ‘free allocation’.
      HWEN & Govt proposals start at 11c / kg ($85/t), and go up to 30c / kg. ‘Split gas’ is being used as a trick. GHGs are split anyway. Seperate treatment approach aligned to temperature impact is what is needed.

      The only approach that works for pastoral food production without ending up planting all pastoral area in trees is the ‘Step / pulse’ approach, ‘additional warming’ aka GWP*.

      Yes you can say ‘it answers a different question’. But that question translates to temperature impact & like for like for how CO2 is treated. And it works whether CH4 emissions are increasing, stable or reducing.

      So to say levying methane on a kg emission of gas basis makes this redundant is akin to walking further into something not easily backed out of

      • Keith Woodford says:

        If you think that ‘split gas’ is being used as a ‘trick’ then you are in conspiracy mode. I cannot agree with you.
        Nowhere have I advocated a proposal that would ‘price’ methane at 30c per kg.
        Rather, I have advocated a principle whereby methane levies would be ‘priced’ in relation to the necessary funding of an agreed RDE&E programme.

      • Paul says:

        I get yours approach is a levy treatment at a fixed rate.
        But that is not what we have in front of us to work with. It is on that basis I say ‘split gas’ is being used in a way that is not aligned to what it should mean around being treated differently.
        HWEN & Govt proposal is worked in CO2e and free allocation, just like for N2O & CO2. It’s clear to see

      • Keith Woodford says:

        Both Govt and HWEN are still searching for the way forward. After thinking and talking for 20 years in terms of ‘CO2e’ people find it challenging to change their thinking. It is a journey

  5. confoodnet says:

    Keith, you make such brilliant sense in analysing these complex issues. Thank you.

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