Submission on the latest Emissions Trading Scheme review
In September we submitted on the government’s “improvements to the New Zealand emissions trading scheme” consultation.
We agreed that improvements to the scheme are needed to provide certainty and transparency, and supported opportunities for New Zealand to transition to a net zero emissions economy while ensuring that the impacts on domestic vegetable producers were understood and managed.
Following is an extract from our submission.
Growers of fresh tomatoes, capsicums, eggplant and cucumbers currently have access to free allocations via the Emissions Intensive Trade Exposed (EITE) scheme. These offset the ETS costs to varying degrees depending on location.
In the South Island, where coal is the primary source of heating for glasshouses, growers incur a higher ETS cost and these costs are not fully recovered by the free allocations they receive. For example, at the current NZU price of $25, we calculate the average net cost of the ETS (after the free allocation) on heating costs for a South Island tomato grower is $26,693 per hectare. At an NZU price of $50, this rises to a net cost of $53,386 per hectare.
In theory, the current free allocation system, which is based on yield instead of energy use, should have given a price signal for incentivising fuel source changes, however this has not occurred due to constraints including lack of suitable alternatives and the capital costs of conversion. We therefore strongly advocate for retaining free unit allocations for Emissions Intensive Trade Exposed industries until this problem has been resolved and there is viable alternative technology available for growers throughout New Zealand.
Whilst growers have made significant gains in yield and energy efficiency over the past 10 years, much of the current infrastructure is reaching its limits and there are not many opportunities for future improvements without significant re-investment in new greenhouses. This will not happen without certainty around ETS settings, and technological advances in terms of alternative, cost effective fuel sources.
As one of our members put it “there are no low hanging fruit here”, as there are no straightforward, obvious or cheap answers to how this industry can transition to low or zero carbon fuels.
NZ consumers are unlikely to be willing to pay higher costs for produce. In 2012 Statistics New Zealand pointed out that “Fresh tomatoes had an average retail price of 1 shilling and 1 penny per pound in the March 1949 quarter. That’s about $9.10 per kg in today’s terms, allowing for general food price inflation. By comparison, the weighted average retail price in the March 2011 quarter was $4.40 per kg.”3 During that same quarter (Jan-March) of 2018, the weighted average retail price of fresh loose tomatoes measured weekly by Statistics New Zealand across seven regions of New Zealand ranged from $1.93 to $5.80 per kilo and averaged $3.54 per kilo. This illustrates that growers face ongoing downward price pressure. Retaining a fixed price ceiling or fixed price option for ETS units would prevent production costs rising so high that growers are put out of business, particularly in the South Island, because they cannot pass on the cost.
The alternative is that in the future these vegetables will not be grown in New Zealand for substantial periods of the year and instead be imported, which we believe would have negative social and economic consequences. For example people would no longer have access to locally grown produce that is fresher than imports; biosecurity risks will increase from the imported products; jobs and export income will be lost; and New Zealand’s own food security (ability to provide its own fresh vegetables) reduced. Additionally, those countries that the produce is imported from may not face the same carbon charges that our growers face, or they may pay a different price. Therefore, New Zealand ETS prices should be linked to international prices, via direct international purchasing of units.
Low Emissions Economy Inquiry submission
2 October 2017
TomatoesNZ and HortNZ worked together to make a joint submission to the Productivity Commission on their “Low-emissions economy inquiry”, in October. The very broad inquiry asked “how New Zealand can maximise the opportunities and minimise the costs and risks of transitioning to a lower net-emissions economy”.
Our submission focused on describing the challenges facing the horticulture industry, particularly indoor growing operations, in reducing carbon emissions and bearing the costs of the Emissions Trading Scheme. We emphasised that more needs to be invested in understanding and modelling horticulture emissions in NZ compared to our competitors, as well as research, development and implementation of new technology that would allow horticulture to lower emissions. We also discussed an assumption made in the inquiry paper that moving New Zealand away from animals and towards horticulture would improve the country’s emissions profile: it probably would, however there are constraints in ongoing access to land, water, RMA rules and ETS costs.
Industry energy and carbon data to be updated
It is nine years since the indoor vegetables industry last measured its “carbon life cycle”, or “carbon footprint”, and even longer since energy use data was compiled. Last year the NZ government committed to the Paris Agreement on greenhouse gas emissions mitigation and adaptation, resulting in an extensive and ongoing review of how NZ will meet the new Paris commitments, predominantly through our Emissions Trading Scheme (ETS).
At its April meeting, the Tomatoes board agreed to fund a project that will update that data. This will be done by asking growers to answer a few survey questions. We have also supported a bid for MPI funds from the Sustainable Land Management and Climate Change fund. This project is to better understand energy related greenhouse gas emissions in horticulture. This project is outlined in this month’s Vegetables New Zealand column.
It is important that we have up to data so that we can advocate on the industry’s behalf, as well as understand where industry can continue to improve its emissions profile.
Emissions subsidy phase-out is underway
15th March 2017
Greenhouse growers may notice that their ETS costs go up this winter.
The one-for-two emissions trading scheme subsidy, which meant that businesses paying Emissions Trading Scheme (ETS) costs on their fuel only paid one emissions unit for every two tonnes of carbon they emit, began its phase-out from 1 January this year. That is when the previous 50% unit cost increased to 67%. It will rise to 83% from 1 January 2018. All sectors in the ETS will pay the full market price from 1 January 2019. The phase out was announced in May last year following the first stage of a review of the ETS.
For now, greenhouse tomato, cucumber and capsicum growers can still apply for a “free allocation” of emissions units under the industrial allocations scheme for “emission intensive and trade exposed” sectors. Applications for the free units must be made by 30 April each year. Contact email@example.com if you need more information about applying.
According to Hon Paula Bennett, the Minister for Climate Change Issues, the second stage of the review “will set a clear long-term direction on how the ETS will help meet our ambitious emissions reduction targets”. Recommendations from that stage of the review are expected mid-2017.
Submissions made on the Emissions Trading Scheme (ETS) review
Stage Two of the 2015/16 ETS review
15 May 2016
At the end of April we made a submission on the second (and last) stage of the 2015-16 review of the NZ Emissions Trading scheme.
Some of the points in our submission:
- That significantly higher carbon prices will have a significant impact on South Island growers, likely making some operations uneconomic;
- That there are currently no options for alternative fuel sources for those South Island greenhouse growers;
- Free allocations should be retained at least until potential competitors are facing the same carbon costs as NZ growers;
- A price ceiling should be retained (currently $25) for NZU’s, to provide certainty and prevent price spikes;
Price certainty is important to producers so that rational business decisions can be made.
Stage One of the review
In February, Horticulture New Zealand, TomatoesNZ, and Vegetables NZ made a joint submission on the New Zealand Emissions Trading Scheme Review 2015/16.
The Ministry for the Environment (MfE) announced the review in the lead-up to the 2015 United Nations Climate Change Conference in Paris, in December last year.
That conference established a new international climate change agreement, the “Paris Agreement”, which will apply after 2020. The New Zealand government had already announced in July that it was strengthening its target, to reduce greenhouse gas emissions to 30 per cent below 2005 levels by 2030.
The MfE 2015/16 review discussion document admitted that; “New Zealand’s new 2030 target is more ambitious than previous obligations. There will be costs achieving it, and as far as possible, these costs should fall on those responsible for the emissions rather than the general taxpayer. A key role of the NZ ETS is to transfer these costs to emitters.”*.
This round of submissions commented on the government’s “priority issues:
1. Moving to full surrender obligations
2. Managing the costs of moving to full surrender obligations.
All fruit and vegetable growers pay some “carbon cost” through the imposition of tradable “New Zealand Units” (NZU’s), on transport fuels, stationary energy and industrial processes, which add to the costs of producing, packaging, and transporting produce.
However, covered crops face the greatest carbon costs of the sector, when they pay for greenhouse heating via fuels including coal and natural gas. For the greenhouse vegetable industry including fresh tomatoes, capsicums and cucumbers, energy is the second highest single input cost in greenhouse expenses following closely behind wages. In climate controlled greenhouses (excluding those houses that either do not heat or only have frost control) energy costs are around 20% of expenses, or between 15% to 18% of revenue, making them highly vulnerable to rising energy costs and additional energy related taxes. Because the vast majority of fruit and vegetable growers sell in a global commodity market, additional costs due to the ETS cannot be passed on to the consumers of the produce, instead incurring a direct net loss to the business. In most cases there is no commercially viable alternative fuel source available to reduce emissions and ETS obligations.
Moving to full surrender obligations
A ”one for two” surrender obligation (one emission unit required to be surrendered per two tonnes of emissions) was introduced in 2010 as part of a “transitional phase” to moderate the impact of the NZ ETS during the worldwide economic downturn. This was designed to halve the carbon cost impact.
As New Zealand currently has a closed carbon market, moving to “full surrender” would increase the cost of carbon in a way that bore no relation to the carbon prices of our key trading partners, at the expense of our horticultural producers and export competitiveness.
HortNZ, TNZ and VNZ Inc. position is that removing the transition measures while there is still a lack of international action would place an unreasonable burden on growers who are unable to pass on or reduce the costs, and the measures should be retained until there is more evidence of international alignment.
Managing the costs of moving to full surrender obligations
One way that the costs of the ETS on covered crops producers has been mitigated by the government, is through “free allocations” of NZU’s under the Emissions Intensive Trade Exposed (EITE) scheme. All fresh tomato, capsicum and cucumber growers can apply for the allocation, and in 2014 fifty growers did so (down from 83 in 2011 when covered crops were first included). The scheme is supposed to compensate growers for most, but not all of their expected ETS costs. Fresh tomato growers can apply for 73 units per 100 tonnes per year, fresh capsicums 106 units and cucumbers 99 units.
The “free allocation” was extended indefinitely as part of the 2009 “transitional phase”. The Government has said that it supports keeping the free allocation regime in place until at least 2020, to retain those businesses’ international competitiveness while carbon pricing is still not widely applied internationally.
Growers who have taken part in this scheme have told me that it can be a bit of an administrative headache. Many are ”banking” their NZU’s, and have not attempted to trade them, especially given the low current price.
There is also some frustration among growers that the “free allocation” is based not on actual carbon costs to a business but on production.
MfE are asking for feedback on the “free allocations” scheme and other ETS issues in April, and we will be making a submission.
*Source: Ministry for the Environment. 2015. New Zealand Emissions Trading Scheme Review 2015/16: Discussion document and call for written submissions. Wellington: Ministry for the Environment.