Methane and Metrics: From global climate policy to the NZ farm

Abstract

Stroombergen and Reisinger’s (2012) modelling suggests global pricing of all greenhouse gas (GHG) emissions, including agricultural emissions, would be beneficial for the New Zealand economy, with higher GHG prices leading to greater economic benefit. Though this inference may seem counter-intuitive for a country in which agriculture is economically important, when the effects of GHG charges flow on to global commodity prices, the rise in global prices more than compensates NZ for the costs of our GHG emissions. These conclusions rest on a single set of models and several assumptions; however, the broad direction of the conclusions makes sense given the relatively low GHG emissions intensity of agriculture in NZ and the high importance of global commodity prices for NZ’s economic fortunes. In this paper we investigate the implications of Stroombergen and Reisinger’s (2012) results for a model NZ dairy and model NZ sheep and beef farm. We consider three climate policy scenarios that differ by whether agricultural emissions are included and priced globally, and in NZ. We find that NZ farmer interests generally align with NZ’s economic interests, though farmers are more greatly affected by differing international policy scenarios compared with the NZ economy as a whole. We find that the impact of the choice of metric (that is, how agricultural emissions are traded off against carbon dioxide emissions) is minor, especially when compared with the differences between international and domestic policy scenarios. On balance, our results suggest that long term, the best scenario for NZ and our farmers is to fully price global agricultural emissions within an international climate change agreement that allows NZ farmers to exploit their competitive advantage.