Farmers are already paying for ETS through fuel, electricity prices, PM Key says; Still not certain farmers will be included in 2015

Farmers are already paying towards the Emissions Trading Scheme via fuel and electricity prices, Prime Minister John Key says.

Key has attacked the Labour Party for announcing it would bring farmers under the scheme by 2013, instead of 2015, which has been penciled in by the National Party. By doing so would increase the prices of domestic dairy and meat products, Key said.

Labour leader Phil Goff hit back at Key’s claims, saying Fonterra executives told him domestic prices were set on international markets.

Key said this afternoon it was still not certain that farmers would come under the scheme even in 2015, unless other countries had made similar moves to tax agricultural emissions.

Key said the dairy industry’s position as New Zealand’s single biggest export earner was the reason for not hitting it with ETS costs, as they would work toward making the industry less competitive on international markets.

There was always the risk that domestic dairy prices would rise from 2015 if National were to bring agriculture under the ETS as planned, Key said.

“But what we’ve said though of course is that we’re going to review that, and there’s a review being undertaken at the moment. We’ve also put a caveat on that, saying we’ll only bring agriculture in if it’s consistent with what we see from other producers around the world,” Key said.

“At this point we’re not seeing a lot of movement in other countries. In fact if New Zealand was to come into the ETS for agriculture in 2013, we’d be the only country in the world doing that,” he said.

“It’s not guaranteed for two reasons. A) we’ve got the review, and we’ll...have that review to hand in the middle of July I think – late July. But also, [B)] we are very conscious of the international competitiveness of our [dairy] export sector.

“It’s our largest export earner, it counts for a lot of potential growth in the agricultural sector in New Zealand, and we think our farmers should be competitive,” Key said.

“We also think they are actually effectively paying via the ETS already. Farmers are large users of electricity, large users of petrol and diesel and the likes, so to argue that they’re not paying something towards emissions trading at the moment is just simply not correct,” he said.

'Farmers can't mitigate their emissions'

Asked whether it was fair households and other businesses had to pay under the ETS currently, Key replied: "We’ve got to look and see why we have an emissions trading scheme."

“For a start it’s to actually reduce emissions, and that means that someone can mitigate their emissions by doing something different," he said.

"If we simply just put another big fat tax on farming, then how can they actually mitigate their costs? Now, we think through petrol, diesel and electricity, they can work to be more efficient. But simply in terms of their output, well, it’s not easy for them to reduce their emissions, short of shooting productive animals. If that’s Labour’s policy, that’s an interesting policy, but I don’t think that’s right," he said.

Householders and other manufacturers had other options

“They can insulate their home, they can use another form of fuel, they can use energy saving devices," Key said.

“A farmer, if you’re going to put an emissions trading scheme on them for the emission of methane and nitrate gases that come from the burping and farting of animals, when there is no other option, that’s pretty tough on them. Now we’re working on nitrate inhibitors, we’re working aggressively through the Global Alliance in terms of trying to solve those issues. We’re working in terms of scientific research," he said.

“But the Labour Party is simply saying, ‘I’m going to put a big fat tax on farming early, and I’m going to use it to fund something else which is independent. And that’s actually not the right correlation, even if they could get their numbers right, and they haven’t done that.”

'Can't price NZ farmers out of the international market'

An emissions trading scheme added a cost onto productive activity. Key said.

“Now, we do that to try and send the right price signal. If we see that in terms of, let’s take electricity, putting a price on carbon makes sense, because we’re actually seeing new generation in the area of reknewable energy because it [the ETS] is pricing at an advantage renewables over fossil fuels which emit greater emissions," he said.

“So our point is simply: You can’t just add costs on the farm and not say that over time costs would rise to consumers – they have to.

“In the case of Fonterra at the moment, they’ve got a price cap when it comes to milk in New Zealand because they are making good profits on the international market. Taken to the extreme, ultimately if New Zealand [dairy] exporters, which are a large part of the [global] export markets eventually got priced out of the market, then global supply would reduce, and global prices would rise. Otherwise why can’t we put any old price on the farm?" Key said.

“From National’s perspective we’re simply saying we think we’ve got that balance about right. But the purpose of the review, and the purpose of having a caveat – that it’s got to be around ensuring that we don’t price our farmers out of the market, is to make sure that they’re internationally competitive,” he said.

(Updates with further comments.)