Farming Within Environmental Limits

by Guy Salmon, Ecologic

Introducing the challenge

Learning to live within environmental limits is not an easy task. Yet one of the things that, as an environmentalist, gives me hope for my country is that we have been able to agree in principle, both in freshwater and in climate, that we must all live within limits.

I have visited many farms where farmers are facing up to this challenge. One of them was the farm of Katie Milne, president of Federated Farmers, and her husband. Much has been made of the fact that Katie was the first woman to be elected as president of Federated Farmers. It’s equally noteworthy that she was the first president who has saved a lake. Lake Brunner, on the West Coast, had a 17-year record of declining water quality which was turned around thanks to Katie’s leadership.

Official recognition of environmental limits has come very late to New Zealand. In freshwater, it finally began through the collaborative efforts of the Land and Water Forum. The Forum recommended the setting of limits for freshwater takes and discharges in every catchment, based on a series of national objectives for freshwater. The previous government accepted these recommendations, and the current government intends to take them further.

Climate limits are also starting to achieve recognition, through the Zero Carbon Bill, and through the Government’s decision to phase out oil and gas exploration. In both freshwater and climate, sensible limits have long since been overshot. The way back will not be easy, as many businesses have become habituated to an overshoot world. In essence, the challenge now is to transform the economy so that we can reduce our environmental footprints and live comfortably within these limits. This will take time, and the focus is on the designing of transitions.

Taranaki has become the frontline for this historic change. The region has set out to co-design its own transition to a zero-carbon future. The result was the Taranaki 2050 Roadmap. This was presented at last month’s Just Transition conference in New Plymouth, an inspiring occasion which highlighted just how well a community can respond to the challenge of change.

One example is the emerging renewable hydrogen industry, with four huge opportunities beckoning:

  • green urea fertiliser manufacture in Taranaki;
  • providing energy storage at scale to even out variations in NZ’s renewable electricity generation;
  • fuel to drive our heavy trucks without carbon emissions; and
  • hydrogen exporting to Japan and other countries which are committing to the hydrogen economy.

The hydrogen example tells a wider story. The real resource Taranaki has is not its gas: it is the engineering and project management skills of its workforce, and the entrepreneurial capacities of its leadership. And at a deeper level, it is the can-do spirit and adaptability; the cohesive networks that can make things happen; the agility in responding to opportunities; and the commitment of people to the places and communities where they live. These are also key aspects of New Zealanders generally, of our distinctive national culture, and they should give us all grounds for optimism.

It is helpful to look at these issues from a point in the future in which we have succeeded as a country in living within limits; and then to look back at what was going wrong previously, and how eventually, we overcame the barriers to action. That approach has helped me to fashion a vision on how to proceed.

Four pillars for delivering on environmental limits

First, we need to become more connected. I am not primarily referring here to the internet, but to a much larger concept. We need to move beyond divisions like the rural-urban cleavage, to be more considerate of each other’s needs, feelings and interests, and to develop a stronger capacity to agree on and support New Zealand’s common good.

Second, we need to become more innovative. Innovation is the only way to grow value within limits. And limits have short-term costs, so to afford these, we need to achieve better returns for what we produce. That suggests a focus on new products, new land uses, new marketing ideas and new skills. A pre-requisite for innovation is to be open to new ideas and new connections.

Third, we need to become more accountable. It is not enough to set environmental objectives or limits. We need also to have an intention to achieve them, a willingness to be held to account, and techniques to measure what we are achieving.

Fourth, we need a designed transition to rely on. That is because each of the above things takes time to muster. Meeting limits can best be enabled by taking a long-term view of what the limits are, and then meeting them by progressing fairly and in small steps, as befits a democratic society.

The starting point for designing the transition that we need, is to recognise where we have got to, and what we have been doing wrong. My aim in this talk is not to make suggestions about what farmers should do: that is a job for qualified experts with a good knowledge of your local place. But what I can do is to sketch out the big picture about what will make for a successful transition, based on what we have learnt so far – both the good and the bad.

Hard-wiring the economy to depend on pollution-intensive activities

Table 1 is sourced from the report to the previous government of the Green Growth Advisory Committee, of which I was a member. It shows the greenhouse gas emissions attributable to several of our country’s main export earning sectors, expressed in terms of gross tonnes of CO2-equivalent per million dollars of export earnings.
Table 1. Emissions per million export dollars.

Some points to reflect on from this table:

  • Average emissions per million dollars in the meat industry are ten times greater than in successful service export industries like Xero, and five times greater than in successful manufacturing exporters like Fisher & Paykel Healthcare.
  • Dairy is 40% less emissions-intensive than the meat industry but is still very high.
  • Leaving aside tree-planting, which only shifts the liability between generations, there are two ways NZ can reduce its emissions, and we will need to do both.
    • First, we must strive to reduce emissions per dollar earned in each industry sector; and
    • Second, we must shift the economy as a whole from its relatively high dependence on industries at the top of the table, toward those at the bottom. (This is a transition recently exemplified by Denmark, another notable primary produce exporting nation that has successfully diversified its export earning base, while keeping farming profitable).

Table 1 illustrates the climate emissions picture we are facing. A more complex but essentially similar picture applies to environmental footprints on freshwater, where the ruminant livestock sector – meat and dairy – has a footprint that is at the same time quite heavy, and uniquely extensive. Taking a national perspective, in neither freshwater pollution nor climate pollution has the livestock sector been successful overall in reducing its footprint over the last quarter century.

There is a simple reason for this situation. It is not because we have bad farmers: on the contrary, the qualities of our farmers are, I believe, one of the reasons we should be optimistic about our future as a country. Rather, we have been let down by short-sighted political leadership at both national and regional levels.

To understand what has happened, we should focus on the year 1992. That was the year in which, following the enactment of the Resource Management Act (RMA), regional councils consulted their publics and promulgated water quality objectives in their regional policy statements. Every council set objectives which focused on maintaining and improving water quality in its region; but in every region, the outcome has been the opposite. Similarly, also in 1992, New Zealand signed the Framework Convention on Climate Change, undertaking to curb our greenhouse gas emissions to safe levels. Again, in the 27 years since then, the outcome has been the opposite.

The key reality to grasp – in both freshwater and climate change – is that over this period, neither regulation nor market prices have been aligned with our oft-stated objectives of reducing pollution. In effect, by exempting livestock agriculture from the emissions trading scheme, by charging nothing for the use of water, and by largely exempting contaminated farm runoff and nutrient leakage from RMA controls, our political leaders have simply been hard-wiring our economy to rely heavily on pollution-intensive activities for what little economic growth we have had.

Unwinding that deeply-established hard-wiring is now going to be very challenging. It needs to be done carefully, yet resolutely.

Designing an exit from the pollution-dependent economy

There are two important but quite conventional concepts that will help us in this. The first I have already spoken of – the concept of a designed transition comprising small, measured steps rather than sudden drastic change. But to embark on a transition of that sort we need two things: a general willingness to make an early start; and a widely shared understanding of where we are going. A quarter of a century after we began, these two pre-requisites remain works-in-progress.

The second important concept here is also a work-in-progress: it’s about getting market prices right, by respecting the polluter-pays principle. Of course, these two concepts – a measured transition and better pricing – are to some degree in tension with each other. Even so, it is hard to see that limiting agriculture’s liability under the emissions trading scheme to only 5% of its emissions, with no provision to increase this share, is a meaningful step.

Another fairly stark pricing failure is with water. Here we avoid the user-pays or auction systems that apply elsewhere in the economy and instead look to government authorities to allocate water rights and nutrient discharge rights between different businesses and different types of farming. The need for government to do the allocating arises primarily because farmers feel entitled to use water without paying for it, and political leaders have never challenged that privilege.

Given that we mostly have a market economy, getting prices right is an essential step on the way to a sustainable future. We cannot continue to treat the atmosphere, the streams and rivers, and the aquifers as free goods. Pricing the services these ecosystems provide would allow three really important adjustments to take place:

  • stimulating pollution-reducing innovations, by making them worthwhile for businesses to invest in;
  • providing a dynamic allocation mechanism, moving resources to their most highly valued uses and encouraging needed land use changes, toward more ecologically sound forms of farming;
  • delivering structural change in the economy, reflecting improved incentives for growth in environmentally friendly sectors, including a needed shift in our export sector.

Our freshwater challenge: much has been positive in the dairy response

Freshwater quality is highly interconnected with land use, and it has been affected everywhere by the trend to land use intensification. In 1992, as mentioned earlier, all regional councils set promising objectives, which focused on maintaining and improving the quality of freshwaters. Subsequently, most councils introduced rules for delivering on these objectives. Unfortunately, these often included making livestock access to streams a permitted activity; and authorising the application of unlimited quantities of fertilisers. No limits were set on diffuse discharges except at Lake Taupo, where more than $80 million was spent on buying off the landowners affected. Some progress was made on improving the quality of point source discharges, including in Waikato where the quality of the Waikato River was improving up to 1998, after which it went into decline again under the influence of land use intensification. Twenty-five years after those promising objectives were set by the councils, water quality has declined markedly across all regions.

Nonetheless it deserves to be said that an important threshold was crossed when, in 2001, the then chief executive of Fonterra, Craig Norgate, approached Fish & Game’s leader, Bryce Johnson, and I, to talk about a response to the Dirty Dairying campaign. Under Craig’s leadership, Fonterra put in place a programme of stream fencing, and signed the Clean Streams Accord. The rate of uptake and compliance by farmers was impressive. It was an exemplary time, in which the dairy sector showed what a co-operative can do. Other farmer-owned co-operatives in the fertiliser sector invested in the development and application of the Overseer model, which enabled farmers to focus on getting better value out of their fertiliser while addressing societal concerns about water quality deterioration.

Despite these measures, dairying’s environmental footprint continued to grow. Recognising this situation, the dairy industry became a key player in the establishment of the Land and Water Forum in 2009. The Forum’s consensus recommendations led to a transformational change in the regulatory environment, with the adoption of the principle that hard limits must be set for water to achieve certain key objectives set at the national level. The national objectives framework is still in the process of being completed, with sediment being a particularly difficult issue to address in a workable way. Regional councils are taking a very long time to write plans to implement the new national policies.

There will hopefully be further progress over the next two years, but it is important to acknowledge that the national limits framework would not have been established under the previous government without the agreement, and indeed, the far-sightedness and commitment, of the dairy industry. My own view has always been that New Zealand’s instinct for pragmatism and collaboration is one of the sources of our competitive advantage in the globalised marketplace. We should keep at it, even if at times, such as with the current Zero Carbon Bill, it seems difficult to find a meeting of minds.

Six learnings from our shared experience with freshwater

  • Contrary to the impression you can get from the media, farmers are well motivated on this issue. Like other New Zealanders, they generally want clean and ecologically healthy freshwaters, and most are willing to implement workable actions that can deliver results. Crucially, many are willing to look seriously at organics, and at alternative land uses such as horticulture. Farmers do, however, need time to deliver; the certainty to make long term investments; and recognition in due course for their achievements.
  • Mitigations in the past were often not scaled to the size of the problems we were facing. For example, we now know, that fencing of streams recognised under the Clean Streams Accord missed 77% of the national contaminant load, which originates in unfenced, smaller streams and farm drains. The overall story is one of doing too little, too late. This has had consequences: the environmental footprint of the dairy boom has become an albatross around the industry’s neck, threatening its social licence to operate.
  • These problems have been aggravated by the extensive practice of grand-parenting continued rights to discharge to existing land users. Pragmatism requires some degree of grandparenting, but only briefly, and with a clear exit strategy that signals strongly to farmers the need to change their land use practices and business models. Unfortunately, in many regions grandparenting has reinforced a sense of entitlement to pollute, and resistance to change. It has also accentuated the resentment the community feels toward farmers and their privileges, further aggravating the problem of social license to operate.
  • Collaborative governance – the building of consensus about limits and their implementation amongst farmers and other stakeholders – has in several cases made an important contribution in a more favourable direction. It builds among stakeholders an in-depth knowledge of the technical issues, and of each other’s interests and perspectives. Collaboration can find widely agreed solutions to problems, and it can assist elected decision makers to arrive at decisions they have put off for years. But it does not work well when key players are left out of the room, or when attempts are made to force non-consensus decisions by voting. Further, in only a few cases have such processes been able to agree on free allocations of extremely valuable nutrient discharge rights. Finally, the consensus-building power of a collaborative process is inevitably weakened when, under our present regional planning system, it is followed by adversarial statutory hearings and appeals processes, which those players with deep pockets tend to see as the real decision-making forum.
  • We are lacking a credible mechanism to hold diffuse dischargers accountable for limits at the property level. There is scope for improving Overseer, although this will take at least a decade, and there is a group of mathematicians suggesting Overseer is fundamentally flawed and needs to be rewritten from scratch. There is also a need to remove its black box character, perhaps by making it open source software, and bringing it into the public domain, although there will be disagreement with this approach. In the meantime there are two ways to improve accountability. The preferred course, based on regulating outcomes, may be to encourage the formation of catchment or sub-catchment groups of farmers who can work together, experiment with new land uses, co-fund joint projects like wetlands and afforestation, and be held accountable collectively for improving the measured quality of the water flowing from their catchment. This is a model that backs farmers’ adaptability, innovation and community spirit. It can also be adapted to address climate change challenges. The alternative, based on detailed, intrusive and inflexible regulation of on-farm practices, and backed up by free allocations of discharge rights, is probably more likely to happen and will serve mainly to reward conformity. It will tend to lock in existing business models, land uses and practices at the very time they need to be transformed. Maybe some combination of these approaches can be found.
  • The regulatory system is also malfunctioning in a more critical way, because it generates two separate products – policy objectives and consents – which are not consistent with each other, and whose incongruence damages the credibility of the whole system. Policy objectives are produced as the warm fuzzies for the general public, while resource consents, certificates of compliance and permitted activities are the extractive rights, akin to property rights, which are granted to vested interests and then more or less automatically renewed. It is these latter instruments which actually dictate the outcomes. Canterbury is the classic example: a lack of limits led to a gold rush for 35-year water permits; when this was followed by depletion of the aquifers and streams, the regional council’s Programme for the Restoration of Lowland Streams experienced a humiliating failure to adjust these entitlements; a massive water storage programme was then introduced to increase summer-available water supplies and relieve pressure on the streams; but in the absence of limits or even proper governance, the irrigated land users simply accreted rights to discharge vastly increased amounts of nitrates into the groundwater. Nitrate levels are continuing to rise in Canterbury; the generous grandparenting of pollution entitlements continues; and there is no credible game plan to reverse this trend, beyond setting vague policy goals which cannot be implemented under current consent settings. So we have a profoundly unstable situation. It is highly reminiscent of the failure of institutions to prevent rent extraction described by Acemoglu and Robinson in their famous book, Why Nations Fail.

Moving from freshwater to climate

In speaking about climate policy, I have to be tentative. There is much discussion still to take place, and it is important to keep the door open to any possibilities for a collaborative approach. The report of the Interim Climate Change Committee, following its long engagement with the agriculture sector, has yet to be published – and there is a need to reflect on that before arriving at any firm views.

Farmers have a legitimate concern that New Zealand should not be frog-marched ahead of other countries in cutting emissions, thereby putting ourselves at a competitive disadvantage. There is indeed a likelihood that other countries may drag their feet, especially in the agriculture area where there is in many countries a long track record of subsidising farmers, and of largely exempting them from the environmental rules which apply to everyone else.

The competitiveness issue is one which certainly needs regular review, and the climate budgeting mechanism in the Bill is precisely intended to deal with it. Given that is already the case, competitiveness cannot be a matter for setting a country’s long-term targets as well: if it were, Saudi Arabia would have a near-zero target for reducing oil and gas, its main export. The long-term targets need to be based on good-faith implementation of what the world signed up to in Paris. If that faith turns out to be grossly misplaced, the Bill can be amended, as we all know.

If maintaining the competitiveness of pastoral agriculture, or of New Zealand exporters generally, is not the purpose of defining the limits in the zero carbon legislation, then what is? The answer is something which we are familiar with from the freshwater context. The limit (or its future equivalent, the target) defines the boundary line between what is a harmful level of contamination, and what is an acceptable level which is capable of being managed by natural processes.

In managing freshwater, we know there will always be active nitrogen, sediment, and faecal bacteria from animals. The purpose of setting a limit is to define the boundary between what nature can cope with, in relation to adverse effects, and what it cannot. That limit – which may be progressively introduced over time and adjusted as uncertainties are reduced – defines the baseline for applying the polluter pays principle, which then defines who should bear the cost of meeting the limit. That in turn provides clarity and certainty for investors – a crucial part of the framework of institutions which still define New Zealand as a developed country.

The zero carbon legislation now introduced to parliament makes it clear that there will have to be substantial cuts to methane by mid-century, although it allows for uncertainties by proposing a range of values to be refined later. The target range has raised some controversy given that there are no obvious means of delivering such cuts – especially at the higher end of the range – without reducing livestock numbers, the central asset on the farm. This problem is hardly unique to pastoral agriculture. It applies as well, for example, to the Taranaki oil and gas industry, or in Whangarei, to the cement works and the oil refinery. The lesson to take is that we all need to be thinking about transforming, rather than fine-tuning, our existing business models.

The future of methane emissions

The world’s intergovernmental science body on climate change, the IPCC, does not recommend particular emission targets or pathways: that is a matter for governments to decide, in a co-ordinated manner. The IPCC does however show the results of some computer model runs which are consistent with what the world’s governments have agreed is their objective: limiting warming above pre-industrial levels to 1.5 degrees. These models incorporate scientific knowledge about the main greenhouse gases, and about the known capacities and costs for reducing them in different parts of the world.

As we progress toward reducing greenhouse gas emissions, there is a tension between physical efficiency and socio-economic efficiency which is relevant to New Zealand’s situation. Let us consider the physical efficiency of the emissions reduction process first. We know that methane is a short-lived gas which, unlike carbon dioxide, does not accumulate in the atmosphere. This means that, in addressing the target of limiting the peak global temperature, it is more urgent from a physical perspective to cut carbon dioxide; and the temperature benefits of cutting methane are somewhat limited until global carbon emissions are themselves approaching the tipping point at which they start to reduce. These factors suggest that a ‘two humps’ approach to curbing our emissions is the right one, as shown in a stylised, conceptual fashion in Figure 1.

Figure 1. A physically efficient approach to emissions reduction: carbon emissions peak first, after which methane reductions have a heightened effect on curbing warming.

Methane reductions, of course, cannot wait until methane reductions can yield their maximum benefit, because the needed agricultural transition will have to be quite lengthy – extending over several decades – if it is not to be highly disruptive and costly for rural communities and for global food chains. If we are to avoid overshooting the 1.5 degree target, warming must reach its peak about 2050. A stream of methane emitted in 2035 will still have a significant effect on the 2050 peak. So we don’t have a lot of time to curb that methane.

If any rural transition is to be truly gradual, it will arguably need to get under way fairly soon. The avoidance of unnecessary costs to farmers, their food processors and their dependent communities, means that the reduction of methane should start earlier than would be suggested simply by a climate physicist’s perspective – in other words, the two humps in Figure 1 should really look more like this (Figure 2).Figure 2. Combining physical efficiency with socio-economic efficiency in a transition to climate stabilisation which has multiple objectives, including avoidance of disruption and fairness.

Some of the IPCC scenarios take two other factors into account, reflecting the realities of the global climate agreements, and of governments’ likely concerns and decisions, especially in developing countries. These are:

    • We can expect most governments to search for the least cost pathway. After the low-hanging fruit has been taken, the cost of cutting methane from livestock is likely to be less than the cost of deeper cuts in carbon dioxide. It is not realistic to imagine that the world will ignore that cost differential, especially in developing countries, just because climate physicists are saying that cutting carbon is more urgent.
    • The climate agreements place an emphasis on equity, and on ‘common but differentiated responsibility’. These terms mean that wealthy people should make cuts earlier than poor people. New Zealand farmers are expected, for example, to reduce their livestock methane emissions earlier than farmers in India, where hundreds of millions of rural people are subsisting on less than five dollars a day and are struggling to meet their basic needs.

These considerations have led the modelers cited by the IPCC to construct some ‘middle of the road’ pathway scenarios which reflect the realities of the world as it is, rather than the ideal world of climate physicists. This is reproduced here as Figure 3, a graphic which portrays the particular middle of the road scenario which also delivers on the 1.5 degree target, with only limited overshoot. The graphic also illustrates the range of uncertainty about methane that is reflected in two different climate models, MAGICC and FAIR, with their different assumptions about methane, both of which are shown here. Anyone who is serious about delivering on the target we have signed up to, needs to study this graphic carefully. For reference, it appears in the IPCC’s latest report as Figure 2.2.

Figure 3. IPCC’s middle-of-the-road scenario for meeting the Paris target, a scenario known as SSP2-19, showing changes in radiative forcing through to the year 2100, for two different computer models embodying different assumptions about methane.

This is only one of a number of scenarios that could be constructed, but because it is designed as a middle-of-the-road scenario, it is likely to be more realistic than some of the others. Some points to draw from the graphic are:

      • to deliver on the Paris targets, not just carbon dioxide but also non-CO2 gases, we must get their radiative forcing to zero before the end of the present century;
      • allowing for a range of uncertainty, non-CO2 gases must get to zero somewhere between 2070 and 2100;
      • on average, given that many countries are likely to take into account the relative cost-effectiveness of reductions in different gases, methane will fall earlier and faster to century’s end than carbon dioxide.

It remains New Zealand’s own choice how long we delay our own reductions in methane. The important points about the Zero Carbon Bill’s treatment of this issue are:

      • While the Bill is often promoted as though it will achieve climate neutrality for New Zealand, it really only achieves neutrality for carbon dioxide and nitrous oxide.
      • Because the targets draw a veil over what needs to happen beyond 2050, the Bill obscures the fact that methane emissions, just like carbon emissions, will eventually need to get to zero.
      • The only firm target for methane is a 10% reduction by 2030. This can be achieved without introducing any significant new policies or actions; all that is required is for the livestock sector to continue to improve its overall efficiency at the historical rate of about 1% a year.

Twenty-seven years after the signing of the Framework Convention on Climate Change, and in the light of our experience with freshwater, is it really a good idea for New Zealand to legislate once again to create entitlements which protect farmers from having to make changes?

The perspectives set out in this paper are intended not to provide any prescription for farmer action, but to rather provide a context and basis for discussion.

Clean, green and on to it – the new farmer New Zealand needs

Let me conclude with a plea for a transition framework – applied in meeting both freshwater and climate limits – that provides strong incentives for innovation.

The model for this is being provided in Taranaki, and it builds on the attributes I saw there and described at the outset of this talk – our can-do spirit and adaptability; our cohesive networks that make things happen; our agility in responding to opportunities; and the commitment that our people have to the places and communities where they live.

Key elements of this include:

    • being honest with farmers about what the future holds;
    • taking seriously the choices we now face regarding what is the right thing to do;
    • putting in place the right price incentives to move over time toward meeting environmental limits;
    • supporting those willing and able to change their farm business models, with research and know-how relevant to their geographic context;
    • enabling farmers whose stage in life and/or appetite for risk, for whatever reason, limits their willingness to change, by providing a menu of low- or no-cost adjustments they can make to their existing farming models, along with an ability to exit with respect and their capital at any time.

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