Rabobank report explains necessities for ETS success

February 17, 2011

Understanding the workings of the emissions trading scheme (ETS) and engaging effectively in the policy process are among the keys to successful management of the ETS by New Zealand’s food and agribusiness sector, according to a new industry report.

In its Global Focus report - Carbon emissions trading in New Zealand, leading agribusiness banking specialist Rabobank says with agriculture scheduled to enter the ETS in 2015 and already affected – through the existing inclusion of forestry and energy – the sector faces both risk and opportunities from the scheme.

“Rabobank believes that for New Zealand to successfully manage its participation in the ETS, the food and agribusiness (F&A) sector should ensure it understands how this scheme works, the risks and opportunities it presents and how these risks can be minimised and the opportunities capitalised on,” the report says.

New Zealand is the only country to date which plans to include agricultural sector emissions under its ETS, raising concerns about the domestic food and agri sectors ability to compete against international food producers who do not face a carbon cost.

The report’s author, Rabobank general manager – Food & Agribusiness Research and Advisory Justin Sherrard says with both major political parties in New Zealand apparently committed to the ETS as the main means of cutting carbon, the F&A sector will need to find a way forward with the ETS that “shifts the balance from risks to opportunities”.

Understanding

Key among this, Mr Sherrard says, is detailed understanding of how the ETS works, including the drivers behind it.

“These drivers include the climate change science and the global commitments to cutting emissions, as well as the actions of major global food manufacturers and retailers to cut carbon from their supply chains,” he says.

Policy engagement

The report says the food and agribusiness sector must play an active role in engaging in the policy process before agriculture enters the scheme.

“Two reviews are scheduled before agriculture sector emissions come under the ETS in 2015,” Mr Sherrard says. “These offer important opportunities for the sector to advocate changes to the ETS that can help manage risk and enhance opportunities.”

Mechanics of carbon pricing

It is also important for those in the sector to understand the mechanics of carbon pricing – how it is set and changed and how pricing can be moved through the system, Mr Sherrard says.

“Seeking opportunities to pass increased costs to downstream customers is one way for agricultural producers and processors to reduce risks,” he says.

“There may be opportunities in end-markets if global retailers and their customers accept the role of carbon pricing in producing food in New Zealand. However, it will require concerted advocacy to secure this sort of recognition.”

Opportunities and innovation

The Rabobank report says the ETS potentially presents two sets of opportunities for New Zealand’s F&A sector: a ‘narrow’ opportunity to manage on-farm forests to gain saleable NZUs (carbon credits) and a ‘wider’ opportunity to use carbon pricing to drive efficiency gains.

“Under the forestry provisions of the ETS, landholders can earn units for carbon stored in their forests. And this is a potential source of revenue for agricultural producers to earn income from carbon credits, although it does come with some associated liabilities in terms of re-planting provisions and long-term commitment to forestry land-use,” Mr Sherrard says.

“Some opportunities also exist for agriculture to minimise exposure to the carbon price by switching to low-carbon alternative energy and focussing on energy efficiency.”

Costs associated with the ETS could be managed by achieving further productivity gains, according to the report.

“The global leadership position adopted by New Zealand in terms of the ETS can create opportunities for the industry if carbon can become a new driver of productivity gains or market competitive advantage across the F&A sector,” Mr Sherrard says.

“This could include capitalising on global research to develop low-carbon food production systems and gaining preferential access to export markets as a responsible carbon manager.”

Investing in this innovation is a shared responsibility for governments and the industry, the report says.

Rabobank Australia & New Zealand is a part of the international Rabobank Group, the world’s leading specialist in food and agribusiness banking. Rabobank has more than 110 years’ experience providing customised banking and finance solutions to businesses involved in all aspects of food and agribusiness. Rabobank is structured as a cooperative and operates in 48 countries, servicing the needs of more than nine million clients worldwide through a network of more than 1600 offices and branches. Rabobank Australia & New Zealand is one of Australasia’s leading rural lenders and a significant provider of business and corporate banking and financial services to the region’s food and agribusiness sector. The bank has 85 branches throughout Australia and New Zealand.

ENDS

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