‘No certainty global emission ‘leakage’ will come from reduced dairy exports

Climate Change Commission reports and global studies show little reason to conclude that reducing New Zealand’s agricultural output is certain to lead to increased global climate emissions.

National Party leader Christopher Luxon and political commentator Matthew Hooton this week both made versions of the claim that the environment would be worse off if New Zealand’s international customers turn to dirtier producers offshore.

“Every time there is one less cow in New Zealand and one more in the US, the world gets just that little bit hotter,” Hooton wrote.

The issue is (somewhat unfortunately) known as “leakage”.

It basically describes whether interventions to reduce emissions, for example making farmers pay for the climate gases they emit, would cause farmers to lose market share to international competitors who don’t face similar measures.

The Climate Change Commission (CCC) released a report on the issue earlier this year which canvassed a number of studies done in New Zealand and overseas.

It found that globally “there is little evidence that emissions leakage is a material issue in sectors covered by

different emissions pricing systems and climate policies”.

Ultimately, it said the risk could be addressed and it was not a reason to shy away from reducing emissions.

Risk ‘highly uncertain’

The CCC found various studies came to different conclusions depending on the assumptions baked in.

It cited a report from the International Monetary Fund which concluded that there was no consensus in the theoretical literature about the amount of leakage, and where emissions would increase or decrease, due to countries’ varyingly ambitious emissions reduction policies.

On Tuesday the government released for consultation its plan to price agricultural emissions, which has prompted pushback from farmers with sheep and beef producers particularly hard hit, but it has also irked environmentalists.

CCC commissioned modelling from Lincoln University found introducing a price for agricultural emissions in Aotearoa would be expected to reduce emissions domestically and to reduce net global emissions

“While there will always be a risk of emissions leakage when countries unilaterally price emissions, the ample body of theoretical literature suggests that there is no consensus about the size of emissions leakage or where emissions would increase or decrease due to uneven implementation of greenhouse gas emissions reduction policies.”

The CCC report said: “Overall, we assess that risk of emissions leakage for agriculture if emissions pricing is introduced in Aotearoa is highly uncertain.”

An OECD report cited in a separate CCC document found that as long as agricultural producers have access to and adopt emissions reduction technologies, pricing agricultural emissions always leads to a net reduction in global agricultural emissions.

Empirical studies of leakage in other sectors mostly found the effect was limited, and as New Zealand will be the first country to price agricultural emissions there are yet to be empirical studies on the topic.

The dairy and sheep and beef sectors are large export sectors, around 95 percent of milk and 85 percent of meat is exported each year.

New Zealand products are mainly consumed by the world’s growing middle-class and high-end consumers.