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Emissions, Climate Impacts, and Agriculture.

October 8, 2009

Australia has plans to include agriculture within an emissions trading scheme (although a policy decision on the mechanism has been deferred until 2013), and New Zealand has also included agriculture within theirs.    As such, production costs from these sectors will increase due to the cost (or opportunity cost) of holding and redeeming emissions permits.

It is interesting to consider what nexus exists between the possible impacts of anthropogenic climate change and agriculture.  On the one hand, agricultural emissions are quite significant (in particular from livestock) and amount to 16% of Australia’s annual national emissions, and the second largest contributor of greenhouse gas emissions by sector.  As such they constitute an important ‘wedge’ of emissions that need to be addressed.

On the other hand, growth in agricultural productivity and output is likely to be significantly influenced by the impacts of climate change – in particular changes in water stocks and flows, and atmospheric CO2 will influence plant growth and productive resource availability.

In Australia, agricultural Primary Industries gross production value is about $40 billion annually, and represents 15% of Australia’s total exports.

The Australian emissions trading scheme, the ‘Carbon Pollution Reduction Scheme’ or CPRS, may mean that eventually Australian agriculture will have to surrender emissions permits for every tonne of greenhouse gas emissions that are produced, which may include participation in the carbon markets through purchasing carbon credits.  Prior to inclusion of agriculture, the main effects will be through the impacts of increased fuel and electricity prices, and the possible inclusion of dairy and meat processors (due to their surpassing facility threshold levels).

The Government states that a fuel credit to farmers associated with the CPRS will be equal to the increase in fuel costs.

 

ABARE modelling suggests that this will greatly reduce the impact of the CPRS on farm production costs, with expected increases of between 0.2 and 0.5% for most farms.

 

The Australian Farm Institute argues that the value of Australian agricultural production will be reduced by $2.4 billion per annum by 2020, and $10.9 billion per annum by 2030 compared to a business-as-usual scenario because of the Australian Emissions Trading Scheme – the Carbon Pollution Reduction Scheme (CPRS).

The economic modelling, carried out by the Centre for International Economics, identifies that the biggest impacts of the CPRS will be on the Beef, Wool, Sheepmeats, Pork and Dairy sectors of agriculture, with these experiencing production declines of 9%, 6.8%, 5.8%, 3.9% and 2.7% respectively by 2020, and 28.2%, 27.5%, 21%, 10.4% and 8.1% by 2030 compared to a business-as-usual scenario without a CPRS.

The issue is that, under the approach of the United Nations Framework on Climate Change and the Kyoto Protocol, developed countries must lead in emissions reduction, while others will follow.  The early pricing of agriculture emissions in developed countries (including Australia) presents the possibility of a distortion of input costs and product prices between developed and developing agriculture markets.  The impact of this might be reduced domestic investment and production while, in addition, the impacts of climate change and climate variability may stress the ability to generate production productivity in a number of global food-producing regions.

The Australian Government admits the requirement to work

to shape a global solution on climate change that takes account of the interests of Australian farmers.

On the same track, in September the New Zealand Prime Minister announced an initiative for a ‘Global Alliance’ to address  carbon reduction in the agriculture sector, and appointed a special envoy for that purpose.  Strong interest was quickly received from key nations, including Australia.  The interest of New Zealand in such an engagement mechanism is clear, given the importance of agriculture both within the context of the sector’s emissions to their national inventory, but also due to the sector’s importance to the national economy. 

But there are other reasons for Australia to act pro-actively on behalf of the agricultural sector on climate change issues.

At the end of September, the International Food Policy Research Institute published the Food Policy Report ‘Impact of Climate Change on Agriculture’.  In short, it states:

 Higher temperatures eventually reduce yields of desirable crops while encouraging weed and pest proliferation. Changes in precipitation patterns increase the likelihood of short-run crop failures and long-run production declines. Although there will be gains in some crops in some regions of the world, the overall impacts of climate change on agriculture are expected to be negative, threatening global food security.

 There are significant implications for nutrition, food and political security.  It should be noted that South Asia is expected to be particularly hard hit.  This presents a significant national security issue for Australia.

 The Intergovernmental Panel on Climate Change Fourth Assessment Report in 2007 concluded that the Australian agriculture sector is particularly vulnerable to climate change.  Last year CSIRO issued a report on climate change impacts and adaptation for agriculture.  It concludes that

Practicable and financially-viable adaptations will have very significant benefits in ameliorating risks of negative climate changes and enhancing opportunities where they occur. The benefit to cost ratio of undertaking R&D into these adaptations appears to be very large (indicative ratios greatly exceed 100:1).

 In effect, there are in some instances opportunities to avoid some of the potentially negative impacts of climate change on Australian agriculture, which could improve productivity and output in terms of a scenario of climate change, and even on a business-as-usual scenario.

An indication of the sort of initiatives which is implied, while the issue of drought (and possible link to anthropogenic climate change) is an obvious and ‘easy’ target politically in Australia, is investment in crop production water infrastructure.

The Australian Government has committed $5.8 billion, through the Water for the Future programme, to sustainable water programmes in Australia, including on-farm efficiency improvements, and irrigation modernisation planning and implementation.

Much more will be needed, including increased investment in soil and crop research and development, and feed and dietary supplement development.

The recent joint announcement at the G20 in l’Aquila on Global Food Security underlines concerns related to food price volatility, food market price distortions, and requirement for massive investment and coordination.  As a party to the G20, no doubt Australia will commit to its share of the $20 billion stipulated over the next three years for these issues.

Emissions abatement and food productivity-enhancing technology and techniques, as well as in irrigated agriculture enhancement, should present a substantial growth market opportunity given the scale of the problem, and the investment required.

In the context of the impending Copenhagen negotiations on a future climate treaty, the continued pressure and expectation from all parties to reduce emissions across all sectors including agriculture, and on-going concern related to food resource acquisition to keep growth with population growth and dietary change, the ability to focus adequate pooled resources as an outcome of international discussions is all-important. 

We wish the Global Alliance well.

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