A Fonterra Guide to Climate Change

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How do rules on forestry affect my farm?Farmers who have planted forest land since 1990 have the option to earn ‘carbon credits’ for the carbon stored in theseforests. Farmers may claim all carbon stored since 2008, however they will need to do this before the end of 2012. Farmerswho claim these credits should be aware that if the forest is harvested the credits need to be paid back.Under the ETS there are costs associated with converting forest land (greater than 2 hectares) that was forested in 1989into pasture land. The Ministry of Agriculture and Forestry (MAF) is currently working on regulations that will allow ownersof pre-1990 forest land to either receive emissions units as partial compensation for these costs and associated loss of landvalue, or, where less than 50 hectares of ‘pre-1990’ forest land is owned, to apply for exemption from the costs.Compensation levels depend on when the land was bought. If the land was bought since the time that New Zealandsigned the Kyoto Protocol, and agreed to the forestry rules that it contained, then there is an expectation from theGovernment that possible restrictions on land use will have been factored into the purchase price.The compensation levels are:• 18 emissions units per hectare for land granted to Iwi as part of a treaty settlement after the January 1, 2008 (value of$450 per ha)• 39 emissions units per hectare for land purchased after the October 31, 2002 (value of $975 per ha)• 60 emissions units per hectare for all other land (value of $1,500 per ha).For more information on forestry in the ETS see the MAF website (www.maf.govt.nz) or call the Government helpline on0800 CLIMATE (0800 254 682).How is Fonterra’s supply chain likely to be impacted by the EmissionsTrading Scheme?When stationary energy and transport emissions enter the ETS in July 2010 Fonterra will face increased electricity andtransport fuel costs. In addition, the cost of gas, coal and steam used in our plants will increase by around 10 per centinitially and then by 20 per cent from January 1st 2013.These increased costs equate to $25 million per year from July 1 2010 and over $50 million per year after 2013.
In preparation for emissions trading we already monitor emissions of carbon dioxide from our manufacturingoperations and report these internally. We have also set up a simulated emissions trading scheme between ourmanufacturing sites, so we already have systems in place to monitor and report emissions.Are there any other parts of climate change policy that may affect myfarm or Fonterra?The New Zealand Energy Strategy released by theprevious Labour Government in October 2007 placedcommitments on New Zealand energy to becomemore emissions friendly. It included a target of 90 percent of New Zealand’s total electricity generation to berenewable by 2025. The new Government supportsthis target, but considers security of supply as a moreimportant priority.Any move to increase renewable energy is likelyto increase electricity costs. This is due to thesubstantial national grid upgrade that would berequired to cope with a greater load of renewableenergy. There may also be a risk that new renewableelectricity generation would be more prone to theenvironmental variances that affect supply than thethermal generators it replaces.Another climate change policy of note to dairyfarmers is the Afforestation Grant Scheme (AGS).The AGS policy encourages the planting of Kyotocompliantforests on previously unforested landthrough government grants. However, to be Kyoto compliant a forest must be at least 30 metres wide and at leastone hectare in size. Under the scheme, participants will own the new forests and earn income from the timber, whilethe Government will retain the sink credits and take responsibility for meeting all harvesting and deforestation Kyotoliabilities.What actions can be used to reduce emissions, offset emissions orgenerate emissions units?There are practical management practices that can reduce emissions per kilogram of milk solids, albeit at the margin.• Methane emissions occur from natural ruminant digestion. Increasing milk production per cow will reduce theamount of methane per kilogram of milk solids and therefore reduce farmer’s emissions liabilities under theintensity method of allocation.• Practices to reduce nitrogen leaching, such as the use of a standoff pad or the use of nitrogen inhibitors, may alsoreduce nitrous oxide emissions from urine. Reducing fertiliser use will reduce nitrous oxide emissions.• Decreasing herd replacement rates will reduce the number of non-productive cattle in the herd (i.e. raising heifers),removing these emissions from the farm system.• Afforestation by farmers can generate emissions units to partly offset the costs of the ETS.Fonterra and/or suppliers can purchase any emissions units that are required to meet obligations from:• The New Zealand GovernmentIncreasing milk productionper cow will reduce theamount of methane perkilogram of milk solids9
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Page 4 and 5: A: CLIMATE CHANGE AND NEW ZEALANDWh
Page 6 and 7: What is the New Zealand Government
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A Fonterra Guide to Climate Change

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