Tradable Energy Quotas will reduce Agricultural Emissions

Dairy cows eating palm kernel expeller

When Degrowth Aotearoa New Zealand (DANZ) first became keen on advocating for Tradable Energy Quotas (TEQs) as invented by David Fleming, we were worried that TEQs wouldn’t reduce our huge agricultural emissions, particularly methane and nitrous oxide. This piece explores the potential impact of TEQs (a form of rationing fossil fuels) on agriculture, the role of fossil fuels in farming. It concludes that TEQs will result in a decrease in agricultural emissions.

Fossil fuels have turned traditional farming upside down. Coal, diesel, oil and natural gas have played a significant role in transforming labour-intensive practices to modern mechanised agribusiness. These fuels power tractors, other farm machinery, milk processing and transport. They also play a major role in making synthetic fertilisers and pesticides, crucial for high yield farming. Moreover the introduction of fossil fuels allowed for the expansion of agricultural lands, conversion from sheep farming to dairy farming and the move to larger farm units using intensive agriculture.

Agricultural emissions, TEQs, fossil fuels and fertilisers

Fonterra’s milk tankers travel 100 million km a year

Our agricultural emissions are mainly methane from cattle digestion, but some nitrous oxide. Methane is a short-lived gas that is about 80 times worse than carbon dioxide when it is in the atmosphere. And that is only about 12 years.

Our methane emissions from agriculture are larger than our emissions from transport, electricity and other combined by 2020. We emit the same amount of methane as we do carbon dioxide. Almost all come from enteric fermentation in the stomach of New Zealand’s 6 million dairy cows and 3.9 beef cattle.

Our fertiliser use is up 600% since 1990 and it is all made using fossil fuels. It is these synthetic fertilisers which have enabled our tripling of dairy cows in the last 30 years.

Nitrous oxide (N2O) is a potent and long-lived greenhouse gas. In New Zealand, most nitrous oxide is produced by micro-organisms acting on nitrogen introduced to the soil via livestock urine or synthetic fertilisers. The rise in the use of urea has helped raise our nitrous oxide emissions by 46% since 1990.

Fossil fuels are essential in the production of synthetic fertilisers and pesticides, which have significantly increased milk yields and beef and sheep production. The Haber-Bosch process which relies on natural gas as a feedstock, enables a large-scale production of ammonia for nitrogen-based fertilisers like urea and diammonium phosphate (DAP).

Irrigation and other equipment involving fossil fuels brings agricultural emissions

Fossil fuels have also played a crucial role in the expansion of irrigation systems. Fossil fuels are needed in intensive agriculture because they provide energy input for various processes and activities. They are used for ploughing, transport, fertiliser and pesticides. The milk drying process still uses natural gas and coal but Fonterra with its 30 processing factories for drying milk to milk powder around the country, says it is trying to phase out coal. Even in New Zealand with all our renewable electricity, about 18 percent of electricity is produced using fossil fuels. But Fonterra, through all its operations, is by far our greatest polluter.

Then there is the manufacture of equipment – milking sheds, milk vats,  livestock trucks, milk tankers. A lot of embedded fossil fuels are involved in these imports. Fonterra’s diesel milk tankers travel 100 million kilometres a year.

So our dairy industry in New Zealand relies on various imports for such as fertilisers, pesticides, machinery and vehicles.

How Tradable Energy Quotas (TEQs) would affect emissions

In all of these situations, the introduction of TEQs will reduce emissions. The ration tickets or TEQs required to surrender when using fossil fuels will cost money and this cost will be passed onto the farmer. With rising costs of fertilisers, farmers will be tempted to use regenerative methods of farming or at least reduce their fertiliser input and/or reduce the number of dairy cows they carry. Moreover, if a fertiliser is imported, its embedded fossil fuel will be subject to border tariffs under the TEQs scheme. (Border tariffs for climate purposes are allowed under the World Trade Organisation even with a free trade agreement)

Embedded Fossil Energy in Supplementary Feed and other imports need climate tariffs

Dairy cows eating palm kernel extract

In 1990, 96% of the total diet of dairy cows was pasture. But by 2017 it was down to 82% because during those decades we have been importing PKE (palm kernel expeller) as supplementary feed for dairy cows.

During the extraction of the raw materials and the manufacturing processes fossil energy is required. The first step in the production of palm kernel extract is the extraction of palm kernel oil from the palm kernels. This process typically involves mechanical extraction or solvent extraction methods. Mechanical extraction utilises machines and equipment that may rely on fossil fuel-powered engines, such as diesel or petrol, to operate. Solvent extraction may involve the use of chemical solvents derived from fossil fuels, which assist in separating the oil from the kernels.

Packaging the palm kernel extract and distributing it to end-users can involve additional fossil fuel usage. The production of packaging materials, such as bags or containers, may require energy derived from fossil fuels. Transport of packaged palm kernel extract to retailers or farmers also contributes to fossil fuel consumption.

We now import 2 million tonnes of PKE a year for dairy cows.

The production and distribution of another common feed, maize silage, will also involve machinery and front-end loaders dependent on fossil fuels.

So there is embedded fossil energy even in these two feeds, which are used widely, especially in the North Island.

And it will apply to all imported agricultural machinery like tractors, irrigation equipment, fertilisers, pesticides etc

Examples of TEQs with fertilisers and feed

Ballance factory at Kapuni manufactures urea, a nitrogen fertiliser

How would TEQs work for nitrous oxide? The Ballance factory making urea in Kapuni (above) would have to surrender TEQs when they buy their natural gas from the fossil fuel company extracting it at Maui gas field. They would pass the cost on to the consumer and the price of urea would rise. At the moment urea is a cheap farming input, but farmers can’t stand much more in the way of price rises.

The extra feed of imported PKE would also attract tariffs as its manufacture involves fossil fuels. So it has embedded fossil fuel energy. If farmers used less PKE or urea as a result of price rises and adopted more natural practices it would reduce both methane emissions and nitrous oxide emissions. However, the other response of farmers may be to diversify some of their production.  There are 200 TV episodes of Country Calendar where a Southland farmer tries hops and grapes, a South Canterbury farmer grows buckwheat, or farmers change to sunflowers, hemp, berries or produce for the markets.

Top dressing and helicopter companies would have to surrender TEQs when they buy fuel, and once again the price of artificial fertilising would increase.

All that said, methane might remain a hard nut to crack. Remember that because they are short-lived the methane going up today is just replacing the methane already up there. It is now hopefully clear that with TEQs will increase the price of feed and fertilisers continually as the rations reduce year to year. That will incentivise change and reduce emissions. But after that, the way to reduce methane emissions is simply to reduce the dairy herd and convert to regenerative farming methods suitable for the soil and climate.

The Role of Government with TEQs

It is clear that we will have to repurpose land for horticulture instead of at least some dairy. All this change will result in stranded assets and unmanageable bank debts for many farmers, especially dairy farmers. There is definitely a role for Government in debt relief. New Zealand farms carry around $60 billion of debt, according to recent Reserve Bank data in 2023. Tension is growing as interest rates rise.

In the Depression of the 1930s many farms got into financial strife. The Rural Mortgagors Final Adjustment Act, passed in April 1935, was designed to encourage voluntary settlements between the mortgagor and his creditors. Historians Barrie McDonald and David Thompson write that
“some £8.5 million was written off existing rural indebtedness by final adjustments in 1937-8”.

Transitioning to using more land for grains, fruit, hemp and vegetables will now be the preferred option, given giving increasing demand for those products, the shift to plant-based foods and regulations controlling nitrogen runoff. Government help is needed here.