Labors Carbon Tax on Farms

labors-carbon-tax-on-farms

Carbon emissions and targets are back in the news and farmers should be keeping a wary eye on what the competing promises could cost them in the future.  The first one is the National Farmers Federation target of being carbon neutral by 2030, by all accounts this is achievable at minimum cost to farm businesses by utilising land management offsets.

Then we have the Liberal Party’s emissions reduction target of 26% by 2030 which is achievable at a stretch with some clever investment in new technology but not to be outbid the labour party has locked in its energy policy by setting an emissions reduction target of 45% and a renewable target of 50%.  Not that we need to set any new targets as Australia will be one of the few countries to meet its 2020 Kyoto targets, the rest of the world  should be encouraged to catch up before we race of into the future on our own.

What’s this all mean for grain and pastoral farmers across Australia.  Well to start with their power bills will continue their steep climb upwards, but as most are not running much more than the homestead, workshop and shearing shed they can probably live with it.  Some may even have taken advantage of a solar system to feed back into the grid and those frustrated with the reliability of the grid may have even gone all out and put in place a battery storage system bringing back memories for some of the good old days of 32 volt lighting systems and banks of leaking car batteries in the generator shed.

So far so good.  Agriculture is not directly targeted by either political party to pick up the costs of their carbon targets other than hitting high energy users like horticulture which run big cool rooms and irrigation pumps with the inevitable higher power prices. On the up side Shorten’s renewable energy target will be supported by $10 billion in additional taxpayer subsidies (read tax paying farm businesses and families) no doubt good for the renewable rent seekers building wind farms and solar systems, not so good for Australia’s credit rating.  But subsidies alone won’t be enough to achieve the emissions reduction target set by labour as most of the funding will go towards building more renewable energy systems ignoring the fact that Australia’s electricity energy production accounts for just one third of Australia’s carbon emissions.

If we go back over the numbers, between 2005 and 2017 Australia’s emissions fell by just 43 million tonnes from 597 to 554 million tonnes. That reduction was overwhelmingly due to a one off contribution from new restrictions on land clearing plus a scattering of wind farms and roof top solar that was only made viable with billions in government subsidies and higher power tariffs forcing changes in consumer behaviour.  Emissions from all other sectors have been flat or growing.

The facts are that corporate and household investors have only piled into the renewable sector because of the government subsidies on offer, without them they would not put anywhere near the investment in as the returns are just not there.  But the more renewables forced into the grid the more the transmission system staggers under the fluctuating loads, as many farmers at the end of the power line well know as they watch the power flicker on and off. And the higher the government then has to lift charges for poles and wires as the system is reengineered. And around we go the more renewables producing cheap energy when the wind blows and the power shines the less viable are the big base load producing coal fired power stations, the more the whole system comes unviable.

The end result is the renewables are taking base load business off coal fired power stations which is great until the wind stops blowing and the sun stops shining. Without cheap base load producers there is no guaranteed power to keep the cool rooms cool and the irrigation pumps pumping which will force some horticultural and dairy farmers out of business. This is the reality of what is proposed by ambitious political emissions targets designed to buy green votes.  The problem is as we get closer to 2030 the ALPs $10 billion is not going to achieve the massive emission reduction target that they have set.

Labours target of a 45% reduction requires reducing emissions from 554 to 328 million tonnes.  The difference between the ALP and the liberals 26% target of 442 million tonnes equates to 114 million tonnes. The liberals target is ambitious enough but to attempt to reduce emissions by a total of 226 million tonnes over the next 11 years is 4 times more than what has been achieved in the past 12 years.  Such a massive reduction will require cuts across all parts of the economy including agriculture.

As Ron Boswell pointed out in The Australian on 28 November – CO2 Targets Will Dice Our Economy the difference between the Labor and Liberals targets approximates the emissions from the entire red meat, dairy, trucking, domestic aviation, rail and bus sectors.  So, assuming an ALP government is not able or willing to turn our entire power generating system over to renewables in the next 11 years it raises the question where are they going to find the 226 million tonnes.

It’s highly unlikely Shorten will want to see another doubling of wholesale power prices as has happened over the last 10 years nor will he want to load up the price of petrol end energy with a carbon tax as both measures will unfairly hit the battlers struggling to pay the petrol and power bill on their old commodores and landcruisers on the road or running their energy hungry weather wall airconditioning units at home.

This leaves either big business or the agricultural sector to take the hit.  Big business includes big users like Telstra, Coles and Woolworths who make all the right noises about wanting carbon certainty and have the capacity to invest in the most efficient energy technology and buy carbon credits from renewables or carbon sinks but they will be able to carry the cost by simply passed them on to domestic consumers.

That leaves the other big emitter which is primary industry which is responsible for about a third of emissions.  For a Shorten government they will be easy pickings as they are the home of mainly conservative liberal and national party seats, mines and farms outback along way from the inner city voter, so politically the cost will be small compared to targeting families fuel and power usage.

Nick Carter from the Menzies Research Centre has pointed out Meet the Biggest Threat to our Energy EconomyThe Australian  Monday 26 November 2018 that there is a high chance that farmers will face further land use restrictions and be held responsible for the methane and nitrous oxide flatulence from their livestock.

About 70% of agricultural emissions come from enteric fermentation burping and farting livestock which equates to 10% of total national greenhouse gas emissions.  For agriculture to play its part in the ALPs reduction target would require the halving of Australia’s sheep and cattle herd and the upgrade of all our agricultural equipment to the latest Euro 6 low emissions diesel engines.

The easiest way for the government to make this happen is to start by removing the offroad fuel rebate and place a carbon tax on heavy diesel engines and on livestock. A quick calculation of the emissions from Australia’s 65 mission sheep and 25 million cattle and we are looking at an offset carbon tax at around $ x per sheep and $ x per cow at the current Australian carbon trading benchmark rate of $18 tonne.  Carter goes on to point out that the political equation that the ALP will be calculating in government is do they put emission limits on cars as strident as Europe where the 2021 benchmark has been set at 95g/kg, less than half the output of a ford territory or do they go after the heavy engines in the transport and agricultural sector.

It is clear that Shorten will not directly target battlers even though they will ultimately pay through higher food costs, lost job opportunities and a slower growing economy.  Families driving 10 year old cars or big four wheel drives in marginal outer suburbia seats will be spared higher fuel taxes instead he will be looking to target some other group of high emitters but which offer a far lower risk of a backlash in the ballot box. That is farmers in safe coalition seats.

We already see the pressure that Europeans place on their transport industry to run Euro 6 low emission engines.  If we translate this across to Australian agriculture which has remained viable and competitive against subsidised European farmers in part by relying on the use of older tractors and trucks on farm, we will end up struggling to stay globally competitive which will see farmers exit the industry.  The first to go will be the smaller family farms running older gear and heavily reliant on livestock.

Any more to impose a carbon tax, higher fuel costs or minimum engine emission standards on the machinery used on farm would see Australian agriculture slowly grind to a standstill.  There are very few farms that don’t have a pre-2000 tractor or truck as part of their plant and machinery in fact the average age in a majority of equipment on farms is probably around 2000. That puts us back to the question on the cost of moving to Euro 6 engines.

Run that through any farm budget and see what it looks like, all new gear, no diesel fuel rebate and half the livestock, it would be all over for most farm businesses in Australia.  Even if a government were to start slowly with a halving of the diesel fuel rebate and a compulsory quality assurance scheme forcing farmers to account for their carbon footprint, the door will be open for additional costs to be imposed as we approach 2030 and the panic sets in that the government is going to wildly miss its target.

Such theorising of what’s coming is not scare mongering it is just rational deduction on what is required to achieve the 45% target.  Without Shorten ruling out additional carbon costs on agriculture we have to assume that in government Treasury and the Department of Energy will be running the numbers on our sector. We know what is politically untouchable and what is the next obvious target after coal fired power stations, the big companies and the heavy transport sector, it has to be agriculture.  Livestock and farm machinery are logically now in the firing line.

We as an industry only have to look to look at past debates in Australia and today in Europe to see what’s coming in terms for the push for comprehensive carbon taxes. Unfortunately, we don’t have the advantage of a subsidised European Union to bankroll governments regulatory excesses we just have a brutal global market that does not pay for our carbon virtual signalling.  So, unless you are in the fortunate position to be operating nice new green, yellow or red farm machinery and running no livestock your farm business could be part of labor’s future climate change solution.

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