New Zealand's primary sector is a heavy net exporter, and market access is changing rapidly. International customers are putting more and more pressure on businesses to decrease carbon footprints so they can meet their own sustainability targets. Compliance and regulations on reporting are increasing. Most businesses start by tackling low-hanging fruit, such as switching to renewable energy, which falls within direct business operations or energy use, categorised as Scope One and Scope Two emissions.
For most processors, Scope Three emissions are eleven times larger than Scope One and Two combined, with over 90 percent of their emissions footprint in the supply chain. This contrasts with farmers, who have over 90 percent of their emissions coming from Scope One. New Zealand's agricultural sector emissions vastly outstrip the amount of sequestration, particularly native sequestration, available on farms to neutralise those emissions.
Approximately 25 to 35 percent of New Zealand's forests are on privately held land, with a significant portion on farmland. Many native forests behind the farm gate are not eligible for the Emissions Trading Scheme (ETS) but are still sequestering carbon. These forests offer a valuable opportunity to participate in supply chain carbon removal programmes.
With limited native forests available, understanding and maintaining control over carbon removals is becoming increasingly important for farmers and businesses alike. Let’s explore what carbon sovereignty entails, how supply chain removals work, and what makes a good carbon programme.
What is Carbon Sovereignty?
In the most simple terms carbon sovereignty refers to the control over carbon removals. It’s the power to decide who gets what carbon, from where, and when.
In practice, carbon sovereignty means that a farmer or landholder can decide who gets their carbon removals and when. For example, a landowner might have multiple opportunities to engage in carbon programmes. They might choose to register part of their forest in the Emissions Trading Scheme (ETS) while reserving other areas for different voluntary carbon removal programmes. This ensures they can maximise benefits and retain flexibility in how they manage their land.
Carbon sovereignty also means being aware of the implications of various contracts and programmes. For example, entering into a long-term forestry lease might cede control over a portion of the land, but if the terms are favourable, it could make good commercial sense. Conversely, committing all carbon credits to one programme might limit future opportunities, highlighting the importance of making informed and strategic decisions.
Carbon removals - sourcing within the supply chain
No one is expected to be net zero tomorrow, but businesses are under increasing pressure to show progress toward that goal. Supply chain removals refer to carbon removals sourced from forests within a business’s own supply chain, often from their farm suppliers, supporting them to achieve emissions reduction goals.
A carbon removal programme from a farmer's point of view involves enrolling multiple areas of the farm in multiple programmes. For example, if you're a sheep and beef farmer, you might already have forest registered in the ETS. However, your wool buyer might have a supply chain carbon removal programme, your meat processor might also have one, and perhaps even your regional airport is interested in the carbon removals from your land. These opportunities make maintaining carbon sovereignty key.
Knowing how these programmes interact, avoiding the possibility of double counting, and maintaining flexibility to adapt and grow with partner opportunities is crucial. It used to be relatively simple, with most activity focused on the ETS and relatively little happening around carbon offsets. But as primary sector businesses increasingly look to their own backyard to reduce their emissions footprints, more and more channels are opening up.
So, what makes a 'Good' Program?
A good carbon program is characterised by several key aspects:
Clarity The program should have clear and understandable terms, conditions, and obligations. Participants need to know exactly what they are signing up for, the duration of their commitments, and the consequences of their actions within the program.
Alignment The programme should align with the participant’s long-term goals and values. For example, if a farmer supports native regeneration, the programme should incentivise such activities.
Flexibility Participants should have the flexibility to diversify and spread their involvement across different carbon programmes. They should also have the option to exit programmes if better opportunities arise.
Value The programme should offer fair compensation for the carbon credits generated. Participants should understand the payment structure, and recognise the differences between the market rate and what is being offered based on inputs.
Contribution The balance of contribution and benefit should be fair. If a participant invests significant time and resources, the returns should reflect that effort.
At the heart of a good carbon programme is fairness. The terms should be friendly to both farmers and businesses, recognising their contributions and ensuring they receive appropriate value. The difference between a good and a bad programme can be subtle. Consider the following examples:
“Good” Programme
A farmer signs a contract for their 2024 carbon credits but retains the flexibility to switch to a different programme in 2025. They register specific areas of their farm, such as fenced native gullies, ensuring they can still pursue other opportunities with the rest of their land. The terms are clear, and payments are transparent and fair.
"Bad" Programme
A farmer is locked into a 30-year commitment with no opportunity to renegotiate and uncertain payments. The entire farm is enrolled, limiting future flexibility and potential for better deals. This kind of programme can lead to significant regrets if market conditions change or better opportunities arise.
Fairness is about collaboration and creating solutions that provide mutual benefits. By thinking about these factors, businesses and farmers can ensure they are making informed decisions that support their long-term goals while contributing to broader emissions reduction targets. Processors and programme designers need to create systems that benefit all parties involved, ensuring long-term sustainability and trust.
Supply chain carbon removal programmes offer significant opportunities for reducing emissions. By engaging in these programmes, processors can meet their sustainability targets and provide opportunities and incentives for their farm suppliers.
The landscape of carbon removals continues to evolve, so staying up-to-date and making informed decisions will be key to leveraging these opportunities effectively. By creating systems that are beneficial and fair for all parties involved, farmers and businesses can build relationships and achieve trust and long-term sustainability, contributing to broader emissions reduction goals.
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