The main way small countries like New Zealand can lead on climate change is through our ideas. Policies developed here may help other countries with similar issues.

This is why our Fiscal Responsibility Act and Reserve Bank of New Zealand Act were of global significance. On climate policy, we have a golden opportunity to lead, which we are halfway to realising. 

First the good news. The Government has, more or less, listened to the science on methane. Most informed voices – including the Zero Carbon Bill submissions of NIWA, SCION, GNS and climate scientist Professor James Renwick – suggested separate targets for biogenic methane and for fossil carbon, and that is what we have. Well done to the Government for listening here.

In conjunction with the main aspect of the Zero Carbon Bill – net zero, long-lived greenhouse gases by 2050 – a methane reduction target somewhere in the range of 15 to 30 percent looks like a reasonable site for bipartisan agreement. These targets are consistent with a 1.5°C goal and, towards the higher end of the range, with New Zealand adding little to current levels of warming by 2050 (on the assumption we meet the target). Few, if any, other countries have a target that halts their contribution to warming at or near today’s levels. 

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The key risk around the targets in the Bill is delay on CO2 reductions. One thing we should not do is to crank up the methane target to give city-dwellers a pass on their CO2. Given uncertainties regarding when CO2 reductions are set to start, that’s a real danger, and one that threatens to worsen the already fractious relationship between urban and rural communities. Environmentally this would be a bad idea because methane mitigation does not buy time for implementation of stringent controls on CO2 emissions. Dithering on CO2 is the best way to blow our credibility as a climate leader.

The next issue is instruments. Here is the bad news. Putting agricultural methane into the emissions trading scheme (ETS) using the customary idea of CO2-equivalence is a bad idea. It is an outmoded, Kyoto-era approach to a Paris-era problem. Worse, one of the most commonly formulated proposals suggests putting methane in the ETS with a 95 percent free allocation for farmers. This is  a terrible idea. It is extremely weak environmentally. It fails sufficiently to penalise new ruminant methane emissions and, conversely, also fails sufficiently to reward the climate effects of declining ruminant methane emissions. 

And the price implied by the ETS + 95 percent discount approach is too small a disincentive against further expansion of the dairy herd. Consider this: a cow emits around 0.1 tonne of methane a year. Using a $25/tonne price on carbon and the Kyoto-era metric that pretends one tonne of methane is fungible with 28 tonnes of CO2, this implies $70 a cow per year. But the 95 percent free condition drops this to $3.50. 

The average annual profitability on a dairy cow over the past few years is volatile, but averages around $400 a year. Does anyone seriously think charging a farmer less than the price of a coffee on such a profitable investment is going to change behaviour? 

This approach should also be unsatisfying to farmers, because it perpetuates the myth in the public mind that the effects of ruminant methane are fungible with those of fossil CO2. The warming effects of these gases are not fungible in the way implied by the Kyoto-style approach, as has been made abundantly and uncontroversially clear in the scientific literature. Under the ETS + 95 percent discount approach, the public will have the impression farmers are getting away with 95 percent of their climate change emissions; when in fact the whole way of comparing the effect of different gases needs updating. 

It's not like we lack alternatives: in the past 18 months many individuals and public bodies made sophisticated arguments for separate treatment either of ruminant methane or of land-sector emissions. Here are short summaries from two major reports.

The Productivity Commission wrote: “Th[e] ‘two-baskets’ approach provides an opportunity for a distinctively New Zealand solution to its emissions profile. It would align New Zealand’s mitigation policy more closely with the underlying science of warming, address the country’s distinctive emissions profile, and could become a world-leading policy exemplar.”

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Parliamentary Commissioner for the Environment Simon Upton wrote: “In addition to reducing fossil carbon dioxide emissions to zero, methane and nitrous oxide emissions need to be reduced to keep the rise in global average temperature to well below two degrees Celsius. The level of emissions reduction targets for gross methane and nitrous oxide emissions would be determined by the extent to which a country intends to contribute to the global mitigation effort, and the relative abatement costs of methane and nitrous oxide.”

These two-basket approaches were, more or less, endorsed by major Crown Research Institutes in their submissions on the Zero Carbon Bill. SCION wrote: “The gas-based split target approach (two basket approach) is our preferred option.” NIWA wrote in support of Upton’s recommendation for separate approaches for fossil emissions and land-sector emissions: “With this aim afforestation would be used to offset agricultural activities. [This] would more clearly and transparently focus efforts on reducing the burning of fossil fuels in preference for renewable energy, while allowing the natural uptake of carbon by trees to offset our need for agriculture.” 

The Government has paid stunningly little attention to these arguments. As well as summarily dismissing the two-basket heresies of Upton and the Productivity Commission, it tasked the Interim Climate Change Commission with answering only how agriculture could best fit into the ETS, rather than to ask the obvious question about whether this is the right approach in the first place. On this issue, it is hard to avoid the conclusion that Government fingers are resolutely fixed in Government ears. 

This is a shame for several reasons. The first and most important relates to outcomes: if the Government only listen to the voices that suit it, ignoring the people it tasked with looking into the policy dimensions of the problem, then it is likely to arrive at poor choices and bad outcomes for New Zealand as a whole.

The second is political. As former Green MP Jeanette Fitzsimons astutely noted in her submission on the Bill: “If we do not adopt the two-basket approach, farmers will rightly say we have ignored the science.” This is wise advice. If farmers next protest climate policy at Parliament not with tractors but with high-quality peer-reviewed science and reports from major policy agencies, it will weaken the Government's claim to be the default pacesetters on climate policy. 

Finally, to plough on regardless with cramming agricultural methane into the ETS like it’s 1995 ignores the genuine thought leadership shown by Upton and the Productivity Commission, among others, who have produced sophisticated analyses of a problem most other countries haven’t thought about. We actually have a great opportunity for leadership here, because we have some excellent suggestions on the table that are worthy of further development. If we’re serious about global leadership, this is a great chance.