First wave of ETS costs put at $65m a year

The first tranche of costs associated with the emissions trading scheme, which came into force this month, could cost the meat, wool and dairy processing sectors $65 million a year.

Processing companies are still calculating the impact of the July 1 introduction of the emissions trading scheme (ETS) which puts a cost on the emission of greenhouse gases from the transport fuel, electricity production, stationary energy and industrial processes.

The meat industry estimates the scheme will add between $10 and $20 million a year to processing charges, the dairy industry about $45 million but fertiliser companies say it will be minimal.

Beef and Lamb New Zealand estimates the flow-back energy costs from processors at between $1200 and $1400 a farm, or $19 million in total.

Last year, meat works killed 21.5 million lambs, 3.6 million sheep and 2.3 million cattle.

Figures released by Beef and Lamb calculate dairy-farm liabilities at $3900 a farm a year, based on transport and fuel costs incurred by processors and on-farm operations.

Fertiliser manufacturers say the products to be impacted the most were lime, which uses coal for drying, and urea manufacture, which uses natural gas.

Ballance Agri-nutrients chief executive Larry Bilodeau said while the co-operative had been given the free allocation of carbon credits to offset energy costs at its Kapuni ammonia urea manufacturing plant in Taranaki, it was still absorbing costs of about $2 a tonne.

The plant, New Zealand's only urea manufacturer, produced about 260,000 tonnes of urea a year, so the company was absorbing more than $500,000 of costs each year, he said.

The 30% increase in the cost of coal due to the ETS was adding about $1 a tonne to the price of lime, according to Ravensdown's strategic development manager, Richard Christie.

Both fertiliser companies said electricity for superphosphate manufacture was generated internally from co-generation from sulphuric acid manufacture.

"Although emitting sulphur dioxide in the process, it is not a greenhouse gas, so most of Ravensdown's electricity consumption does not come with a carbon cost," Mr Christie said.

Ravensdown imports its urea which was not subject to an ETS charge, but it would be a factor should the company proceed with Solid Energy in a coal-to-urea plant being considered in Southland.

Mr Bilodeau said the unknown was the impact of the emissions scheme on all costs, and whether the market price of all energy, including renewable, would rise.

Meat Industry Association chief executive Tim Ritchie said his sector faced the same uncertainty, hence its calculation that the ETS could add between $10 million and $20 million a year to processing costs, based on a global carbon price of $12.50 a tonne.

The meat sector was seeking an allocation of carbon credits to offset the energy costs associated with energy-intensive rendering process, he said.

Agriculture is due to come into the ETS from 2015, although the Government has repeatedly said that could be delayed if competitors were excluding their agricultural sectors, or there was insufficient technology to allow farmers to reduce greenhouse gas emissions.

It is proposed that the sector will receive carbon credits equal to 90% of their output in 2015, but that will be phased out at 1.3% a year from 2016.

Processing companies will be the point of obligation, meaning they will be responsible for monitoring and paying for their sector's emissions, a situation that has been criticised because it will not alter farmer behaviour.