Methane tax: Kiwis try to generate revenue from ruminants

Increasing revenue from cows gives new meaning to the word moolah. New Zealand’s Prime Minister Jacinda Ardern has proposed such a tax on methane released by ruminants. Predictably, the plan is unpopular with cattle and sheep farmers, who are already facing higher input costs. The demand for these two types of meat is relatively price-sensitive.

Climate scientists hate methane, a greenhouse gas with a warming effect about 80 times more powerful than carbon dioxide. More than half of the world’s methane emissions come from fossil fuels and waste. America’s new anti-inflation law includes a methane tax to cap those of the former. But about 40 percent of methane emissions come from agriculture, mostly from ruminants and their dung.

Emissions have risen steadily over the past 20 years by a tenth to 3.5 billion tons of CO2e.

For years there has been debate about what to do with this sector. In fact, New Zealand farmers were threatened with such a tax 20 years ago. Peasant protests at the time helped defeat it.

New Zealand’s agricultural methane emissions, about 27 million tonnes in 2019, have not changed much since then, according to World Bank data. Although there are more than five times as many sheep as people, New Zealand is a tiddler among methane emitters. The top five, including Brazil, India and China, account for 43 percent of agricultural methane emissions.

As the first country to introduce an agricultural methane tax, New Zealand will set the benchmark. This depends on factors such as the number of animals, the size of the farm and the owners’ efforts to reduce emissions, for example through different feeds.

If the levy is introduced, Ardern has pledged to recycle the proceeds by helping lagging local meat farmers reduce their methane. Nevertheless, one would assume that farmers would try to pass the additional costs on to consumers and dampen demand.

A 2010 US to learn on price sensitivity (elasticity) over 70 years found that rising beef prices would affect demand three times as much as would much more commercialized agricultural commodities such as eggs. More current studies confirm this.

New Zealand’s efforts to tax methane deserve attention. It’ll be hard enough getting it past the peasants there. However, in countries with large agricultural emissions such as India and Brazil, the policy outlook for this is poor.