The decision follows intense pressure from farmers and the agricultural sector, who argued that the new tax would undermine their competitiveness in international markets. New Zealand agriculture accounts for nearly half of the national export.
New Zealand would have been the first country in the world to try to limit climate damage with a CO2 tax per hectare of farmland. Denmark has also been considering this for several years and will decide by the end of this month whether to implement such a tax.
New Zealand Prime Minister Christopher Luxon announced that the agriculture sector will be exempt from the Emissions Trading Scheme (ETS) for trade in emission rights. According to New Zealand government data, methane released by sheep, cattle, and other animals contributes about 42% of the total emissions.
Instead, a new working group will be established to focus on alternative approaches to reduce emissions. The European Union is also working on plans to include large agricultural companies in the ETS system.
The Labour opposition has strongly criticized the decision and warned that it will ultimately harm New Zealand’s international reputation and economic future. According to Labour, New Zealand risks losing its competitive advantage in markets where users and consumers increasingly value sustainability and environmentally friendly production.
Denmark may now become the frontrunner in implementing a CO2 tax per hectare of farmland. The Danish government parties agree that such a tax should be introduced. The tripartite consultation (the ‘tripartite’), involving government, business, and society, is scheduled to make a decision on this matter this month, according to current planning.