The agriculture sector's proposal is a bid to avoid being forced into the emissions trading scheme in 2025 - joining all other industries.
It formed He Waka Eke Noa (HWEN) - a partnership between farmers, agricultural sector industry bodies and Māori - with input from Primary Industries and Environment ministries.
Its proposal released this morning recommends letting farmers count their emissions and get a discounted levy for making reductions or planting trees.
The group wants methane to be priced differently from carbon and nitrous oxide because although it is particularly damaging, the effect is relatively short-lived.
The group says its plan, along with additional incentives to farmers to use new technologies and practices, would lead to methane reduction of between 4 and 5.5 percent.
It says this, combined with expected reductions from other policies and from the waste sector, will hit the target of slashing methane emissions 10 percent by 2030.
The average cost to farmers is about $750 to transition to the new system and then between $1200 to $1600 in additional time a year.
In general, deer, sheep and beef farmers will face the greatest impact on their bottom line than dairy operations - and the most severe modelling scenario shows a significant number of farms would exit meat production.
Modelling estimates that it will result in a 1.4 percent fall in milk production, and a 0.1 percent drop in meat.
Money collected will pay for the cost of running the scheme, and will be invested back into making emissions reductions in the sector.
It is expected to cost $114 million to $144 million to set up, and then $27 million annually - although as much as $47 million a year to run in the first few years.
It appears the annual cost to run the programme over its first few years is tens of millions of dollars more than the expected revenue gathered. However, it gets into the black as time goes on and the price of gases increases.
The group says its approach is robust and credible, delivers on farmer feedback and meets the government's environmental outcomes.
The Government has until the end of the year to decide whether to adopt the plan, and it will get advice from the Climate Change Commission.
Plan will see sector paying 'fair share' on climate: HWEN
He Waka Eke Noa group chair Michael Ahie said its recommendations enabled sustainable food and fibre production while "playing a fair part in meeting our country's climate commitments".
"Our recommended approach would enhance New Zealand's reputation as world leaders in low-emission food production and keep us ahead of our competitors."
He said modelling showed their plan would be more effective in reducing emissions than being forced into the ETS, and would also have less impact on profit and output.
Farmers Weekly reports that 99 percent of farmers did not want to be forced into the emissions trading scheme.
There has been considerable pushback from farmers and the group Groundswell to the whole idea.
If the cross sector group did not come up with a credible plan, agriculture would be forced into the emissions trading scheme like every other sector - although at a massively discounted rate.
Ahie said the recommended approach achieved the necessary emissions reductions at the least possible cost.
"This is the best option to help farmers and growers transition to lower-emissions food production while maintaining viable businesses."
What will farmers have to do?
Farmers who have more than 550 cattle, sheep, deer or goats; 50 dairy cattle; use at least 40 tonnes of synthetic fertiliser; have 700 swine, 50,000 poultry, must take part in the scheme.
This equates to about 23,000 farms - about 96 percent of all agricultural greenhouse gas emissions.
They will have to:
• Report their emissions numbers.
• Have a greenhouse gas management plan.
• Pay for methane and long-lived gas emissions.
• Modelling estimates that it will result in a 1.4 percent fall in milk production, and a 0.1 percent drop in meat.
During consultation farmers sent a strong message they are anxious about the impact of extra costs on their businesses, as well new environmental legislation and regulations.
The average cost to farmers is about $750 to transition to the new system and then between $1200 to $1600 in additional time a year.
Deer, sheep and beef hardest hit
In general, deer, sheep and beef farmers will face the greatest impact on their bottom line than dairy operations.
Analysis of 300 actual farms indicates that at the extreme end of the modelling a significant number of farms would exit meat production - which could lead to much higher methane reductions as a result of land-use change than modelled.
Emissions reductions modelled in the sheep and beef sector result almost exclusively from the uptake of mitigation technologies.
Incentives and offsets
There will be incentives for using tech and practices that make reductions such as methane inhibitors - although there are none approved for use yet.
Farmers will be eligible for a financial offset that recognises the amount of carbon absorbed by agreed types of vegetation.
These include existing or new natives, riparian planting and some exotics - for example, shelter belts - but exotics eligible for the ETS such as pine are excluded.
There will be a separate fund to support the specific needs of Maori landowners.
The plan would allow regeneration and planting done between 1990 and 2008 to be taken into account.
About 10 percent of farms will face a desktop-based audit annually, but farm audits will also be done.
The plan says only a few farmers will be sequestering more than they emit - and those that do will get a payment or credit.
How much will the whole thing cost?
The HWEN scheme is expected to cost between $114m and $144m to be set it up.
Legislation will be written that will set the levy rates and prices.
Modelling on a range of price options after removing the $27m in annual admin cost and sequestration and incentives show:
• In 2025, at a price of 11c /kg methane and 4.25$/tonne CO2e, total levies would raise $66 million.
• In 2030, at a price of 17c/kg methane and $13.90/tonne CO2e, total levies would raise $113 million.
• In 2030, at a price of 35c/kg methane and $13.90/tonne CO2e, total levies would raise $304 million.
But the report says that if you add in interest and capital payments for the IT system, the total annual operating cost from 2027 to 2030 will be up $47 million to administer it, and $37 million in additional time spent by farmers on data and reporting.
The group wants a price ceiling set so the levy rate is no more than if agriculture was put into the ETS at the massively discounted (95 percent) rate - with only a 1 percentage point increase in exposure each year.
It also wants a maximum price for methane of no greater than $0.11/kg for the first three years of pricing (till 2028).
Essentially, it wants its plan to be no more onerous than the backstop settings.
A simplified version of a farm-level levy starts in 2025, transitioning to a full farm-level levy in 2027 - with the more basic version not expected to lead to lower emissions reductions.
For the simple method, measuring and recording data is estimated to take an average of five hours for all farm types.
For the detailed method, recording data is estimated to initially take five hours for a cropping farm, 10 hours for a dairy farm and 25 to 75 hours for a sheep, beef, or deer farm.
There is potential for this to decline over time as familiarity with the system increases.
For nitrous oxide, the plan would see cuts of between 2.9 and 3.2 percent - adding existing policies the total cuts would be about 6 percent by 2030.
