Is this really a ‘climate’ discussion or ‘geopolitics’ at play?

I am a bit confused in the conversation of ‘cross border carbon taxes’ or ‘cross border adjustment mechanism’s’ (‘CBAM’).

 It was highlighted in an article sent by a friend earlier this week which outlined that exporters to the E.U. or other nations such as the U.S. may be required to pay a levy at the border that adjusts the cost of our exports to the equivalent of the cost of growers and producers in the E.U. or U.S.

 Is this a different take on geopolitics?

 I am interested to understand the calculation more as Jack Keeys commented earlier this week, isn’t this penalising countries who are carbon efficient food producers or worse taking attention away from producing enough nutritious food for the worlds ever increasing population? The argument is that it is being considered as a mechanism so food producers of countries in the E.U. for example are not disadvantaged to competitors from other exporting nations such as New Zealand who do not have such obligations.

 It feels more like protectionism measures, and short sighted at best.

 I am especially interested in ‘how’ or if it ‘will’ assess the levels and ratios of different gases within different industries of respective countries, technologies used, or schemes applied. New Zealand is currently considering a split gas approach given the level of agricultural exports with the Government asking for perspectives on this which has seen a tremendous response of over fifteen thousand submissions.

 I continue to have conversations with industries and the science communities and beginning to see that they would ‘be surprised’ if other economies do not follow a split gas approach. It is further supported by GWP* which is the metric used for reporting under the UNFCCC which realises carbon falls into different pools, as each has different effects on our environment and climate. ‘Carbon dioxide or stock gases’ are long lived and stay in our atmosphere where as ‘biogenic or flow gases’ are short lived and removed from the atmosphere at an estimated average of 12-years.

 New Zealand’s footprint has an est. 47-48% of biogenic methane against that of the U.S. which is est. at 8% as an example. It looks like New Zealand is in a negative position here, but, if you take into consideration the types of gasses, their cycles and effects, and a whole of system view that perception changes.

 So, gaining clarity around the science is fascinating, and gives context, but begins to get really interesting when you think about ‘why’ such a mechanism is being tabled.

 Victoria University’s Professor Philip Adams outlined in a recent article that the immediate effect on direct exports is low per se and modelled to have an impact of less than 1.2%. It is however highlighted that the in-direct or delayed effect on exports would be far greater if the U.S. was to impose such a mechanism on a country such as China, who are one of our largest partners.

 It is at that point that it turns from being about ‘climate’ to ‘geopolitics’ at least for me.

 The in-direct effect on us because of geopolitical differences independent of ourselves could have significant ramifications for New Zealand exports, especially industries such as forestry which has an est. export revenue value of $6.8bn from 22m tonnes of exports. It asks two questions; do we need to do a deeper evaluation now around our export model and/or reconsider the value-add option which has stagnated?

 It isn’t clear, but questions to answer.

 It’s leading me to also think about what our ‘consumers’ think of all this and what their perception would be if a ‘carbon tax’ is applied to our agricultural products as their view has the propensity to have a bigger impact on our exports receipts more than any other factor or mechanism. It paints a convoluted picture of the efforts of countries around the world, so does the science even count in their eyes?

Ngā mihi, nā,

Andrew Watene

Ngāi Tūhoe

Director and Head of KPMG Propagate

Keep updated with the latest news, articles and KPMG thought leadership in 2021.

We’ve just launched our new Field Notes Platform at KPMG, providing weekly summaries of top agri-food stories like these from around New Zealand and the world. You can use this link to sign-up to our email: Sign-up to Field Notes