Investment in NZ forestry has all but collapsed, with the proposed ETS adding to instability in the forest market.
In June, Wood Central reported that the NZ government sought input on changes to carbon forestry, including imposing restrictions on pine trees.
Wood Central reports that the consultation period ends today, August 11. 2023.
It comes as the Government has already introduced new rules to tighten farm-to-forestry conversions, giving communities greater control of plantings.
The plan covers the permanent forestry category – trees planted to earn money from the ETS.
The most significant change, assessed by officials as the most likely to achieve what was wanted, was establishing a whole new additional ETS market.
Under the reforms, NZ would split the ETS into two – with one scheme for emissions reductions and one for removing emissions from the atmosphere, like tree planting.
The President of the NZ Forest Owners Association, Mr Dodson, said the reform options had collapsed the confidence of potential forest investors.
“Foresters have invested in the ETS in good faith, and the NZUs have been vested to foresters who can sell them on a free market to offset emissions.”
The subsequent announcement of an improved carbon auction floor price, reported by Wood Central, has not helped much to restore that confidence.
“This is because options 3 and 4 in the ETS consultation document directly threaten the value of forestry NZ Units through government manipulation, bordering on nationalisation of private property.”
- Use existing levers to strengthen incentives for net emissions reductions, for example, reducing the number of NZUs sold through auction.
- Increase the demand for emissions units by allowing the Government and overseas buyers to purchase them.
- Strengthen the incentives for gross emission reductions by changing the incentives for removals.
- Create separate incentives for gross emission reductions and removals.
Reforms will lead to a surge in international carbon credits
The NZ ETS is one of many emissions trading schemes in operation worldwide.
According to the NZ Ministry of Environment, the Government sets and reduces the number of units supplied into the scheme over time. This limits the quantity emitters can emit, in line with New Zealand’s emission reduction targets.
Businesses buy and sell units from each other under the model. The price for units reflects supply and demand in the scheme. This price signal allows businesses to make economically efficient choices about reducing emissions.
The schemes operate at a range of levels, including Supra-national (1), Country (8), State & Province (19) and City level (6).
Forestry, Waste, Aviation, Transport, Buildings, Industry and Power are the sectors with ‘upstream’ coverage in the scheme.
Forestry is the only sector meeting its climate targets
In an interview with Early Edition’s Newstalk ZB Host, Kate Hawkesby, Mr Dobson said that forestry “is the only thing on track regarding NZ emission reductions.”
In the interview, which can be downloaded here, Dobson said forestry needs to be left alone.
“Concerns about mass plantations taking over farmland are just unfounded.”
As it stands, more than half of New Zealand’s carbon emissions are reabsorbed by plantation forests.
“They are an essential element in most, if not all, viable projections in carbon accounting; even more so if agricultural emissions are addressed in some way.”
“If gross emission costs are to be completely removed from forest incentives, New Zealand will fail to meet its climate targets.”
NZ Māori are the biggest losers in the reforms
According to Mr Dobson, NZ Māori are the big losers in the reforms and stand to lose billions in lost value.
“This mistake has cost Iwi, New Zealand forest investors, farmers and mum and dad Kiwis about $3 billion in lost value.”
Māori are major forest owners, but holdings are often on marginal land and can be challenging to make money from.
Māori are major plantation forest owners – owning about a third of plantation forestry, which will tip to over 40 per cent as more Treaty of Waitangi settlements are completed.
However, holdings are often on marginal land, which can be difficult to make money from.
Some Māori see selling units on the ETS – carbon farming – as a major opportunity.
Te Taumata chairperson Chris Insley represented a group of Māori foresters and said the reforms could be incredibly prejudicial to Māori, jeopardising huge amounts of possible ETS revenue.
“[It] will eliminate $10 billion development opportunity for Māori off marginal land,” Insley said.
“Who’s the loser in all this? It will be Māori.”
“This is unacceptable. The government should realise this has crossed the line and withdraw that consultation”.
Reform announcement had a major impact on planting season
According to Mr Dobson, the announcement’s timing, in the middle of planting season, has added to the uncertainty.
“That causes a downstream uncertainty for timber processors who make their plant investment plans on the security of timber supply well into the future. The scale of future log supply is critical, and the Forestry and Wood Processing Industry Transformation Plan is in jeopardy.”
Instead of making forestry less commercially viable, the Government should establish that there is a real ‘overcooking’ of planting rates in response to the price of carbon units.
“We know there have been recent significant plantings, but forestry has yet to establish even a fraction of the Climate Change Commission’s recommended new forest area.”
“The modelling used to make these decisions does not represent the latest data and includes many flawed assumptions. We know this from the consultation discussions we’ve had with officials.”
“It’s been only recently that the planting rates have increased. We hardly even know if the increase is short term, and with the options presented in the ETS consultation document, investor confidence has been smashed.”
“Options are taken away from farmers, many of whom want to invest in trees in response to the continued slide of sheep numbers which have been steadily decreasing since the early 1980s.”
ETS attributed to record low amongst NZ farmers
It comes as a survey of NZ farmers yesterday revealed that confidence is at an all-time low.
The study surveyed 1000 dairy, sheep, beef, and arable farmers. The four most significant concerns for farmers were debt, interest and banks, regulation and compliance costs, and climate change and ETS policy.
“This is the second successive farmer confidence survey to set a new record low with a steep decline over the last six months – so we’re sounding the alarm,” Federated Farmers President Wayne Langford said.
“It would be a huge mistake for any government to force unwilling farmers now to continue to farm,” Mr Dobson said, “when it should be a right for them to decide on which land use is the best option for them – including planting trees.”
Concerns with Climate Targets
Adding to the uncertainty is confusion over climate targets and the importance of afforestation in meeting net zero carbon targets.
“Different authorities provide various estimates and figures. The Productivity Commission wanted up to 2.8 million hectares planted in forests to get to zero carbon by 2050,” Mr Dobson said.
The Climate Change Commission has estimated that it would take 380,000 hectares of pine plantations to net zero.
“Now it’s changed its mind, and we don’t know what areas and planting timetable is the minimum required to reach the targets. And then the Government ignores the advice of the Commission anyhow.”
NZ’s Climate Change Response Act
Last Monday marked the twentieth anniversary of the commencement of New Zealand’s first climate legislation, the Climate Change Response Act.
“In the intervening two decades of this act and many amendments and additions, our national greenhouse gas gross emissions haven’t altered. They are the same as they were in 2003,” Mr Dobson said.
“We are pinning lots of hopes on yet more unproven plans and intentions to do immeasurably better to reach 2030 and 2050 emissions reductions targets.”
“Plantation forests, conversely, are proven to work to get net emissions down. They are the only part of the climate change action plan working. They currently absorb more than 21 million tonnes of carbon dioxide from the atmosphere – more than half the national total emissions.”
“It is true that we can’t rely on planting our way to get to our emissions targets successfully. But it is equally true that without more planting, we won’t get anywhere near those targets in the next seven years to 2030 and 27 years to 2050 either.”
How could a separate carbon market for forests work?
Dr Christina Hood from climate consultancy Compass Climate said setting up would not be overly complicated.
“We need to think about emission reductions and support for forestry as two independent issues and try to solve both rather than continuing to trade them off against one another.”
The increase in pine planting has prompted an outcry in the rural sector over fears productive land will be swallowed up, and communities hollowed out.
Beef + Lamb chief executive Sam McIvor said his organisation had been pointing out major flaws in the ETS for years.
“The government’s acknowledgement today that [the scheme] isn’t working and requires change is encouraging,” he said.
“There is a lot of detail to work through, but on the face of it there looks like there are some practical options here that will make a difference.”
After public consultation, the final advice will go to whoever wins October’s general election.
- For more information, visit the NZ ETS Review website.