“Insanely high” profits can be made by planting exotic trees and selling the carbon emissions they store, experts say.
The profit margins from carbon farming were highlighted in the recent debate on a proposal that would make permanent exotic forests ineligible for the Emissions Trading Scheme (or ETS).
Native forests are costly to establish, absorb carbon slowly and require more maintenance, so could take decades to earn a profit. In contrast, exotic forests are cheap to plant, absorb carbon more quickly and require less upkeep, potentially allowing owners to bank decades of profit.
Right now, both types of forest can sell the emissions they store for the same sum: today’s carbon price, which is about $76 a tonne. This set-up is incentivising exotics and disincentivising native trees, although the Government wants to do the opposite.
* Government proposes banning pine carbon farms from the ETS
* Moves to limit pine would force landowners, Māori to forego ETS cash
* Urgent action needed to limit the spread of carbon forestry and save sheep and beef land, farmers say
The profits that exotic trees can earn from sucking carbon dioxide is so high that many landowners would, in theory, make more money from a permanent exotic forest than a plantation. Harvested forests are able to sell logs every few decades on top of selling units for the carbon that’s stored – on average – in the forest, under the ETS.
But the carbon units earned by a new harvested forest will be subject to a cap: balancing the carbon gains while the trees are growing and carbon losses after harvest. Under standard harvest conditions, a pine forest would be able to earn carbon units for the first 16 years of its life.
Yet permanent exotic forest wouldn’t have this cap. According to forestry expert Keith Woodford, exotic forests could theoretically still be absorbing carbon, and therefore selling units for at least 80 years – and in the black for the vast majority of this time.
The carbon price is so high that a pine forest might pay for its planting costs within the first few years, so current landowners would profit from this point onwards.
Meanwhile, the Government is concerned about the long-term consequences of permanent exotic forests. Without routine harvests, these forestry blocks could be left untended. Climate Change Minister James Shaw worries the move could hand future generations an “ecological problem”.
Forestry experts disagreed with him on this.
There’s been backlash to the government proposal to make permanent exotic forests ineligible to earn carbon units in the ETS.
For one thing, foresters believe the Government won’t meet its sequestration targets without this type of planting. Carbon trading consultant Mark Belton thinks the Climate Change Commission’s suggestion that 300,000 hectares of natives could be planted by 2035 is “totally unrealistic”.
Finding common ground
However, there is a growing consensus that paying carbon farmers $75 a tonne, or more, is causing problems. If pine pushes out meat and dairy, export revenue could fall.
At $75, planting trees and selling carbon is more profitable than sheep and beef farming on hilly country, Woodford said.
Belton estimated this equates to $30,000 a hectare.
The Government is also encouraging the carbon price to rise steadily between now and 2050, with tools that (in essence) set a pricing window.
Today’s market price of $75 is well above the regulated minimum of $30. Yet the price floor will rise to $39 by 2026, and could reach $210 by 2050 (depending on inflation).
In short, forestry investors are banking on government-mandated growth in their profits.
If the market price reached $250 a tonne, that could put carbon farming profits ahead of dairy farming, Woodford said. “We certainly have a huge issue to deal with.”
Belton said “insanely high rates of return” on exotic forestry is causing land prices to rise.
While some farmers see carbon farming as an alternative source of revenue, there has also been political backlash to exotic tree planting from farming bodies. Activist groups 50 Shades of Green and Groundswell are concerned large-scale tree planting will negatively impact rural communities. Both have called for controls on exotic forestry.
In addition, the Government is concerned unlimited availability of forestry carbon credits could undermine national efforts to cut pollution at the source. If a factory knows it can get its hands on decades of cheaper forest units, it might install a fossil-fuelled system rather than switching to a greener alternative.
To head off these issues, the Government has signalled it will put some limits on forestry units, as part of the Emissions Reduction Plan to be released mid-month. (This would be in addition to the ban aimed at permanent exotic forests.)
This followed advice from the Climate Change Commission, which concluded fast-growing tree species offered “one-off” benefits by offsetting pollution, but that mass planting failed to directly address the sources of ongoing emissions.
The commission recommended incentives to reduce carbon pollution be “decouple[d]” from forestry.
Forest experts have proposed some problems caused by high carbon prices could be solved by designating some areas as off limits.
For example, Belton and Woodford agree the Government could allow permanent exotic forests only on marginal land. Land is classified into categories – with class one land being flat and good for all uses and class eight being hilly and unsuitable for most activities, except permanent forest.
Belton suggests unharvested exotic trees only on class six to eight land be made eligible for ETS units.
In this way, the benefits of permanent exotics – which requires less land to hold the same amount of carbon than harvested forest – could be appropriately harnessed.
In addition, the Government might set extra rules: for example, Woodford proposed a limit of no more than 100 hectares of permanent exotics, in his response to the Government consultation. Belton suggested only land in New Zealand ownership could be eligible and owners must provide a management plan and insurance, amongst other safeguards.
Because the $75 price of carbon is already revving up the industry, Belton suggests the price paid to foresters be “decoupled” from the price paid by polluters.
“[This is] an artifice of government regulation. Without government regulation, there wouldn’t be anything at all.”
Currently, the ETS allows polluters to buy carbon units directly from foresters (carbon traders often broker these details). Therefore, foresters earn the day’s going rate for carbon, driven high by government policy.
To control the forest carbon price, the Government could intervene in these transactions.
Minister Shaw shared the commission’s concerns about high volumes of inexpensive forestry credits. It was important for the Government to have precise control over forestry, he added.
A solution will be part of the Emissions Reduction Plan, Shaw said, to be released later this month.
In its original design, the ETS did not limit or separate forestry units. “Government policy for the last 30 years has been to drive net emissions reductions. It’s only since we got into Government that we started to focus on gross emissions reductions.”
Of the sister schemes operating overseas, most have controls on the use of forestry units to offset pollution.
For example, in California, a polluter can only submit a small proportion of units from government-approved forestry schemes.
Australia runs “reverse auctions” with carbon removal projects: forest owners place bids for the limited number of units the government intends to buy, with the auction winners submitting the lower-cost offers. (This would be a mirror of the auctions the New Zealand Government holds regularly for polluters.)
The Australian scheme has been criticised for purchasing ‘hot air’ credits, so safeguards and a fair price could be needed to protect the integrity of the units.
Asked if the Government might set up such an auction process, Shaw didn’t confirm if the option was on the table – but said the commission had hinted at this type of approach in its advice.
To encourage natives, which will absorb and store carbon over centuries, “the price needs to be right”, Shaw said. “At the moment, the economics of that just don’t stack up.”
Could that mean the Government might set multiple prices – one for exotics and another (likely higher) price for natives? It was “way too early to comment”, Shaw said.
In a different approach, Belton suggested the Government could become a partial buyer: purchasing a fixed proportion of a carbon project’s units at “a low fixed price”. These units could replace the “dubious” emissions reductions the Government is planning to purchase from other countries to meet its 2030 pledge under the Paris Agreement, he added.
On the issue of the Government buying and setting prices for forestry units, Woodford said the proposals would need to be scrutinised in terms of practicality and unforeseen consequences. “Nothing is simple.”
Aotearoa’s native tree species have had millions of years to adapt to national conditions. Yet forest experts unanimously agree they require a lot more TLC than exotic species in their homeland. According to Mark Belton, here are the key reasons why:
- Natives like the damp. Most of the marginal land best suited for replanting is in the eastern parts of the country, which are drier. These drier conditions have only existed for a few million years, while most forest species evolved earlier, when conditions were warm and moist. Therefore, most natives are ill-suited to the task at hand. Dry conditions also make it harder to successfully create a transition forest: one that begins by planting exotic trees that are then gradually replaced by natives. This factor will be a particular problem if the forest starts with pine.
- Beech trees produce seeds in bursts. Before humans arrived, beech forest dominated the majority of land currently suitable for reforestation. But these species “mast”, meaning they only produce large amounts of seed every five years, on average. That makes seedling production extra challenging.
- Pests are rampant. Having encountered no mammals (beyond bats) during their evolution, native trees have few natural defences to rodents and other introduced animals. Unlike exotic trees, native forests require fencing and predator control, which are costly.
- Diseases add more pressure. Kauri die-back is a well-known problem, and other species suffer their own issues. Many introduced species are comparatively less at risk of disease.
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