Farm Forestry New Zealand

A new deal for forestry proposed by the Green Party

Catherine Delahunty, New Zealand Tree Grower February 2010.

Protecting the environment, while at the same time boosting the economy, has never been more important than now when many New Zealanders are out of work. This unemployment is particularly in rural and provincial areas. At the same time, our physical environment needs better protection. It is the foundation of our economy, but our land, water and wildlife is under threat. The Green Party has been working on ways to tackle these two problems at the same time.

Our most recent Green New Deal package is focused on forestry and forests. It shows how we could plant approximately 665,000 hectares of new forest over the next 10 years and generate the equivalent of 36,000 job-years over a decade. It would also result in 27 million tonnes of carbon being sequestered by 2020, and more beyond. For farm foresters it would provide much needed certainty in the wake of the ETS legislation to incentivise investment in new planting.

Farm forestry for more and diverse forests

We anticipate that most commercial forestry would be encouraged by the private sector if the carbon price was secure. But farmers and other smaller landholders do not find it easy to be involved directly in the carbon market.

Providing this opportunity is the intention behind the Afforestation Grants Scheme (AGS) announced in 2007. Under this scheme, the government contributes to the costs of planting new forest and in return keeps the carbon credits generated during the agreement period. The landowner owns the new forest and can earn income from the timber.

The AGS has seen 150 grants totalling $12 million issued in its first year. In 2008 the government made $5 million available, and then $10 million a year on an ongoing basis. However, the current government cut the AGS to just $7 million a year. This will reduce the amount of forest planted by about 20,000 hectares over ten years. We would propose to restore funding and increase the amount.

This would increase the cost of the AGS but the cost would be largely offset at a later date from the carbon value of the resulting forests. Because the price of carbon is likely to rise, the AGS might not end up costing the taxpayer anything at all in the long term. The settings of the AGS should also be changed. Long term sequestration should complement short term sequestration and changes, after consultation with the NZFFA, should be made.

Short rotation bias

The carbon capture and contract period should be lengthened. At present the agreements terminate after 10 years and means that the AGS is biased towards short rotation fast growing trees and there is little to prevent future deforestation of new forest. We suggest significantly extending the planning horizon – perhaps to 40 years for exotics, and longer for indigenous trees. This would result in the government obtaining carbon gains for a longer period, and the landowner maintaining the forest for longer. Where harvesting is required within this timeframe, the landowner and the government could renegotiate to ensure replanting is beneficial to both parties.

Some protection would be needed to ensure a minimum level of carbon is retained on the forested land so the gains are not reversed in future. These changes would require the government to pay a higher price per hectare.

An extended planning horizon would then allow greater focus of the funding on to slower-growing species that are more beneficial in the long term. Currently, just 30 per cent of the MAF administered fund is set aside for low sequestration rate forests, which are mostly indigenous species. We suggest increasing this proportion to 40 per cent, allocate 40 per cent to a new category for mid-range sequestration rate species such as macrocarpa, leaving 20 per cent for the high sequestration rate species such as eucalypts and pine.

Particularly important is subsidising the planting of the most erosion-prone land. Such land is often the most unattractive and costly to afforest and therefore tends not to be planted without subsidy. Because it is actually the most important land to forest, it deserves financial recognition, which could be done through the AGS. We welcome feedback about these ideas.

According to our calculations, an increased investment of $100 million over 10 years could result in an additional 25,000 hectares being planted, greater ecosystem services like erosion protection and bird habitat, and more carbon dioxide being stored. This plan would increase carbon gains in 2020, but even larger gains in forest carbon would eventuate later. This investment would also create more jobs over the next 10 years.

Changes to the forest sinks

The Permanent Forest Sinks Initiative (PFSI) was also established in 2007. It is a powerful mechanism that meets the highest international standards for carbon sequestration forest and creates long term native and exotic forests that have the additional benefits that come with permanence, age and maturity.

PFSI forests are secured by a covenant registered on the land title, in perpetuity, with strict harvesting restrictions − no clear-felling for 99 years and a 50 year exit opportunity. The government contribution to PFSI forests is in the form of Kyoto credits. The permanent forest owner accumulates these credits as the forest captures carbon and they can be sold in the Kyoto market.

Because it is for permanent forest it has a good environmental reputation, and credits from PFSI forests are currently attracting a premium on the carbon market. Credits from PFSI forests have been described as ‘NZ Gold Standard’ forestry credits. In the two years since the scheme began, approximately 6,000 hectares has been covenanted and a further 6,000 hectares is in the pipeline.

Obstacles for the scheme

There are a number of investment obstacles with the PFSI scheme that prevent it reaching its full potential. Resolving these would provide investment certainty and issues we would like to see resolved include −

• The imbalance in the PFSI contract giving the Crown the ability to terminate covenants at its discretion as termination triggers the landowner’s obligation to pay back all carbon credits received. Landowners should have some right to keep forest covenanted as a permanent forest to avoid this liability.
• The purchase cost of a dedicated carbon forest should be a tax-deductible expense against carbon revenue
• The lack of a specific reserve of emission units for the PFSI if the commitment period reserve is breached which although unlikely, is important for investor confidence.
• The issue of ‘joint and several liability’
• The failure to reward planting the species and in the sites that most benefit public values other than carbon, such as ecosystem services and biodiversity
• Updating the look-up tables for carbon values and enabling field measurements to ensure the full value of the carbon is being rewarded.

Solving these concerns could boost market confidence in the PFSI which could result in a a lot more further PFSI covenants.

Giving investment certainty

Feedback we have had from the industry suggests that substantial new forestry planting would take place if there were more certainty around the price of carbon and the structure of the market. This could be achieved by providing a floor price for the value of carbon for new planting and charging a very modest premium to foresters for this security. This would take the form of a contingent liability on the government’s books, with the administration of the scheme funded by the premiums.

This would not be insurance for the carbon stocks themselves, but simply a guarantee that the carbon contained in the participating forests would not fall below $25 a tonne. Foresters would continue to bear the technical and market risks they currently do, such as fire or storms.

The scheme would only be offered to new, post-1989 plantings. Any land use change, failure to pay premiums, or loss of the forest would exclude it from the scheme. It is anticipated that as the international and domestic carbon market matures, foresters would opt out of the premiums, winding up the scheme even before a rotation matures.

An incentive

To incentivise planting of various species and in recognition of the different rates of carbon storage between species, we suggest a graduated scheme of premiums −

• Foresters planting exotics strictly for commercial gain would pay a premium of $20 a hectare a year.
• Foresters planting exotics within the PFSI scheme would pay a slightly discounted premium, planting indigenous species under any programme would mean a premium of only $2 a hectare a year.

We think that the programme should be capped in terms of hectares planted and planting could occur in any year of the programme until the cap is reached. Some adjustment to premiums could be considered in the earlier years in order to incentivise job creation and greater carbon sequestration during the years that New Zealand has the greatest deforestation liability exposure from 2020 to 2030.

Other proposals

As well as incentivising the planting of new forests on private land, our package outlines a proposal to use Crown and state-owned enterprise land to contribute to the benefits of afforestation. The package proposes diversifying the range of species that we plant as forests in New Zealand beyond our reliance on radiata pine.

Critical to this is investment in research, market development, and grower cooperation for each species. In addition we need education in the forestry sector that will allow the full value of our remarkable timbers to be realised.

The full report is available at www.greens.org.nz. We hope to be involved further with members of the NZFFA about these proposals and would love to meet members to discuss these ideas. Please do not hesitate to contact me catherine.delahunty@parliament.govt.nz with any feedback you may have about these ideas.

Catherine Delahunty is a Green MP and the party’s forestry spokesperson.