Farm Forestry New Zealand

Report of the climate change forestry reference group

Howard Moore, New Zealand Tree Grower February 2019.

From October 2016 to November 2018 I was one of the Climate Change Forestry Reference Group, set up as part of the review to help officials develop climate change policy ‘enabling forestry to contribute meaningfully to our international climate change targets.’ The group was made up of outspoken forestry individuals with a range of views, and its work complemented that of the Biological Emissions Reference Group on agriculture.

The Biological Group’s final report was published on the Ministry for Primary Industries website on 6 December and ours was released on 13 December. Since we were all strong- minded people who had been arguing with officials for two years with varying levels of frustration, our final report was a consensus. We all agreed the thrust of it, even if each of us would have written it differently. We did not claim it to be impartial, accurate or sufficient. What we hoped, in the end, was that parts of it at least would be useful. Here it is, almost in full.

Key points −

• Any belief that the ETS alone can drive significant land-use change is misplaced.
• Promoting forestry as anything but a temporary solution to climate change distracts from the real need to cut greenhouse gas emissions at source.
• Land use flexibility into the future will be increasingly important, and forestry is not a flexible land use.
• Rural land use is primarily the result of market economics and regulation. Both must point in the direction of forestry before land owners and some local authorities will accept forestry as a socially and economically valuable land use.
• Without new forests New Zealand will need a fast and effective way to reduce gross greenhouse gas emissions. The obvious place to look is agriculture.

The ETS in perspective

Models for New Zealand’s zero carbon future offer reassuring scenarios of mosaic landscapes, with trees integrated into patterns of highest-value land use.

Apart from the conservation estate all land uses in New Zealand are the result of market economics and regulation. Producing a low emission landscape will only be possible from one or both.

The ETS is not designed for either. It imposes a cost on targeted emitters who fail to reduce their greenhouse gas emissions, offers a one-off cash benefit to those who do better than required, and allows trading between the two. In theory, falling targets and rising carbon prices should lead to the development of low carbon technologies and industries.

Properly implemented and given time the ETS should bring us to a zero carbon future, but the land uses in that future will be those which fit the economics and regulations of the time. We are remote from every market which buys our primary products and susceptible to technological advances that might rapidly change our economic landscape. Land will be increasingly in limited supply, flexible land use will be essential, and a mosaic landscape might not be the outcome.

Forestry in the ETS

Administration Although the forestry sector is in the ETS, fewer than 20 per cent of commercial plantation forests are actively involved and their participation generates significant administrative work and cost. We appreciate officials trying to simplify the system for forest owners and reduce the risks of non-compliance.

Pre-1990 land Because forestry is included in the ETS, owners of pre-1990 forests are obliged to replant after harvest. Some Maori acquiring forest land under Treaty settlements, and some land owners whose forestry joint ventures pre-date the ETS, find the replanting costs a challenge. Their stress affects others and discourages afforestation.

New Zealand has 7.5 million hectares of pre-1990 commercial and indigenous forests and the ETS provides no incentive to improve their carbon storage. We are disappointed that the government has not considered devolving carbon benefits to owners of pre-1990 native or exotic forest where it can be demonstrated that an increase in carbon stocks has taken place due to changes in forest management.

To simplify and de-risk the process of including new forests in the ETS, we welcome the work under way which aims to produce a national map distinguishing ‘forest land’ from ‘non-forest land’ at 31 December 1989.

Forest averaging We support the introduction of forest averaging and the flexibility for registered post-1989 forest land owners to transition to forest averaging should they choose.

Harvested wood products We support devolving carbon credits from harvested wood products to forest owners and the creation of a Harvested Wood Products fund administered by industry and backed by the government to fund research and promote the use of wood as a low-emissions substitute for steel, concrete and plastic. It will encourage investment in forestry and wood processing and is a prerequisite to achieving a zero-carbon economy. However, poorly implemented, devolution could inflate the export parity cost of logs to domestic processors and we believe it essential that the government promotes and regulates its inclusion within the construction industry.

Flexible land use As future market opportunities for New Zealand under climate change are unknown and possibly short-lived, land use flexibility will be increasingly important. However, forestry is inflexible: trees grow slowly and forest management cannot respond quickly to market changes. In addition, before they can change land use, owners of pre-1990 forests along with owners of post-1989 forests who join the ETS and sell their land use flexibility in the form of New Zealand Units, must re-purchase that right at an unknown future cost. Only owners of post-1989 forests who stay out of the ETS or bank their New Zealand Units may change their land use without penalty.

For commercial foresters, land is an input cost and an asset of potentially increasing value. The fundamental importance and capital value of land use rights is one of the reasons forest owners are not joining the ETS. Some who have joined are simply holding their carbon credits as a hedge against the future liability of land use change. For these forest owners the ETS is not an incentive, but an added cost and a source of regulatory uncertainty.

Offsetting We support the inclusion of offsetting for pre-1990 and post-1989 forest land. This will help address some of the concerns we have raised about enabling flexible land use.

Carbon prices We want carbon prices to be relatively stable, sufficient to encourage emissions reductions, and aligned with international markets. Accordingly, we support the regulation of carbon auctioning. To avoid the risk of arbitrage, which was exploited in the past, we would prohibit New Zealand emitters from directly buying international units to satisfy their domestic obligations. We advocate that the revenues from auctioning be applied to low carbon projects, and recycled into the community to help meet the social costs of climate change adaption.

We note in passing that high carbon prices will not change the logic of land use flexibility and capital gains. Although high carbon prices will encourage more land owners to register forests in the ETS and sell carbon, those who own ‘flexible’ land will value it more highly and demand more for it, pushing up land prices. Meanwhile those who have sold carbon and want, or are forced, to change land use out of forestry could be devastated by the cost as noted above. These are mixed results.

Buying farmland for forestry Higher carbon prices will not necessarily encourage purchase of farmland for new planting. If high carbon prices lead to higher land prices there may be no economic advantage in land use change. With a few exceptions, the commercial forest sector is not driven by the ETS and will only expand when domestic and international markets for logs and wood products suggest it makes long-term economic sense to do so.

Retiring farmland for forestry As indicated above, we expect higher carbon prices will encourage new planting on land already owned by farmers and the native reversion of marginal land. The extent of such new afforestation will depend on farmer education, environmental regulation of competing, flexible land uses, whether the land suits commercial forests or carbon forests, how they can be financed and their long-term economics. Difficult country might suit native reversion more than active afforestation. In this respect we note that of the 1.5 million hectares of Maori freehold land, over 45 per cent is Land Use Class 7 and 8, in other words mostly red zoned for erosion risk, and almost 80 per cent is Land Use Class 6 and higher.

Social equity If large scale forestry does occur on farmland there will be social consequences. Māori are over-represented in remote communities where both Māori and non-Māori marginal land is being farmed and supplements local incomes. Slow rural depopulation from farm amalgamation has been happening for generations but if the rate accelerates there may be social disruption. The billion tree programme or income from auctioning carbon credits might offer scope for the government to manage this adjustment, provided that any such social intervention must avoid flow-on effects that further distort rural land prices.

Agriculture

Resource Management Act reform The original aspiration of the Resource Management Act was to ensure land-use activities were sustainable and did not erode the country’s natural capital of air, soil, water, culture and biodiversity. It never achieved its aims. Competing sectors with similar ‘adverse effects’ are regulated differently both within and between local authorities. We support progressive and targeted reform and enforcement of the Resource Management Act to help New Zealand meet its zero-carbon objective. It could reduce the need to encourage land-use change through high carbon prices on agricultural emissions.

Reluctance to change High capital values associated with land-use flexibility offer strong financial incentives for dairy farmers to resist regulation and change.

Consequently, while there are good case studies, we do not believe voluntary action to adopt technological change and best practice in the dairy sector will be sufficient to substantially reduce greenhouse gas emissions. Regulation is necessary.

As an example, Dairy NZ launched its Dairy Action Plan for Climate Change in 2017 – this was years after other sectors were drafted into the ETS. Before this it had largely ignored climate change for effluent management and water quality. We believe voluntary action on climate change will move even more slowly.

Emissions Trading Scheme We support the phase-in of increasing ETS compliance obligations for agriculture as soon as possible. However, cutting agricultural greenhouse gas emissions using the ETS and environmental regulations will be difficult. For example, the perverse behaviour observed where nitrate rights are grand-parented, deciding points of ETS obligation, measuring greenhouse gas emissions, determining a starting date which stops participants from inflating emissions before entry to achieve easy reductions afterwards, deciding the starting level of participation, and agreeing the rate for tightening emission and environmental controls.

Stock numbers The quickest way to reduce greenhouse gas emissions from agriculture and improve water quality is to cut stock numbers. We believe officials should address this as a serious alternative.

Political and financial cost Any policy which constrains the agricultural sector’s ‘freedom to farm and pollute’ will reduce land values. The historic freedom to farm and pollute has inflated land values within the sector. Officials must find a way to manage the political backlash of the social and economic restructuring necessary to align the agricultural sector with a zero-carbon economy.

Methane The argument that methane is a ‘short-lived gas’ which should be treated differently in the ETS is a distraction. The latest IPCC report shows that the climate change justifies reductions of all contributing greenhouse gases to the maximum possible, and under the Paris accounting we are obliged to reduce methane emissions from all sources, including fugitive methane from landfills, coal mines and agriculture. Suggesting separate treatment of ruminant methane from ‘current’ and ‘new’ stock will create significant problems of regulatory complexity, increase delays, and offer free capital gains to farmers if their ‘existing’ emissions are protected.

Members of the Forestry Reference Group were Harvey Bell, Ollie Belton, Peter Clark, Edwin Jansen, Murray McClintock, Howard Moore, Murray Parrish and Peter Weir.

Howard Moore is a Wellington business analyst who has been involved with forest finance for over 30 years. He closely follows climate change issues in relation to forestry and is a member of the NZFFA and NZIF.