Farm Forestry New ZealandCarbon price accelerates to new highs - make hay while the sun shines
Saturday, July 03, 2021, Jeff Tombleson's blog
The demand nationally for carbon credits comes largely from industry based fossil fuel emitters who are required to purchase around 45 million credits annually for surrender to the Crown. For example the oil companies along with say Genesis Energy that burns fossil fuels at the Huntly power station are required to offset all their emissions by purchasing the equivalent amount of carbon credits for every tonne of coal or litre of fuel burnt. This cost in turn is passed on to the consumers power bill or payment at the petrol pump currently costing you an extra 9 cents per litre. Just like the tax on tobacco an increased tax aims to create a change in behaviour.
Forest plantation owners can receive credits issued by the Crown relating to the amount of carbon sequestered from a component of their plantations. On average radiata pine sequesters 30 tonnes of carbon per hectare per year. Sold at today's price of $43.50/tonne the annual return amounts to $1,300 per hectare. Just like the historic price of tobacco the Climate Change Commission has advised that to change the behaviour of fossil fuel consumers the price of carbon needs to increase to $140 per tonne by 2030 and $250 per tonne by 2050. This in turn incentivises farmers and investors to establish further new forests.
Farm foresters with plantations established on new land over recent years will make spectacular returns from the carbon sequestered. FFA members contemplating establishing new plantations are doing so in a unique environment that could return to them an equal amount via the sale of carbon credits as to what they may receive at the end of the rotation from timber production. Unlike the previous ETS rules the carbon credits received do not have to be returned at harvest.
Unfortunately, because very little new forest area has been established since the planting boom of the 1990s this means very few carbon credits are being generated that are in turn available for purchase by emitters seeking 45 million units annually. As such the government has become a seller of carbon credits via printing and auctioning. This is generating around $1 Billion annually for the government coffers that is thankfully being spent on initiatives to reduce NZ's emissions as recently launched by the Minister for Climate Change James Shaw.
Has the ETS had the desired effect of reducing emissions since its introduction in 2008? No – quite the reverse. Will the ETS (versus industry initiatives and well targeted policy) be the driver to lower New Zealand’s emissions in the coming years? Highly unlikely.
For those who have had the foresight to establish new plantations in recent years or are in the process of doing so; you are making a valuable contribution to increasing New Zealand’s forest sink - may the ever increasing price of carbon reward your endeavours – make hay while the sun shines!
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Disclaimer: Personal views expressed in this blog are those of the writers and do not necessarily represent those of the NZ Farm Forestry Association.
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