How to get the country planting again

26 Aug 2009

How does the government protect emitters from having to pay the open market price of carbon without unfairly penalising forest owners and others who produce carbon credits? It’s one of the biggest dilemmas faced by the government as it revises its emission trading scheme (ETS).

Forest owners say one answer is to pay emitters a taxpayer-funded subsidy equal to the difference between a New Zealand price for greenhouse gas emissions and the international carbon price.

“The international carbon price is providing land owners with the incentive they need to get on with large scale planting. If the government prevents forest owners from accessing this market, there will be little investment in tree planting,” says NZ Forest Owners Association president Peter Berg.

Speaking at the Australia-New Zealand Climate Change and Business Conference in Melbourne yesterday, climate change minister Dr Nick Smith said the government was very mindful in amending the New Zealand ETS of the importance of the investment signals being sent to the forest industry.

A real problem is that while forest owners have been eligible for credits since January 2008, there is no market without buyers, he said.

“We have a difficult balancing job of getting emitting sectors into the ETS in a timely way, not imposing excessive costs on them, while providing a robust market for the forest sector to sell their credits."

Because it believes exposure to the world carbon price would impose a high and unpredictable cost on many major New Zealand industries, the government has been canvassing the idea of de-linking the New Zealand from the world carbon market and putting a cap on the price of carbon.

Mr Berg says he appreciates that the government wants to address this dilemma in a way that encourages further forestry investment, but he says this will occur only if forest owners have access to an open carbon market.

“If price caps were introduced I expect many investors would keep their chequebooks in their pockets and their existing carbon credits under mattress, as their income would be limited by the cap while their liabilities at harvest would be open-ended. There is also the principle that in a free enterprise economy businesses are entitled to sell their goods and services to those offering the best price, and this is the way most New Zealanders have always done business,” he says.

“We firmly believe the attraction of true market prices will ensure there are plenty of high quality NZ forestry credits available to NZ emitters and/or the government, and that most of these credits will in practice be traded domestically.

“From his comments in Melbourne it is clear that Dr Smith understands the problem facing forest owners. But we do wonder whether he is unduly concerned about the costs faced by emitting industries.

“Ultimately the government should and will decide what industries it wants to shield and for how long, but in so doing it is important that it allows markets to send the appropriate cost and price signals. Indeed, since oil is no longer $200 a barrel there is no reason why transport fuels cannot enter the NZ ETS on 1 January next year.

“If the government wishes to reduce transitional costs for emitters it should use taxpayer subsidies to reduce the cost of their credits to below world market levels. It would be particularly unfair to expect tree planters to pay a direct debit on their potential income to meet the costs of emissions by other industries.”

Mr Berg says that forest owners, like most New Zealanders, are eager to do their bit for the environment. “We have a great history of tree planting, it’s part of our identity as a nation and many other countries have borrowed our expertise and copied our technology.

“Carbon forestry, which will use different management techniques to those used for conventional forestry, has the potential to make a huge contribution to New Zealand – environmentally, economically and in the revitalisation of rural communities.

“But it needs a stable policy framework that’s economically rational and agreed between major political parties. The sooner that’s in place the better.”

For more information, please contact Peter Berg 021 421 291