ETS changes a start, but greater buy-in is needed, say forest owners

15 Sept 2009

ETS changes a start, but greater buy-in is needed, say forest owners

Forest owners say the proposed changes to the emission trading scheme (ETS) will give investors increased confidence in the potential of carbon farming in New Zealand.

“The measures announced by the government not only address Maori Party concerns. They also reflect some important aspects of Labour Party policy,” says NZ Forest Owners Association chief executive David Rhodes.

“We welcome the fact that National and Labour are continuing their weekly discussions and are hopeful that a grand coalition on ETS policy can be achieved. All the major parties recognise that policy certainty is essential for a long-term investment like forestry.”

Overall little has changed for forestry from the situation that existed a year ago. The association is pleased that the government has not entertained unhelpful suggestions that owners of Kyoto forests be prevented from continuing to trade credits on international carbon markets and be subject to a price cap. As a result, forest owners will have a credible carbon price signal.

“Using taxpayer subsidies to cushion households and energy-intensive industries, including wood processors, on the basis that it is in the national interest, is far more appropriate than asking forest owners to pay. If this had happened there would have been no carbon market, because forest owners would not have been trading anything,” Mr Rhodes says.

“We agree there can be benefits from ultimately linking with Australia, but not everything that Australia proposes is clever for us. It would be a backward step for example to retreat from operating in a world market to just an Australasian market. With New Zealand policy lining up with ETS developments elsewhere in the world it may be more appropriate for Australia to harmonise with us, rather than the other way round.”

He says the taxpayer through the government will have to wear the cost of a greater level of protection proposed for emitters, but the important thing is that a price signal will be established and this will start to drive appropriate changes in the economy. Agriculture has received the greatest level of protection with its entry deferred by a further two years. This will be something of a dampener to forestry expansion in the short-term due to the maintenance of unrealistic land prices, but forward-looking farm managers will start to plan for being in the ETS.

Other self-funding policy changes are needed to make carbon forestry an attractive proposition, he says. These are still being considered by officials.

A carbon price and yield averaging scheme, for example, would give a land owner a regular income from carbon during the life of a forest on the condition that the forest was replanted at harvest. This would be very attractive to owners of smaller blocks suitable for carbon forestry.

Mr Rhodes says the government’s decisions do not change the position of pre-1990 forest owners. They will still get limited compensation for not being able to convert their land to a more productive use without paying a very substantial deforestation tax.

“To further assist pre-1990 forest owners, the government and industry have been doing their best to get support in the current Kyoto negotiations for offsetting – replanting elsewhere following harvest – but this is an issue that is unique to New Zealand and it might be an uphill struggle getting it accepted,” he says.

“But as time goes by, our pre-Kyoto forests will become more and more of an anomaly. Not only can they not earn carbon credits, but their carbon liability is permanent and the logs they are reliant on for income will increasingly have to compete for markets with logs grown for carbon.

“As the parliamentary select committee enquiry into the ETS points out, investors with stranded assets such as pre-1990 forests should be properly compensated both because of the need to be fair, as well as to protect New Zealand’s reputation as a safe place to invest.”