The report was prepared by economic consultancy ABARE for the Australian Treasury. It estimated the potential increase in afforestation on agricultural land under four hypothetical carbon price scenarios resulting from the introduction of Australian Government’s Carbon Pollution Reduction Scheme (CPRS).

In its e-letter, Canopy, the A3P says the ABARE modelling seriously over-estimated the likely extent of reforestation resulting from a carbon price. In addition, its report glosses over the important differences in the social, economic and environmental implications of environmental plantings as distinct from commercial timber plantations.

Under a CPRS -5 carbon price scenario (in which the carbon price begins at A$20.88/t CO2 in 2010), ABARE estimated that 5.8 million hectares of agricultural land would be economically suitable for afforestation between 2007 and 2050. Of this, they projected that approximately 47 per cent or 2.7 million hectares would be environmental plantings.

Under a CPRS -15 carbon price scenario (in which the carbon price begins at $29.10/t CO2 in 2010), it estimated that the suitable for afforestation would reach 26 million hectares. Of this, approximately 83 per cent or 21.8 million hectares would be environmental plantings.

The authors of the ABARE report said their estimates should be interpreted as conditional projections and not forecasts. “But the results … seem to suggest that the introduction of a carbon price can substantially influence land use change in Australia.”

The A3P critique strongly disagrees with this conclusion. It says the assumptions on which the ABARE modeling is based are illogical and others seem highly unlikely.
It says the assumption that forest owners will be able to claim 100 per cent of the total carbon sequestered in the roots, trunks and branches of the forest planting ignores the likelihood that permits will be limited to a percentage of measured carbon in order to avoid risk. It also ignores the transaction costs that are likely to be associated with claiming credits from carbon stored via reforestation.

By assuming that all land use change decisions will be determined by comparing the net present value of returns from afforestation activities to agriculture, it ignores the other influential factors that shape landholders’ decisions. These other factors include landholder knowledge, expertise, preferences, access to capital, perspective on risks and other regulatory constraints on land use.

“Some attempt should have been made to quantify, estimate or provide for these factors to avoid a totally misleading conclusion. These other factors have proven to be influential in past land-use allocation and will continue to be important in the future,” cautions A3P.

The Council reserves its strongest criticism for the ABARE assumption that there will be no ongoing management costs for environmental plantings.

“This assumption suggests either a serious misunderstanding of the realities of land management or a deliberate decision to misrepresent and to promote unsustainable land management options. There will be an ongoing land management cost even if there is no production of physical goods from the land concerned.

“At a minimum, fire and pest management are a legal responsibility of all land holders. Once environmental plantings reach maximum carbon sequestration potential they yield no further income, however the liability on the land is permanent (i.e. not 50 years as assumed in the report). This will have a negative impact on land value and will act as a considerable disincentive, especially for private land owners whose business is dependent on the underlying value of the land.”

A3P also discredits the assumption that timber processing industries have the capacity to cope with the large increase in timber production that would result from such a substantial increase in plantings.

“Although the area predicted to be afforested with commercial timber plantation is a small proportion of the total involved, it is still very large when compared to the current commercial timber plantation area of 1.9 million hectares which has taken many decades to establish.

“A change … of the scale suggested in the analysis could not occur without fundamental changes in the markets for wood and paper products. This would have to involve a major increase in export of these products from Australia as domestic production would substantially exceed forecasted domestic demand. The commercial nature of, returns from, and fluctuations in, such exports would determine the commercial viability of such an outcome.”

If the ABARE projections turn out to be correct, the A3P critique says large areas of land will be transferred from agricultural production to environmental plantings -- a passive use that does not generate any physical product. Once maximum carbon storage is achieved, no further income or benefit can be derived from the land, but the carbon liability will exist in perpetuity unless it is paid out.

“This change in land use may be considered appropriate and sustainable by some. However, there is no doubt that it will have substantial socio-economic implications for the land-holders and communities involved. These should not be underestimated or glossed over.”

On the other hand, if ABARE’s assumptions and projections prove to be incorrect, the predicted large volumes of relatively low cost carbon abatement will not be available.

“This will in turn increase the [carbon] permit price and make the achievement of Australia’s emissions reduction target more onerous than predictions in the Treasury modelling suggest,” says A3P.

“The plantation timber industry is hopeful that the introduction of the CPRS will lead to some increase in plantation expansion as a result of the optional inclusion of reforestation. In the absence of a carbon price, it is likely that establishment rates of new plantations would continue at current levels at best, and may decline as more re-investment is required in second and subsequent rotation plantations.

“A carbon price may boost establishment rates at the margin but the change would be minimal - in the order of tens of thousands, rather than hundreds of thousands, of hectares per annum. The detailed design rules will be crucial in determining the magnitude of the response, as well as the durability of the carbon store in existing plantations.”

Sources: A3P media release, ABARE report and A3P critique