1 July 2011
A study by Scion for the Waikato Regional Council has found that carbon forestry would be a more profitable option than sheep and cattle farming on poorer hill country. The council now plans to facilitate forestry plantings on marginal farm land by matching up land owners and investors.
In its conclusions, the study says the NZ Emissions Trading Scheme (ETS) provides land owners with the opportunity to get a cash flow from carbon forestry through the sale of NZUs earned from carbon sequestered in their forests. This significantly improves the financial aspects of traditional forestry by addressing three historical barriers to integrating forestry within farming enterprises.
Carbon forestry overcomes the typically 30-year delay in realising revenue from the initial investment in establishment by providing the opportunity for annual revenue from the sale of carbon credits. While initial cash flows from carbon forestry are negative ($500/ha/yr to $1500/ha/yr in the first five to seven years depending on tree species and management), beyond age five, cash flows increase to between $500/ and $1000/ha/yr by age 10.
"Secondly, carbon forestry provides significantly higher returns than traditional timber forestry alone. For radiata pine managed to produce clearwood from pruning and thinning, timber returns are around $90/ha/yr. Combining timber returns with revenue from carbon sequestration can increase returns more than five-fold to between $160-$520/ha/yr for carbon prices of $7.50/t CO2-e to $30/t CO2-e.
"Carbon forestry returns at the current carbon price of $20/t C02-e are approximately $400/ha/yr to $600/ha/yr, which exceeds the Economic Farm Surplus for most sheep and beef enterprises and is comparable with returns for the top performing intensive finishing sheep and beef farms in the Northern North Island. This comparison ignores the potential negative impact of the ETS on farm returns under livestock production, which would further favour carbon forestry. However, even under ideal circumstances for carbon forestry, with a $50/t CO2-e carbon price and radiata pine managed purely for carbon, returns of $1,600/ha/yr are unlikely to exceed returns from a typical Waikato dairy farm."
Carbon forestry also provides more certainty of annual revenue from forestry by not being reliant on future timber returns.
Farmer interviews carried out by the study team indicate that sheep and beef farmer perceptions of carbon forestry are the main barriers to integrating carbon forestry on farming enterprises in the Waikato region.
The findings of the study are being used by the Waikato Regional Council to develop a regional carbon strategy that could improve the economic returns from marginal land as well as enhance water and soil health.
The concept is for the council to support forestry plantings and natural bush reversion on marginal farm land by acting as a facilitator to match up land owners and investors. The council is in a unique position to facilitate this activity: it has access to the property and land information required to set up and verify compliance with the emission trading scheme, and has a network of land management staff and connections with other rural services providers to provide information to landowners.
As a part of the facilitator role, the council has the potential to establish a service to aggregate, register and verify carbon credits from landowners within the region for bulk sales to purchasers.
A similar scheme is currently being implemented in the Taupo catchment to assist in the goal of reducing nitrogen entering into Lake Taupo and ensure the ongoing health and high water quality of the lake is maintained.
The carbon strategy has the potential to provide numerous economic and environmental benefits to the region. Economically, it could result in substantial investment in the region, have positive impacts on services and suppliers, and lead to an increase in timber resources (not limited to radiata pine), as well as generating revenue from carbon credits to supplement farming returns from traditional meat and wool. This would lead to improved farm surpluses on a number of properties.
Initial analysis indicates that carbon credit returns can make forestry plantings substantially more profitable than pastoral use of marginal hill country. It also can make pastoral use of moreproductive farmland more profitable by removing some direct and overhead costs.
The environmental benefits would be seen in cleaner waterways and more stable soil in steep hill country. These are high priority community goals included in our Regional Policy Statement and Te Ture Whaimana, The Vision and Strategy for the Waikato River.
Source: Waikato Regional Council