The ETS ‘fiasco’ has sent NZ’s forestry crop backwards, foresters tell Rob Tipa.
The Farm Forestry Association’s membership has halved since the ETS scheme collapsed, Dean Satchell says
Whatever happened to the emissions trading scheme? When the ETS was introduced in 2008 it was sold to the New Zealand public as the country taking responsibility for its carbon emissions under the Kyoto Protocol and making an international commitment to reduce those emissions by 2020.
Initially, forest owners embraced the scheme with both hands, actively encouraged by the Government to register their forests and claim the annual carbon credits they were entitled to.
The scheme allowed owners of forests planted since the Kyoto Protocol baseline year of 1990 to annually claim for carbon credits equal to the amount of carbon stored by their trees each year.
Despite their reservations about its risks and liabilities, it gave foresters a welcome injection of cash and investors the confidence to plant trees in an industry that is by nature a long-term commitment.
With carbon credits valued at $18 to $20 a tonne it was worthwhile for foresters to register on the ETS scheme because they could get a return on their investment early on in their crop rotation that justified the risks.
Canny foresters sold their credits for $20 a tonne or more before the bottom dropped out of the carbon market with the intention of buying back cheap international credits before they harvested their trees.
Then a change in Government policy opened the floodgates to cheaper international carbon credits, which undermined the value of New Zealand units (NZUs) on the domestic market.
Carbon prices fell steeply in 2012, with spot NZUs hitting a low of $1.50 in February 2013, making carbon trading unattractive to foresters.
Industry sources say the real blow for forestry came in last year’s Budget, when the Government moved without warning to close what it saw as an “arbitrage loophole” being exploited by foresters using cheap international credits to meet their carbon obligations.
Many forest owners were caught out with a lot of international credits that were essentially valueless. The speed of the policy change – virtually overnight they say – caused alarm and resentment for forest owners and unnerved investors.
Just seven years after its introduction, farm foresters and forest owners now say they have lost confidence in a scheme they believe is doomed to fail in its objective to reduce New Zealand’s carbon emissions.
“Because of Government policy, the carbon price dropped from $20 to about $2 a tonne and has stayed there ever since,” says Dean Satchell, president of the New Zealand Farm Forestry Association.
“The Government actively allowed cheaper carbon credits from overseas so that large corporate energy users and carbon emitters could meet their obligations at low cost.”
However, he says the Government’s “on again – off again” signals in its forestry policy had given land owners no incentive to register their forests under the ETS and little confidence to plant more trees.
“The ETS has a lot of compliance costs and headaches but there are no benefits whatsoever for forestry as a land use,” he says. “It has discouraged new plantings and there is nowhere near enough new plantings going on.
“A few years ago there were a lot of people investing in forestry in good faith, assuming that forestry would provide revenue from trees because of the carbon those trees sequestered, but there is now little interest in planting trees and forestry, despite the strong case for doing so.”
Satchell says his association’s membership has “halved since this fiasco”.
“My understanding is we are essentially going backwards when we should be planting new forests.”
In a recent forest industry newsletter, New Zealand Forest Owners’ Association chief executive David Rhodes conceded the ETS scheme, to date, had been a failure.
“It hasn’t encouraged consumers or industry to reduce their (carbon) emissions and it certainly hasn’t resulted in any sustained planting of carbon forests,” he said.
Rhodes said the latest planting figures released by the Ministry for Primary Industries showed there were now more post-1989 plantation forests outside the ETS scheme than there were in it.
In 2012, only a third of forests planted after 1989 (182,000 hectares) remained outside the ETS scheme. In 2014 the area of forests outside the scheme more than doubled to 382,000 hectares, or 58 per cent of all post-1989 forests.
The scheme was meant to encourage the planting of carbon-sequestering forests, but the Government’s own figures confirmed forest owners had bailed out of the scheme over the past two years.
“I am a little surprised,” Rhodes says. “There are quite a lot of people who are essentially voting with their feet. It is a concern because I think forestry offers New Zealand a great opportunity to mitigate its emissions.
“The Government continually refers to the ETS as the key means by which it is going to achieve emissions reduction and yet our emissions have been going the other way and now forestry is going to become part of the problem as well,” he says.
The real concern for the forest industry is that a lack of confidence in the ETS scheme has resulted in a dramatic decline in new forest plantings.
Forestry sources say 50,000 hectares of mature forests were harvested in 2014, 40,000 hectares of those forests were replanted and only 3,000 hectares of new forests were planted, resulting in a 7000-hectare net loss in the forest estate last year.
Rhodes says this drop in new plantings should be a concern to the whole country.
“The vast majority of mature forests will be replanted, but what we have seen is a real drop off in new plantings.
“There’s a lot of land out there which is very marginal and it’s not well suited to any other agricultural pursuits. It would do well under forestry but it’s not going into forestry.”
Based on current trends, foresters are sceptical the Government can meet its 2020 carbon emissions reduction target.
“The Government is pretty confident it will hit its targets,” Rhodes says. “All I can say is I’ll be delighted if they’re right.”
Despite these trends and other challenges facing foresters, he is confident the ETS scheme can be salvaged and welcomes recent signs of a recovery in the carbon price, currently about $7 a tonne.
The Government has taken positive steps to reduce the level of cheap carbon credits from offshore, he says, and as of May this year carbon emitters will not have access to cheap international units, some of which are of “pretty dubious pedigree”.
Foresters are watching closely what would happen in international climate negotiations in Paris later this year and are waiting to see what the Government will do in its review of the ETS.
However, Rhodes believes New Zealand has missed an opportunity to plant new forests in recent years. New plantings would have helped offset a production bulge expected in the next few years when trees planted in the 1990s reach maturity.
“The problem we’re going to have going forward is that large trees are going to be replaced by seedlings and you get a big loss of carbon,” he says.
The industry had lost a lot of its capacity to step up plantings as a number of nurseries had gone, but he believes that trend could be reversed.
“It’s a wasted opportunity but we can still get the right signals in place to ensure forestry can make that contribution in future.”