More forestry upheavals are coming as the Government foreshadows big changes to the rules of the game. Sheep and beef farmers including iwi are the big prospective losers

In 2018, the Government announced it was moving towards a new regime for New Zealand forestry within the Emission Trading Scheme (ETS). The plans included a new so-called ‘permanent forestry’ category for introduced species, also known as exotics.

The relevant legislation was passed in 2020 with regulations subsequently added for enactment on I January 2023. Industry has been moving forward on that basis. Things are now about to be upturned.

Over the last 12 months, the Government has been getting nervous about what it had set in place. It took a while, but Government now understands what some of us understood somewhat earlier, that carbon forestry has become the most profitable game in the country.  That was not what they intended.

Hence, a discussion paper was released in early March signed off by ministers Nash and Shaw proposing that the permanent forest category for exotics should no longer be introduced. This has really set the cat among the pigeons, as the implications for various groups are recognised.

To fully understand thinking within Government as expressed by its officials, the place to go is the interim Regulatory Impact Statement (iRIS). This was released a few days after the release of the discussion paper. The iRIS is particularly insightful, particularly for those who read between the lines.

Although this impact statement is in the public arena, its release was not publicised and very few people appear to have seen it. I have seen no mention in the media.

Quite simply, the iRIS released by MPI as the implementing agency for forestry acknowledges that, under the current legislative pathway, the so-called ‘permanent exotic forests’ are now the most profitable option on most sheep and beef farms.   The key driver of this situation is the price of carbon within the Emission Trading Scheme (ETS).

Right now as I write, the price of carbon is around $73 having taken a breather from close to $84 just a few weeks ago, but now starting to climb again. The Climate Change Commission thinks the price needs to be about $140 by 2030 and then approximately doubling again thereafter.

However, Government officials were able to come to their profitability conclusions in the iRIS using prices much lower than current prices. So, without a drastic change to the legislation, it was obvious the move to carbon farming was going to be a goldrush.

The problem for the Government is that they know New Zealand needs forestry offsets if New Zealand is to come anywhere near meeting its commitments to the United Nations under the UNFCCC framework. But there is a lot of uncertainty as to how farmers will respond in the face of particular pricing rules. The iRIS acknowledges this uncertainty and this is reflected in it being described as ‘interim’. Essentially, we are all in uncharted territory.

A related problem for the Government is that if too much forestry is planted then the carbon price will not head towards the $250 that the Climate Change Commission says it needs to eventually reach.  And that means the rest of the community will get let off having to make significant fossil fuel reductions.

The situation gets even more complicated because as from January 2023 there are (or were) supposed to be two very different types of exotic forestry.

One such forestry type is where forests are grown both for both carbon and timber production, with radiata pine being the most important species. The carbon accounting under this scheme will be that carbon credits are earned from Government for the first 16 years of growth, with trees subsequently harvested on average at 28 years. Forest owners will then be required to plant a second rotation forest, but with no further carbon credits. If subsequent rotations are not planted, then the original credits have to be repaid at whatever the carbon price has become at that time.

In contrast, the so-called ‘permanent forest’ option was meant to provide carbon credits for as long as the forests were still growing. There is general acknowledgement that radiata pine continues to grow until at least 80 years and can live until at least 150 years, but there is considerable uncertainty as to what the correct numbers are. Also, it depends on specific factors applying to location, climate and aspect.

Currently, the official ‘look-up tables' for different regions of New Zealand only extend to 50 years, but Government officials have been explicit that these tables would be extended as more reliable data became available.

The new proposal within the Nash and Shaw discussion paper is that the permanent scheme for exotic forests should now be chucked out. That would force new exotic forests planted hereafter to be for harvested production, albeit with potentially very lucrative carbon credits for the first 16 years. In contrast, those who are already registered in the ETS under stock accounting will be able to continue accruing credits.

The problem is that there is a lot of steep erosion prone pastoral land that should be neither in pasture nor in production forestry. Supposedly, there is about 1.2 million hectares of this type of land, although the precise area can be debated.

Also, a lot of this marginal land is too far from ports to be economic for production forestry. The combination of steep and often precipitous contour, plus distance of more than 100 km from a major port, is typically an economic killer.

The other issue to be thrown in here is native forests. Perhaps this marginal land should go into native forests?

The problem with native forests is that they grow very slowly. As to why native forests grow so slowly, well that is a fascinating story, too long and complex to tell here. Suffice to say, it is well understood by evolutionary ecologists. Also, our native forests evolved in the absence of mammalian predators and this is a huge issue.

The bottom line with native forests is that no-one is going to plant native forests on privately owned land if either economics or carbon sequestration is the goal. It has to be exotics. Some people don’t like that message.

The exception to the above statement is in situations where natives can regenerate by themselves once land is fenced and kept reasonably predator free. That requires a legacy seed source. And even then it tends to be very slow.

Beef+Lamb has argued specifically against the permanent exotic forest category and more generally against exotic forests from taking over on sheep and beef land. However, whether those arguments have gone too far and are now not in the best interests of their members is a moot point.

I have previously argued (as have others) that on many of the extensive sheep and beef farms there are areas of steep country that would be better in permanent forestry. I have suggested that farmers could be allowed to plant say 20% of their farm in forests as long as it is either Class 6 or 7 land, and that this should not require any special consenting. This land would typically be the poorer performing pastoral land.

I hear on the breeze that some of the iwi groups are particularly upset by the proposed wiping of the permanent forests category. Much of the iwi lands are both steep and far from ports, with poor roading.

One of the problems right now is that time is running out. January 2023 is looming and so decisions need to be made quickly. In this context, the only thing I am sure of is that, whatever is decided, there will be unintended consequences.

My own judgement is that if these plans are enacted, then farmers will still plant a similar amount of new exotic forests. But they will do it under the averaging scheme. Depending on the carbon price and location, they could still earn anything between $15,000 and $60,000 of carbon credits per hectare. In many cases they will hope that within 16 years the Governments sees the errors of its ways and that they can convert to a permanent scheme.

Another crucial date in the forestry calendar is one day earlier on 31 December 2022. This is the last date for existing forests to ever be registered in the ETS for entry under the stock accounting scheme. Both I and others have been advocating fort owners of more than 300,000 hectares of eligible forest not currently in the ETS to get those forests registered. This same date is also the last date for forest registration to claim 2018-2022 credits.

Forest owners need to be reminded that this last date for registration is not the last date for submission of applications. That will come much earlier.

MPI has said they hope they will be able to process applications as long as they are received by 30 April – that is 8 months earlier and just over a month away. If MPI has not been completed the process by 31 December, then that is bad luck for the forest owner. Personally, I find it remarkable that if MPI is overwhelmed by the amount of work entailed, it will be the forest owner who misses out.

To sum everything up in one sentence: things are a mess.

*Keith Woodford was Professor of Farm Management and Agribusiness at Lincoln University for 15 years through to 2015. He is now Principal Consultant at AgriFood Systems Ltd. You can contact him directly here.