I wrote recently about the need for big decisions by Government to sort out the rules for carbon farming. In that context, I was more than a little interested to see what the Coalition Agreement would come up with.
The answer is that it only needed one sentence to set the cat among the pigeons, so to speak. That sentence, actually a dot point initiated by NZ First but agreed to by all three coalition partners in the overall agreement, was to “Stop the current review of the ETS system to restore confidence and certainty to the carbon trading market”.
The mainstream media has yet to pick up on the significance of what has been agreed. I am also unsure whether the Coalition Government itself understands the implications.
First, what was the purpose of this review that is now to stop?
Essentially it was to deal with the fundamental and irrefutable ETS problem that the carbon price needed to drive significant change in emission behaviours is so high that, on almost all pastoral land, it would make carbon faming much more profitable than sheep and beef. This price could also be sufficiently high to make carbon farming more profitable than dairying on much of the better land.
From an economic perspective, the key reason this is seen as problematic is that the sheep and beef industries earn some $12 billion of foreign exchange each year and dairying earns close to $25 billion. In contrast, carbon sequestration does not earn foreign exchange.
Losing this foreign exchange would be a huge issue extending far beyond the farming industries. Much of the overall economy would disintegrate in the absence of these primary industries to pay for imports of pharmaceuticals, medical equipment, cars, trucks, computers, machinery, fuel and so on.
From the perspective of the Climate Change Commission, the key concern relates to their own specific mandate. Their concern has been and still is that there could be so many forests planted that this would eventually drop the carbon price below what is needed to change carbon emission behaviours.
So, both the Climate Change Commission and the Labour Government have had a Goldilocks problem of not wanting too much or too little carbon sequestration, but of finding the amount that would be ‘just right’. That problem is now a poison chalice handed to the new National/ACT/NZF Government.
By mid-2023 it was clear that the ETS review being undertaken by the Labour Government was heading towards a supposed solution that, one way or another, the price received for a carbon unit (NZU) sequestered by carbon farmers should be less than the price paid by carbon emitters.
In other words, Government would set the price for carbon sequestered in forests sufficiently low so as to significantly reduce the profitability of these activities, and hence the amount of sequestration. The Government would be the only buyer.
The Government would then sell the units at a higher price to emitters. In the process, Government would make a big profit, almost certainly some billions, by managing the trade.
In response to the Labour Government’s mid-2023 discussion document setting out a range of options as to how this might be done, there were more than 600 individual and corporate responses. The Ministry for Environment has been beavering away ever since analysing these submissions, with individual submissions up to 70 pages. They were meant to report back to the Minister this month (December).
I was not enamoured by any of the proposals within that discussion document, and so at one level I am relieved that the work has been stopped. By doing so, the new Government has effectively put a stop to the notion, at least until the next election, of separate prices for sequestration and emissions, and with Government playing a monopolist game in the middle as the sole trader. However, I also suspect there was a lot of wisdom embedded within those 600 submissions.
Anyone interested in carbon-farming investments can now have confidence that, at least until the next election, the sequestration price will align with the emission price.
As it stands, the decision to stop the review will be welcomed by those foresters who are currently earning NZU credits in the ETS, and likewise anyone else who owns NZUs as an investment.
Similarly, it will give some confidence to those who are interested in setting up large-scale forests with introduced species, knowing that there are now no overarching central-government policies to stop them.
It should also create new interest among hill-country sheep and beef farmers that individually putting the worst 10% to 20% of each farm into carbon forestry is a very attractive diversification option.
As I write this article on 5 December 2023, the carbon price for one New Zealand Unit (NZU) has risen from $70 to nearly $76 in the 10 days since the coalition’s agreed policies were announced. This is probably due to those who hold NZUs – and there were close to 161 million of these units in private hands as at 30 September 2023 – now being confident to look for a higher price before they sell.
A simple calculation of 161 million units multiplied by $75 comes to more than $12 billion. It’s a big nest egg, but not all of these units are owned by foresters. Big trade-exposed companies have been holding onto their free government-gifted units as an investment. There are also private non-forestry investors.
For a range of reasons that I will not go into here, what happens to carbon prices in the coming months is far from certain. However, my expectation is that, with current ETS settings, the price will rise considerably over the medium term, say two years, and possibly for some time thereafter. Even if the carbon price does not rise any further, the profitability of carbon farming is now of the same order it was in mid-2022 before the kerfuffle of the last 18 months.
But oh, if everything was really that simple!
On 3 November 2023, a new system of regulations was put in place called the National Environmental Standards - Commercial Forestry (NES-CF). The regulations apply both to plantation and permanent (continuous cover) forests. They require that any proposed forest of more than one hectare has to be assessed by the relevant local council within each of eight separate stages of the forestry cycle.
It would seem that a new bureaucracy of regulations has been created. How they are interpreted will be crucial. I expect there will be lots of legal hearings and appeals. There will also be some strident lobbying of local councils as each goes through the painful process of developing new district plans.
The regulations will in general be manageable for the big forestry operators who can spread the regulatory costs over hundreds of hectares. But they are going to be more than a little off-putting for farmers who just want to dip their toes into carbon farming. This might be something for the relevant minsters to now look at.
The other fundamental problem is that as things stand, we are heading back to the situation of several years ago when good quality farms were being sold for forestry. Indeed, professional forestry companies much prefer this type of land which has less health and safety issues, lower cost of internal roading, lower costs of harvest and remediation, and closer to ports.
There is only one solution. It has to be a case of simple and consistent regulations that lay out the specifics of where forests comprising introduced species can and can’t be planted.
My suggestion, which I first floated close to two years ago, is that individual pastoral farmers should have automatic rights to plant continuous-cover forests on a proportion of their land, perhaps somewhere between 10 and 20 percent of the area, but constrained to no more than say 100 hectares on any property.
Farmers know which parts of their farms are the least productive parts and this is where they would choose to plant these forests. It will be the gullies and steeper country. Farmers would need to register these relatively small-scale forests as continuous cover, and with automatic approval constrained to approved species.
Alongside this, full consenting would be required for larger areas of afforestation, taking into account broader environmental and community issues. These issues would need to be defined for each district plan.
Logic would say that district plans should direct the large-scale forestry to land classes 6, 7and 8, and totally away from classes 1 to 5. Class 5 land could be approved for forestry when surrounded by land of classes 6, 7 and 8, but only if this surrounding land made any other use of the Class 5 land uneconomic. This overarching direction should come from Central Government.
Overarching consenting rules need to have agreement across party lines. Long-term investment decisions cannot be at the mercy of three-yearly elections. If we can’t get broad agreement across party lines as to the rules, then forestry policy will lurch from crisis to crisis.
*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.
33 Comments
Very interesting and informative article - thank you.
You wrote:
"On 3 November 2023, a new system of regulations was put in place called the National Environmental Standards - Commercial Forestry (NES-CF). The regulations apply both to plantation and permanent (continuous cover) forests. They require that any proposed forest of more than one hectare has to be assessed by the relevant local council within each of eight separate stages of the forestry cycle.It would seem that a new bureaucracy of regulations has been created. How they are interpreted will be crucial."
My local Council (TDC) has interpreted these regulations differently to you! Only production forests are included. Here is the extract from their website:
"Regulations apply for any plantation forest which:
- Is at least 1 hectare, and
- Has been planted specifically for commercial purposes, and
- Will be harvested.
The eight activities referred to in the regulations are: ...... "
How is an average farmer supposed to manage when an expert such as yourself and a Council come to differing interpretations?
finite,
Your local council is not up to date or else has got itself muddled. It looks like the latter from the terminology they have used.
All forests of introduced species are now included, regardless of whether or not it is planned to harvest the trees.
Indigenous forests are not included.
The change to include permanent (continuous cover) forests occurred on 3 November but your council would have been advised prior to this about the changes. Here is the MfE link.
https://environment.govt.nz/acts-and-regulations/regulations/national-e…
KeithW
Well Keith, your forced absence has resulted in pretty sharp on point articles on your return. Thanks and I hope you are happy with your health progress.
God forbid we return to the the rape and pillage of classes 1 - 5 soils by permanent forest interests. Following the relatively short period such land use change was open slather, I see stark socio-economic impacts 8n our community, by way of reduced employment opportunities, permanent and seasonal (shepherding, farm management, shearing, wool handling, fencing, building maintenance, sports clubs, schools). Jobs created in tree planting and release spraying don't go to locals - teams parachute into the community for a few weeks, from all points of the compass, then disappear. Spend a few dollars at the pub and dairy but not a lot. I'm surprised at how the community embraces them (but then Pōrangahau is renowned for maanakitanga).
What worries me is about when the first forest wild fire arrives and just how big a threat that will be to the village if there's a typical norwester whistling.
We'll do what we can but we are all volunteers here. Maybe the likes of INKA might look at supporting the local fire brigades where they have bought up farms and planted in pines - we'd be ecstatic to be gifted a 10,000lt 4WD tanker - Christmas is just around the corner eh.
LouB
I watched first hand the Port Hills (Canterbury) fires in late summer of 2017 which raced up through the tussocks and dry grass at great speed and then got into the pines. We were ordered to evacuate from our own home on the second day as the flames came back towards us with changes in the wind. The key to controlling that fire was the combination of helicopters with monsoon buckets and a plane with retardant materials which from memory flew over from Australia. The retardant was also very effective on the grass.
I do think we need to be better prepared for forest fires and that includes both indigenous and introduced species. Much of the indigenous forests in eastern Aotearoa New Zealand were burned, and much of that occurred long before European colonisation. We must not think it is only forests of introduced species that can burn. In general I am much more concerned about large contiguous forests than small forests with separation between them.
KeithW
There must be a few variables that affect the likelihood of a forest fire. Obviously the human contribution is one but the type of tree and prevailing climate/weather patterns must be the most obvious.
A traditional indigenous forest with all it's undergrowth etc must hold more moisture than a pine plantation and therefore be less susceptible? Is the burning of forest prior to colonisation relevant to today's issues? It was deliberate according to history papers, or was it an act of nature?
We know that microclimates can be altered/created, does that not suggest that the macro is also altered by large scale deforestation, land use etc?
meh
I have spent a lot of time tramping through indigenous forests which lack undergrowth because of pests - deer, goats, etc. And alas, those conditions are the current reality in too much of our indigenous forests.
Regardless of where the relative contributions came from, the reality is that these indigenous forests do burn on the eastern side of both major islands. And that is where most of any new afforestation has to occur.
KeithW
I do understand conditions have definitely changed over the decades/centuries and I do appreciate your writings and research. We've created a very difficult scenario to correct for the better.
I did read though that allegedly the burning of those indigenous forests was deliberate by Maori prior to colonisation. Does that make any difference to the conclusions in the current environment?
Agree with all that Keith. But forests do not need to be contiguous - in the right conditions, embers can be carried by the wind over long distances of 1km or more, and ignite downwind fuel sources.
An issue, in my opinion, is the land-use change significantly changes risk and consequence profiles. The change from pasture to forest substantially increases the fuel load of long rank grass on the ground surface, particularly until canopy closure. Aggravating that change in risk, is that this area (and south to Palliser) is renowned for very high westerly quarter winds - Cape Turnagain (20km south) holds the record or very close to NZ record wind speed, in excess of 200kmph.
Sure, helicopters and fixed wing resources can be brought in to fight the fires if flying conditions permit. How is that cost met? But ultimately, it is the volunteers of local fire brigades that shoulder the grunt work on the fire ground. Volunteers who, I hazard, derive negligible if any, benefit from that landuse change.
It's a sobering fact that 86% of fire fighters in NZ are volunteers who protect (first response) 92% of NZ land area. Rural depopulation will inevitably decrease the response capability. And that is an issue of national significance to ensure the sequestered carbon in these new forests is retained and not released back into the atmosphere via wildfire.
But oh, if everything was really that simple! Even NASA admits "today's models must be improved by about a hundredfold in accuracy, a very challenging task"
"In order to predict the climate several decades into the future, we need to understand many aspects of the climate system, one being the role of clouds in determining the climate's sensitivity to change. Clouds affect the climate but changes in the climate, in turn, affect the clouds.
...When contemporary models are given information about Earth's present condition — the size, shape and topography of the continents; the composition of the atmosphere; the amount of sunlight striking the globe — they create artificial climates that mathematically resemble the real one: their temperatures and winds are accurate to within about 5%, but their clouds and rainfall are only accurate to within about 25-35%. Such models can also accurately forecast the temperatures and winds of the weather many days ahead when given information about current conditions.
Unfortunately, such a margin of error is much too large for making a reliable forecast about climate changes, such as the global warming will result from increasing abundances of greenhouse gases in the atmosphere.
...Thus today's models must be improved by about a hundredfold in accuracy, a very challenging task. To develop a much better understanding of clouds, radiation and precipitation, as well as many other climate processes, we need much better observations."
Your reference seems to be out of date, much like your thinking.
"This website's content is no longer actively maintained, but the material has been kept on-line for historical purposes.
The page may contain broken links or outdated information, and parts may not function in current web browsers."
Try harder. Just scroll down to the next sentence and click on the link. The ISCCP project is still very much alive- as is the cloud problem. "Please note that ISCCP data processing is now performed at NOAA/NCEI.
Please visit the NOAA/NCEI website for access to ISCCP H data products and other up-to-date information."
"There is now compelling evidence that the lack of resolution of coarse global models and even coarsely resolved mesoscale cloud models and the inability to explicitly resolve convection specifically is a major obstacle in making the advances needed to confront important Earth science challenges of today (Slingo et al. 2022).
...One example of where progress can be expected from the PoR comes from the development of the next-generation version of the ISCCP, a coordinated effort across major operational satellite organizations and research communities to create global, high-resolution-in-space-and-time data products (on the order of 2 km global, 10–30 min) on clouds and related information."
https://journals.ametsoc.org/view/journals/bams/104/1/BAMS-D-22-0061.1…
profile,
Can you tell me when that material was produced? It says that it is being kept 'for historical purposes'.
Once again, you post does not actually say whether you believe in the science of global warming or not, though the implication is clear-you don't, but won't say so directly. You might turn your undoubted intellect to the work of Fourier, Tyndall, Clausius and Clapeyron and Arhennius-all in the 19th Century. You might find it interesting and instructive.
I accept that climate is changing as it always has, the question is to what extent human activity affects climate - I accept such activity must have some effect so the question is how much? I see littel discussion and none in climate predictions of the combination effects of The Milankovich Cycle, the 22 year sun spot cycle and the gravitational effects of the planetary alignments that contirbute to El Nino and other heat related local effects . The complexity of these matters is probably why weather forecaasting is so complex and often wrong.
Losing this foreign exchange would be a huge issue extending far beyond the farming industries. Much of the overall economy would disintegrate in the absence of these primary industries to pay for imports of pharmaceuticals, medical equipment, cars, trucks, computers, machinery, fuel and so on.
Wouldn't this be cancelled out by the fact we wouldn't need to import so many carbon credits from overseas to meet our obligations?
Our non-binding obligations. It is all theatre and posturing.
"The achievement by a party of its NDCs is not a legally binding obligation."
Great article, Keith. I try very hard to understand this, but admit I get lost. So let me state my uninformed, but "gut" thoughts - and please feel free to tell me where I might be wrong.
Where are these legitimate imported credits to come from, I wonder? I don't think we can rely on buying our way to compliance with our stated targets.
Nor do I think we can locally plant our way to compliance with our stated targets (and what an awful place this would be if we did)..
To my mind, the only way to meet our stated target is to reduce emissions.
I'd suggest we scrap the ETS and get on with the real work of de-carbonising.
Although, fat chance of that when the revenue (not sure that's what it's called, but hope you know what I mean) is needed to offset tax cuts.
Offsetting - as an economic and environmental management concept. I see it as a scourge. An excuse for BAU.
To me, it's as bogus as trickle-down theory.
Rant over.
Kate
Currently there are no legitimate units that the Government can purchase from overseas. I made mention of that in my previous article two weeks ago. The Climate Change Commission knows this and the Labour Government had also come to that conclusion by the end of its term, although basically they kept that to themselves. It is now the task of the new coalition to work their way through that.
Yes, we could scrap the ETS and start again. Perhaps with a carbon tax. Essentially that was under discussion in the review the new Government has just scrapped. but we won;t gt there without some more trees also being planted.
KeithW
Thanks Keith for the feedback. Very interesting that scrapping the ETS was part of that MFE discussion document. I wonder how many submitters favoured that approach and whether a carbon tax was the only alternate for reducing carbon emissions suggested?
It would be fascinating to see a summary of submissions in order to check that out.
But, I assume from what you've said above that the officials were just working through those submissions and there has not therefore been a summary of submissions published? And now with the change of government - there won't be?
If so, that would be a real shame as I suspect there will be volumes and volumes of wisdom and ideas contained within those submissions.
"the only way to meet our stated target is to reduce emissions."
Isn't that the whole point of a mechanism to price carbon emissions? Make them expensive, innovate, emissions come down, price of carbon comes down, back to business as usual using the magic of carbon free energy.
Seems social commentary and political discourse is around how we can do this without citizens noticing an increase in cost of living. You can't! As evidenced, cheap won't change behavior! No pain, no gain. To believe this narrative, you have to believe there's a miracle energy source waiting to step into the breach.
What the free marketeers don't get, is that energy is the master resource driving their "market". Making energy more expensive is like chucking an anchor off the back of the boat while trying to accelerate.
On the carbon storage side, should those storing carbon do it for free, have their carbon storage nationalised? Maybe should just burn off the otherwise worthless trees and graze a few goats. Earn some physical cash to pay local government rates, return that carbon to the atmosphere and let those driving around in their double cab diesels and having fun winter holidays in Bali face the actual consequences of their pollution?
Isn't that the whole point of a mechanism to price carbon emissions?
Well yes, but the ETS market mechanism doesn't do that! Amongst all its other problems (including speculators gaming the market) - there is the not inconsequential fact that (as Keith points out above) our major industry polluters who are given 'free pass' credits by government (i.e., the EITEs as linked to below) are hoarding them as well;
For the simplest form of climate policy, we would count only carbon dioxide emissions; put a tax on carbon emitters (with no concessions for the Emissions Intensive, Trade Exposed (EITE) industries) and scrap the ETS. Additionally, we would cost-recover public transport based on its emissions profile only.
Isn't the central issue the locking up of land into carbon farming in schemes that don't have other beneficial uses aside from carbon sequestration?
What prevents us from having both?
In the age of tech such as lidar which can scan biomass volume in a forest with a flyover, why do we have to continue to be constrained to a fool's choice of monocrops of common forestry species, natives or nothing? Sure, it doesn't recognise soil carbon which is significant, but at least it opens up now options.
If we look for carbon removal models, improving ecosystems' carrying capacity with models from The Carbon Farming Solution and Restoration Agriculture books or using regenerative agriculture and biochar offer real benefits aside from carbon sequestration.
Marine sequestration, direct injection of carbon rich liquids and gases could be useful in certain circumstances too.
makechange
Yes, MPI has been looking at LIDAR. It is hopefully part of the future. But my understanding is that it is not yet operational at sufficient level for measuring the amount of carbon in a diverse forest. Physical sampling is still required.
Marine sequestration and other forms of non-forestry sequestration are being researched but there are no easy answers.
KeithW
I was listening to article on Xmas tree farming , and they were saying trees they put cow poo under grew twice as fast as those without. Currently , there would be no advantage to doing this under 100Ha , but it could be to n advatage of a farm , if they have dairy effluent to dispose off. Industrail and urban waste could be used as well. If the carbon price rises , and land prices rise , it may become economic to fertilise, maybe irrigate.
It is a significant setback if there are no legitimate credits to buy internationally. We are truly on our own with reducing emissions and the only solution is reducing to net zero with no ability to offset at all. This must change the reduction plans of our domestic industries including farming and raise the urgency of doing so even further. With the stance of the current government seeming to not prioritise emissions reduction we are certainly in can kicking territory. Looking at COP28 which country is setting the example by sacrificing its economy to lead the way into a zero net carbon future?
Europe, US and China are all making progress on converting to renewables. Not so easy for us as we are already 80% (I think) renewable energy.
I read an analysis the other day on the cost of replacing the 10 highest emitting coal power plants with nuclear energy. That cost came out as far lower than the cost of the US government energy-conversion initiatives alone. There was a factor of 7:1 benefit in just building the nuclear plants to replace those 10 highest emitting coal power plants.
Ironic really, as the UN should be doing a fund-raising drive to cover those costs - and leave it at that. But everyone on the COP bandwagon enjoys the talk fest. Easy solutions unwelcome.
The terms "energy" and "electricity" are NOT interchangeable.
We are 80% renewable electricity which is about 40% of our energy use. (if we ignore the suns energy to grow plants, bring us water from the oceans and keep us warm - plus all the embedded energy in the stuff we import )
Correct.
On the other hand , i would say we use electricity for heating and cooking a lot more than other countries that use gas or oil for these more. Especially in the South Iisland .
If the price of oil keeps going down , i wonder if it will become cheaper than coal , with carbon costs included.
Biomass would probably still beat it if carbon credits rise.
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