Welcome to the brave new world of carbon farming

Trees are being grown purely for the carbon credits. Photo / Paul Estcourt

In Marlborough's picturesque Wairau Valley stands a forest of 12-year-old pine and Douglas fir trees whose owners are confident that at harvestable age they will still be worth more alive than dead and will continue to be indefinitely.

This is the brave new world of carbon farming - growing trees purely for the carbon credits.

The 415ha Kiernan Creek forest was bought by New Zealand Carbon Farming last February and is part of a portfolio of more than 3000ha of Kyoto forests which it owns and intends to be permanent forest sinks.

Kyoto forests are planted since 1989 on land not previously forested and earn credits for the carbon they sequester as they grow.

The Kiernan Creek forest sequesters between 20,000 and 25,000 tonnes of carbon dioxide a year - equivalent to 3000 households' emissions - and earns an equivalent number of carbon units. They are sold to Fonterra which has obligations as an emitter under the emissions trading scheme.

NZCF has another 9000ha of farm land earmarked for carbon farming. In all, it intends to plant more than 20,000ha of new permanent forests over the next five years.

That will provide about 950 jobs, NZCF managing director Matt Walsh said at a function yesterday marking the conversion of Kiernan Creek from a conventional commercial forest to a carbon sink forest.

At current depressed carbon prices planting is only economic because the company sells units forward up to 15 years out, to emitters who expect the price to rise.

It manages the carbon price risk in that way, but also maintains some exposure to the spot price, much as a homeowner might have a combination of fixed and floating mortgages.

The company also leases 15,000ha of E Kyoto forests registered under the ETS, managing the carbon credits for more than 50 forest owners.

They receive an annual payment, agreed in advance, while NZCF relieves them of the carbon price risk and, crucially, of the liability upon harvest to account for the carbon stored in the trees.

Walsh said the emissions trading scheme made the business possible. It had the framework and the necessary incentives to create a business supplying New Zealand emitters with home-grown carbon credits for the long term.

It would reduce the negative balance of payments effects when emitters had to buy credits on the international market, he said. It contributed to the quality of water in rivers, by planting erosion-prone country.

And the leasing side of the business had already contributed $10 million in taxable income to its forest owner partners, Walsh told Climate Change Minister Tim Groser and Associate Minister Simon Bridges at yesterday's ceremony.

Groser said the ETS was creating the desired shift towards investment in forestry and renewable energy.

"We have left behind the unprecedented levels of deforestation that occurred in the years up to the introduction of the ETS, and are now seeing good net gains in afforestation.

"While we lost 30,000ha between 2005 and 2009, we have seen a net increase of 6000ha in 2010 and an estimated 12,000 for 2011," he said.