KEY POINTS:
As the members of Parliament's finance and expenditure begin their consideration of legislation to set up an emissions trading scheme they ought perhaps to hang a portrait of Albert Einstein on the wall - to remind them how profoundly reality depends on your point of view.
Nowhere is
this more true than in the provisions relating to deforestation of pre-1990 plantation forests, which make up about two-thirds of the country's commercial forest estate.
From the standpoint of the owners of that land the proposed policy is confiscatory, insofar as it locks them into a second-best use of their land.
If they fell the trees and then convert the land to another, higher value use like dairying they will be liable for the cost that gives rise to under the rules of the Kyoto Protocol.
They are deemed to have emitted, then and there, the carbon stored in those trees.
At an average of 800 tonnes a hectare and an estimated (pick a number) carbon price of $25 a tonne that represents a bill of $20,000 a hectare, undreamt of when the trees were planted 30 years earlier.
For such a landowner it is no consolation that the Government plans to dole out 55 million tonnes worth of carbon credits free to the sector as a whole. If allocated pro rata his share would only cover about 5 per cent of his liability.
Contrast his position with the owner of a Kyoto or post-1989 forest who will only face a liability upon harvest if he has opted into the emissions trading scheme and therefore received carbon credits as his trees grew.
The view from the Beehive is very different, however.
Climate Change Minister David Parker says the fundamental principle of the emissions trading scheme is that it creates a marginal price for carbon, which discourages increases in emissions and rewards decreases in emissions.
New Zealand as a whole is exposed to a carbon price by the Kyoto Protocol and it is both efficient and fair to devolve it to those responsible for emissions, he argues. Otherwise the taxpayer has to pick up the bill.
An indication of just how big the taxpayer's bill might be if no deforestation liability were devolved is provided by a survey of deforestation intentions conducted late last year by Bruce Manley of Canterbury University.
It found that without a policy to include deforestation in the emissions trading scheme landowners would deforest 37,000ha over the next five years.
At a carbon price of $25 a tonne that would represent a liability for New Zealand as a whole of $740 million.
Under the Flexible Land Use Alliance's preferred option of exempting pre-1990 forests from the ETS that liability would fall to the taxpayer.
But under the Government's proposed scheme, deforestation between 2008 and 2012 inclusive would drop to 12,000ha, the survey found. That would save the country $500 million and the saving over the 2013 to 2020 period would be of a similar order.
It is worth noting that 12,000ha over five years would represent a return to something like historical rates of deforestation, when between all but 2 to 5 per cent of commercial forests felled were replanted.
It also suggests that even a potential liability of $20,000 a hectare if land use is changed is not altogether prohibitive. If it was, deforestation intentions would have dropped to zero.
All of this rests on the reliability of Manley's deforestation intentions survey.
The survey comes with a health warning, however, that it took place at a time when forestry landowners were focused on the rush to deforest before the deadline of the end of 2007 (after which liabilities under the ETS would kick in). And respondents were inevitably unsure how much it would cost them to carry on deforesting from 2008. "Clearly the forecasts are subject to change," Manley said.
The Government is changing the rules on investors and that is never a good look.
A key part of New Zealand's response to climate change is to encourage the planting of forests on up to 1 million hectares of erosion-prone hillside of little alternative use.
Carbon credits or afforestation grants are to be made available for people establishing forests on that country.
The risk in changing the rules for existing forest owners is that people conclude: Okay credits are available now but in 20 years time, when the trees are really putting on weight, here is this precedent for changing the rules.
It is a risk Parker dismisses.
"The way to encourage afforestation and to discourage deforestation is to devolve the benefits and the costs. I can't see that that is a fair economic principle for forests that are increasing their carbon storage but not for those which are decreasing their carbon storage. It is the same principle."
The Rayonier-led consortium Matariki Forests in its submission to the select committee says that when it bought its forestry assets (around 100,000ha) it had the ability to freely change land use depending on relative economic returns. The ETS, its says, clearly removes that right costing it many millions of dollars.
But that was in 2005, three years after the Government indicated there would be a deforestation liability above a certain cap
Parker said that well over half of those who say they are planning to deforest bought their forests after 2002. In other words they went in with their eyes open.
Carter Holt Harvey, now owned by Graeme Hart's Rank group, in its submission says it has recently divested itself of a substantial holding of forest land, retaining those areas with known or expected alternative use.
The Federation of Maori Authorities wants the owners of land under pre-1990 forests to have the same right as the owner of Kyoto forests, to opt into the ETS if they want to and thereby earn credits for carbon sequestered, while accepting the associated liability upon harvest.
Carter Holt also argues that Kyoto's distinction between forests established before and after 1990 is illogical when applied to New Zealand's plantation forest estate as it was always destined to be felled.
But the Government says the distinction benefits New Zealand Inc - relativity again.
It has elected not to account for the carbon in pre-1990 forests, as it is allowed to under the protocol's rules, because overall there will be a net loss of carbon from those forests.
The catch, of course, is that New Zealand only escapes liability for the carbon released when those forests are harvested if the very same land is replanted.
The Flexible Land Use Alliance wants officials to press for a change to the international rules so that it will count as replanting, and not count as deforestation, if other land is planted instead.
That may be logical.
But it would be a spectacular own goal if reopening this element of Kyoto's rules put at risk the larger concession that the country is not liable for the carbon released upon harvest provided the land is replanted in trees.
