Rural land syndicator MyFarm has launched a new fund to finance the development of carbon sinks on marginal New Zealand agricultural land.
The fund, CQuest Forestation and Carbon Investment Fund, is seeking an initial $15.2 million from wholesale investors to buy up to 1,500 hectares of land to plant in radiata pine.
MyFarm says it will give wholesale investors an opportunity to farm carbon credits.
it says the fund is among the first specifically targeted at giving New Zealand wholesale investors the opportunity to acquire carbon credits at a discount to the price prevailing on the secondary market and benefit from the difference and any further increase in carbon prices.
MyFarm envisages sequestering around 480 tonnes of carbon per hectare through the planting of pine trees, generating carbon credits at a cost of $20-25/tonne.
The fund then expects to sell those units over the life of the investment at a price ranging between $50 to $60 a tonne.
MyFarm's head of research Con Williams said the fund would target lower and central North Island properties.
Unlike some carbon farmers who plant and leave the tree in the ground for the course of its life, MyFarm's approach would be to plant with a view to milling.
"We are focused on producing timber and forest products from them," he said.
"You never know what's going to happen over 20 to 25 years with carbon and forestry markets.
"With high carbon prices there are obviously more attractive margins," he said
"We are interested in the dual income provided."
Planting trees for carbon sequestration has drawn criticism in parts of the rural sector as some see it as a threat to the pastoral farming model.
Williams says there is always going to be land use change over time, depending on policy and economic signals.
"This is now an attractive economic signal focused on forestry developments at the moment, which his going to drive land use change," he said.
"it's a matter of right tree, right place."
MyFarm says its model is projected to generate an internal rate of return (IRR) on the Fund of 6 per cent to 9 per cent per annum.
It will initially invest in a 465 ha former sheep and beef property in the Tararua district and will add to the portfolio as suitable land is found.
CQuestFund envisages sequestering around 480 tonnes of carbon per hectare through the planting of pine trees, generating carbon credits at a cost of $20-25/tonne.
And, as the trees grow to maturity, it then aims to sell the credits on the secondary market where carbon credits have recently been trading close to $60/tonne.
The Fund has secured property to plant with the initial property expected to be planted in 2022 into around 356 effective hectares.
These returns will be supplemented by the sale of wood once the trees reach maturity, or if sold post the carbon earning period.
If held through to harvest there is an obligation to replant the forest once harvested.
The fund will be managed by MyFarm and Afforestation Partners Management.
Carbon prices have doubled over the past two years to close to $60/tonne last week.