The fabric of our local rural communities could be severely impacted by conversion of sheep and beef farming to forestry if Government doesn't change its combination of policies on the Emissions Trading Scheme and its stance on the upcoming Zero Carbon Bill. Submissions for this Bill closed on July 16.
In the Tararua District it is likely sheep and beef farms will be largely replaced by carbon farming and our farm service industries will evaporate.
New Zealand forestry is dominated by overseas investors who will likely dominate carbon farming.
"Once an investor has optimised all the benefits from the first cycle of carbon-sink, the land then becomes a carbon and financial liability," says Keith Woodford, primary consultant at Agrifood Systems.
In Tararua District large sheep and beef farms are being bought-up to convert to forestry and attract carbon credits. It is already attractive at $23 per tonne of carbon dioxide for investors to buy up the carbon credits. Submissions on the latest review of the ETS showed a majority support raising the $25 fixed price option. Government said it will keep the fixed price option until 2020.
The Government's One Billion Trees programme, which contains some limitations on forestry into existing farm operations in order for a farm to qualify for a subsidy, will not be sufficient to control the sale of farming land for forestry. The cost benefits come purely from carbon farming.
The Government has said it intends to manage carbon prices in future by controlling the supply of carbon credits through an auctioning system, and that the fixed price option will be gone by 2022 at the latest. It also has the ability to implement a price floor, although it hasn't committed to using it. Forestry sector members are lobbying for a price floor.
"I share the concerns regarding rapid rural land use change and suggest Shane Jones (NZ First) takes a breath and consider the impacts of the current combination of policies to ensure they're not creating a massive problem around the corner," says Todd Muller MP, National Party spokesperson for Climate Change.
"In the last six months alone, the Overseas Investment Office has approved the sale of around 60,000ha under new the "special forestry" test. Last month, there were a further 13 applications in the pipeline. There has been a 100 per cent approval rate on all overseas forestry applications under the new special test. It feels to me that a high ETS price plus expectations of it rising in the future, is leading to emitters looking to offset in trees rather than reducing their emissions.
"Jones needs to be sure the current settings are in the best long-term interests of New Zealand. If we allow bad or poorly executed policy to dictate the direction of our country, it will be our kids that ultimately suffer the consequences. I want to see a sophisticated approach to how we best use our land. It can't be oversimplified. It directly impacts the health of our rural towns and regional communities, our cultural identity, our natural environment and our economy."
A speculative market has developed and bets are that the carbon price will continue to increase — leading to an increase in Carbon Farming/Carbon Consulting. Big money is being attracted.
Zero Carbon Bill Economic Analysis, modelling from Vivid (Concept Consulting, Motu Economic & Vivid Economics) estimates annual carbon price over 2018-2050 at $76 to $100 per tonne. The emissions price for 2050 ranges from $157 to $250 per tonne.
NZIER modelling is substantially higher — $272 per tonne if NZ sees further afforestation and innovation in agriculture, energy and transport or up to $845 per tonne if we only see innovation in energy and transport. The Productivity Commission states that "to reach emission levels of 60 per cent below 1990 levels by 2050, will likely require emissions prices to be between $75 and $152/tonne". All are pointing to significant rises in the price of carbon.
In the last 12 months carbon credits (NZUs) have been trading above $25 for most of the past 12 months, resulting in Emitters paying the $25/tonne fee rather than surrendering Carbon Units. Emitters are betting on the carbon price rising, so are holding them for security. The manager of the Environmental Protection Authority's Emissions Trading Scheme operations team said while detailed information won't be available until August, the EPA has noticed an increase in the use of the fixed-price option.
"Most of the carbon units are held by either forest owners or emitters caught up under the ETS (Emission trading Scheme) with 50 million units in the registry," says Nigel Brunel, OMF's director of Institutional Commodities. "The reason the Government is bringing in an auction system is that the current ETS is not fit for purpose to meet our Paris Accord commitment or our Zero Carbon Bill goal. There won't be enough forestry units in the market. The Government wants to bring in auctioning as part of the ETS revision anyway.
New Zealand cannot meet its Paris commitment domestically. There's not enough forest that can be grown in New Zealand. It has to find units in the international market to do that.
"To reduce emission 30 per cent below 2005 levels by 2030 you could fill Queen Street (Auckland) with trees — you aren't going to do it. Shoot every ... cow in the head — you aren't going to do it. If you shoot every ... animal in New Zealand and planted Queen Street with trees you would meet it.
"2030 is only 10 and a half years away — it takes time to grow trees. It takes time to get electric vehicles. There is no cure for methane and that's not going to happen overnight.
We physically won't be able to grow enough seedlings. It's all about policy — what is the policy being put in place for (a) New Zealand to reduce the emissions or (b) meet its targets. They are relatively complex," says Brunel.