Crowe Horwath: Carbon forestry field day in CHB

Denis Hames

While there is still debate on whether, when and in what form, agriculture will be included in the Emissions Trading Scheme (ETS), there is now no doubt as to the benefits to be gained in appropriate tree plantings or retiring certain land areas on a long-term basis to offset possible future emission liabilities.

We recently held a very successful Carbon Forestry Field Day on one of our client's farms in association with the Hawke's Bay Regional Council. We heard from expert speakers from Te Uru Rakau Forestry New Zealand, Beef+Lamb New Zealand, Woodnet and Carbon Forestry Services. What stood out was the widespread lack of real understanding as to what opportunities exist to earn carbon credits and what these may mean.

There are several carbon forestry options ranging from pine trees (which everyone generally understood) to poplars and willows (which were planted widely on the farm in question) to native tree plantings. While there are minimum canopy covers, spacing and height requirements to earn carbon credits, the field day certainly highlighted the ability with poplars, for instance, to earn carbon credits and still retain grazable and/or croppable land.

The idea of a Permanent Forest Sink Initiative (PFSI) was also canvassed. A PFSI allows landowners to receive continuing carbon units through the creation of permanent forests (established after 1990) and can include indigenous forests.

This obviously ties in with soil conservation, farming sustainability and how plantings can offset carbon dioxide (from using fossil fuels), nitrous oxide (conversion of fertiliser, dung and urine in soil), and methane emissions (from cattle) on farm to achieve a carbon neutral status.

While there is still debate on whether, when and in what form, agriculture will be included in the Emissions Trading Scheme (ETS), there is now no doubt as to the benefits to be gained in appropriate tree plantings or retiring certain land areas on a long-term basis to offset possible future emission liabilities.

For those with pre-1990 forests/plantings and who don't have an exemption, you may automatically be in the ETS. If you cut down existing pre-1990 forests and then replant (meeting certain criteria) you are not going to have an on-going issue. But if you don't replant to the criteria; there are issues around deforestation and surrender of units. It also makes sense for farmers to get their post 1989 forests/plantings into the ETS and start to earn credits.

If you are thinking of selling your farm, remember that carbon units are valuable, with the current spot price being around $22.85 per NZU. The proceeds from the sale of these units to the purchaser would normally be over and above the sale price of the farm.

While the sale of the units may be taxable (as is the value of trees included in any Sale and Purchase Agreement) they will certainly provide that 'bit extra' — which is a bonus. This is a specialist area of expertise and quite complicated.

However, the returns are now very tangible and worthwhile in an environment almost requiring a 'Licence to Farm' given the range of recent regulatory requirements — ETS, farm environmental management plans and Health and Safety.

For any further information please contact the team at Crowe Horwath on 06 858 5540.
This information is general in nature and readers should seek specialist advice before making financial decisions.