More forestry mills will close - Marty Verry

Winstone Pulp International is set to close two plants with the loss of 230 jobs. Marty Verry says a strong domestic processing base, implementing a key climate change programme, and giving credit to harvested wood products will be crucial to saving more mills - and jobs. Photo / NZME

KEY FACTS:

• Winstone Pulp International will be closing two central North Island mills, citing unsustainable energy prices.
• Demand for New Zealand timber has reduced due to China’s construction implosion.
• By July 2023, just two in 10 of our forest growers were taking direct measures to adapt to climate change, a Scion-led study found.

Marty Verry is the chief executive of sawmill and mass timber manufacturing company Red Stag Group.

OPINION

Both parts of the broader forestry sector are now struggling. The chickens have come home to roost on forestry’s over-reliance on China’s property market. Activity there is off 30-40% and set to slip further.

China took 80% of New Zealand’s export logs. The sector must replace it with a strong domestic processing base it can rely on.

But the local construction industry is languishing at activity levels last seen soon after the Global Financial Crisis.

The saw-milling sector now has 40% excess capacity and prices are down 10%. The 28 structural timber sawmills are slogging it out in the market.

In this economic environment, running on part shifts with low margins is a recipe for further closures. Expect two or three more announcements in the next year or so.

The South Island is especially over-supplied, and a closing there would give a margin reprieve for the rest of the mills.

Interest rates will stop the slide sometime next year or in 2026. We’re calling for a 1% OCR cut at the next review. There is no use doing it in 25 basis point steps if we know it needs to drop 300 basis points this cycle, inflation is under control and the economy is on its knees.

The Government has two key policy levers also. Each relies on recognising the role wood processing has in providing carbon-negative building materials.

The world can literally build its way out of the climate crisis when it comes to the 20% of carbon emissions caused by construction. However, policy and regulation will be required.

Implement Building for Climate Change

The first policy is to ambitiously implement the Building for Climate Change programme. It will provide the regulatory stick needed to make building product suppliers de-carbonise their products.

The Ministry of Business, Innovation and Employment (MBIE) is well-advanced in planning its implementation, and in June more than 50 organisations signed an open letter calling for its roll-out.

They included BRANZ, the Chartered Institution of Building Services Engineers, Engineering NZ, New Zealand Institute of Architects, Sustainable Business Council, Infrastructure New Zealand, and the New Zealand Green Building Council (NZGBC).

To date, the Government has not prioritised it.

The industry recognises regulation is the only effective lever. Indeed, it has made solid steps to decarbonise with the prospects of regulation on the way. That momentum could be lost now.

An estimated 8% of global emissions are caused by each of the steel and cement industries. The Government is hoping they decarbonise, but its second Emission Reductions Plan draft concedes these types of hard-to-abate sectors will continue to emit through to 2050.

That forecast will be correct without the Building for Climate Change regulation.

Its implementation will provide a major demand source for the wood processing sector. Its products are literally made from CO2.

Many progressive developers and project teams are now embracing wood and engineered mass timber.

Nothing tells staff, clients and suppliers that a company cares about sustainability than it being based in a stunning building made of mass timber.

The Fisher & Paykel Appliances global headquarters under construction in Auckland epitomises this. It is using LVL, glulam and cross-laminated timber (CLT) from Red Stag TimberLab.

Plans for the huge new Fisher & Paykel Appliances hub in Penrose: One of the largest cross-laminated timber buildings in NZ. Photo / Fisher & Paykel Appliances

With regulatory support, mills will scale up investment, builders will become more familiar with wood solutions, and construction prices will converge on equivalent to traditional materials, or less.

The Government must trust that this dynamic will unfold and encourage it, rather than continuing to focus on what is cheapest now, even if it’s also costing the earth later.

The sector will react to the demand signal and invest, we estimate up to $1.5 billion. Red Stag alone has $250 million of potential investments and could contribute an additional 637,000 tonnes of carbon storage to 2030.

That alone would save New Zealand $38 million from its Paris commitment bill. It is weighing up whether to make these investments here or in Australia. Much comes down to policy settings that support the business case for investment.

Harvested wood products deserve credit

The other policy that will save the sector is to develop a scheme recognising the carbon storage in wood products with NZ Units that wood processors can then trade on the Emissions Trading Scheme.

Forests sequester carbon from the atmosphere. Wood products store it for decades or centuries.

Few people realise that about one-third of the forestry sector’s carbon storage is actually due to wood processors making investments to lock that carbon away.

Harvested wood products (HWP) value is incorporated in our nationally determined contributions accounting and our Paris targets. So, it’s legit.

Yet wood processors don’t yet receive any benefit for this carbon storage, despite investing in more processing since the HWP baseline year of 2009, in the expectation they’d be treated equivalently to forestry in the ETS one day.

This week, Climate Change Minister Simon Watts said: “We need to be cognitive of any removal option outside of exotic pine that is available to us. If it reduces emissions, we can measure and validate it scientifically legit; then we should be able to get some form of credit for it.”

That is harvested wood products. Both National and Act have election promises to develop a scheme to reward such wood processors for these recent investments and encourage more. Industry and officials are close to finalising a scheme under Forestry Minister Todd McClay’s leadership.

These two policies have the potential to address climate change and ensure a resilient wood processing and forestry sector. Without them, stand by for more global warming, higher Paris bills, more mill closures and decimated rural communities.