This last week I spent two days in Rotorua at the New Zealand carbon-forestry conference where I was also one of the speakers. Both I and others presented perspectives on the path ahead for this new industry. There were close to 300 attendees plus an international online audience.
Although there was diversity of perspective as to how the industry might develop, I sensed no doubt that we all saw ourselves as being involved in something big that, one way or another, is transformational for New Zealand
Most of the attendees were either forestry people already in the business, or alternatively service-industry people who either are already or in future want to be part of this new industry. There were also some Government and Climate Change Commission people there to help explain the current regulatory framework.
However, there were not many farmers at the conference, apart from those who were already in the business of carbon farming, and doing rather well, I might add.
For me, the value of a conference like this is not only to hear the formal presentations, but to talk informally to a diverse range of industry people. That is how I can learn from those on the ground whether there is some key factor that I might have missed.
There was nothing there that made me change my views in any significant way, but there was information that helped further enrich what I have been learning in recent times about this fascinating industry.
One of the foundation points of my own address was that, if simple economics from a land-owner perspective is the criterion, then the answer is also very simple. On the sheep and beef lands of New Zealand there is nothing that can touch the economics of carbon framing.
Of course, simple economics is only one part of the story. Also, that story does change somewhat according to land type. However, the differences in the story are mainly in relation to the other land-use opportunities that are foregone as a result of carbon farming, rather than the carbon farming itself.
One of the remarkable things about carbon farming is that the returns are similar for both soft country and hard country, and largely independent of either on-farm infrastructure or distance to towns and ports. However, there are differences between the North and South Island related to climate, and also some variation between the north and south of each island.
A consequence of this is that for each area of New Zealand there is a difference in land price that carbon foresters are prepared to pay, but at least within the North Island those differences are modest. Southern Hawkes Bay farms have been selling for about $15,000 per hectare in recent months. Gisborne has been about $17,000 and King Country about $14,000. This is for pastoral land that fits the carbon farming regulatory environment.
The publication last week in the New York Times of an article on New Zealand carbon farming provides further evidence that this is now an industry of international interest. I was aware some weeks back that this article was in the offing as I was myself interviewed for it.
I am always cautious of media interviews where, following an interview of an hour or so, the journalist picks out a few sentences to weave into and support a perspective that may or may not be accurate. However, I reckon this journalist did a good job within the word limit.
An example in the New York Times article – which did not come from me – was a Gisborne farmer who purchased a sheep and beef farm in 2013 for $NZ1.8 million, and recently sold it for $NZ13 million. It was described as a windfall outcome, and it is hard to argue with that.
The likelihood is that, at the $1.3 million paid for it in 2013, it would have been marginal for sheep and beef, but now highly suitable in 2022 for exotic forestry. It might be a windfall, but it is also likely to be an appropriate change of land-use.
The New York Times journalist sought my perspective on whether New Zealand sheep and beef farmers deserved sympathy for being pushed off their land. My response was that farmers who sell need no sympathy, as they are doing very well from it. If there is sympathy to be shown, it is for the prospective generation of sheep and beef farmers who cannot compete with the forestry interests.
My real concern is whether, from a broader societal perspective, a lot of the forestry is going in the wrong places. I am positive about long-rotation and permanent carbon farming being developed on marginal pastoral land, but far from happy when I see farms sold for short-rotation forestry on what is good pastoral land.
Fundamental to that perspective is that pastoral farming provides export income, whereas carbon farming is an internal industry providing climate credits for fossil-fuel use, with this generating no export funds.
I was intrigued to learn at the carbon-forestry conference that some of the big companies are now promoting leasehold rather than purchase arrangements. One such arrangement is where the forestry company plants the trees on a portion of the land at their cost, and then, for an annual land rental paid to the farmer, earns the carbon credits for the next 16 years before handing the land back to the farmer.
I am cautious of such arrangements. Farmers need to understand that carbon credits that have been earned through forestry leases rest as liabilities on the land that the farmers own. Unless the credits are repaid, the land must stay in successive cycles of forestry but with no further carbon credits. Farmers leasing out land for forestry need to be very sure they understand all of the fine print.
I am also concerned that foreign investors are still very much involved as the pine trees march across Aotearoa New Zealand. The carbon credits will be sold in New Zealand but the cash returns from these sales will then be repatriated overseas.
Currently, there is a bill working its way through Parliament to make it harder for foreigners to invest in New Zealand forestry, be that for carbon farming, or timber production, or a combination thereof. However, I am also hearing that lawyers believe they will still be able to find a pathway to approval for these overseas investors. That sends a chill down my spine.
Another of the key take-home points from my own presentation was that the new averaging scheme for carbon credits, within newly planted production-forestry systems, is providing great incentives for planting exotics on the better class of pastoral land. It is the carbon credits earned in the first 16 years rather than the prospective value of the timber that is driving this process.
What we are seeing is the prospect of 16 years of carbon credits for new production forests, with this 16-year period being a very short time, yet driving investment into ongoing cycles of production forests, with no further credits. This has huge land-use implications for future generations of New Zealanders.
In recent months I have been saying that the pathway forward needs to have two key components. The first is to allow long-term and permanent exotics on the marginal country, recognising that afforestation with natives on much of this country is impractical, despite being emotionally appealing to those who do not understand the constraints.
The second component would be to recognise that on many sheep and beef farms there is about 20 percent of land that is steep and that this would also be best in exotic trees. Farmers know which land fits this category and it is reasonable to allow them to plant this land with minimal consenting. The specific allowable limit could be set regionally, or even on a farm-by-farm basis taking into account the specific land classes. Afforestation beyond that level on any property would require detailed consenting.
A lot of people have been saying to me that this sounds sensible. My response is that current policy is a long way from this. Of course, the devil is always in the detail.
However, we have good maps of every square metre of New Zealand and specific property-based zoning is totally practical, with this being managed by regional councils.
*Keith Woodford was Professor of Farm Management and Agribusiness at Lincoln University for 15 years through to 2015. He is now Principal Consultant at AgriFood Systems Ltd. You can contact him directly here.
50 Comments
Good article. What we are doing is trying to further a ponzi. You can't sequester dug-up carbon without ramifications; you are ADDING it to the world we evolved in. Of course there will be knock-ons.
Carbon money is only underwritten by the energy that requires the carbon farming; it's the biggest Catch-22 ever. I just wonder what happens as the energy supply dwindles? What level of monitoring can we maintain? Of tracking? Of punishment?
It isn't quite clear from the article who pays. For any investment surely you would do your due diligence on this?
Good to see you address what Keith has missed. It is the taxpayer stumping up for this, that means a BAU and the assumption growth can continue for ever.
Growth means ever increasing production.
Locking up farmland forever in trees means degrowth.
So the question is what is the lifespan of this investment scheme? About as long as BAU I reckon.
People oversimplify ecomomics, which is about growing stuff and making stuff. Tertiary to that is who gets what. You can only get a slice of the pie that is being grown or made though.
Isn't it polluting companies that pay, i.e. consumers of carbon emitting products? The Government create the carbon credits and either sells or hands them out to legacy emitters so I don't think it is a cost to taxpayers.
I appreciate that the consumers and the taxpayers are generally the same people in different hats, but at least you can reduce your involvement as a consumer simply by making less carbon intensive choices.
Again, I don't think tax payers are on the hook for this. In fact, I think the government generates income by auctioning off the credits so in theory we pay less tax.
We are paying as carbon consumers, e.g. when you buy petrol or use electricity generated with coal.
Well, there's a market so the price is set by supply and demand like any other commodity. The government's supply will reduce over time meaning the price should increase.
The status quo was that everyone could emit as much as they wanted with zero consequences. Now there is a consequence - you have to pay more. And there is a cap to what the country as a whole can emit, so if you want to increase your share you essentially have to pay for someone else to reduce their emissions.
What wide reaching government policy has proven on reflection to deliver good long term outcomes? Doesn't have to score a perfect 10 out of 10. Despite all the subsequent tinkerings, kiwisaver?
I really worry that the government is capable of understanding themselves the unintended consequences that we'll all have to live with in the next couple of decades.
Hi Keith. Thanks for the article. I have read your links about averaging and am still confused about one thing. Looking at the MPI graphs does this mean that you would earn credits at the ‘average’ rate (blue dotted line) for 16 years in, for example, a radiata forest then the income would cease completely? Meaning the land owner would need to continue forest rotation for timber production in perpetuity with no further income/carbon credits, apart from those earned in the first 16 years of the first rotation?
As far as i can work out , this works out well for production forests , because they can harvest at say 28 years , and not pay any credits back . As long as they replant . otherwise credits they earn now at say $ 80 per ton , could have to be paid back at the going rate in 28 years time , could be in the 100's. But yes , after 16 years , no more credits are earned.
By the way , this company may be of interest to you , or your Iwi, Lance is the man you want to talk too.
Whakahokia mai
Credits are earned each year for 16 years, based on the sequestration in each year. For example, the credits earned in year 12 will be for the carbon sequestered in that year. So the earnings are different in each of those 16 years. The term 'averaging' relates to the assessment by the Government that the first 16 years of growth equates to the average amount of carbon stored over ongoing cycles of planting and harvesting at 28 years.
KeithW
stacking-cheddar,
No, wildfire was not discussed at the conference. But the industry people are well aware that if a forest is destroyed by wildfire they have to renew the forest and will receive no new units until the forest is back to its previous pre-fire state.
KeithW
Thanks Keith -good info
In NZ we have cleared forestry land before - exotic and native - so if these get planted in the wrong place we can do the same in future. One of my university jobs was clearing scrub off land that had been cleared twice before - and so the owner could plant pines
And the global increase in the necessary for life trace element CO2 will mean they grow faster so thats a plus
The serious disappointment is the political thinking that this will be of benefit to NZ when its looking more and more likely that offshore players will be the real winners
Grattaway
"And the global increase in the necessary for life trace element CO2 will mean they grow faster so thats a plus"
Oxygen is also 'necessary for life', but too much will kill you. Yes, more CO2 can lead to more growth-as is done arificially in tomato growing greenhouses-but in the wild other elements cannot be controlled so more C)2 on its own may mean very little if sufficient water and nutrients are not also present.
At the conference...was there discussion about what "type" of tree is best? There only seems reference to exotics. Having returned to NZ after being away 20years.....the march of Pine is certainly noticeable and is making the countryside unrecognisable....also noticeable is the ecosystem impact.....carpeting of forest floor with needles, and neighbouring property impact....damage to waterways - mass flowering and pollen, and ongoing soil damage. Not to mention......they burn good, and recent years have clearly shown we are an emerging forest fire nation.
While I realise our natives are slow growing (and longer to realise financial benefit) there still has to be a balance - like any industrialised primary industry activity. I do like the thought of only using "marginal"land....then again.. many native species evolved to cater for this.
Perhaps also this mass planting for carbon credits, should go hand in hand with soil sequestration and management - the healthier the better
There was a lot of discussion about this. The problem is that the carbon has to be sequestered quickly while we try to transition to net zero. Natives require 10 or so years of regenerative bush transition before the trees start to grow. That is ten years with no cashflow and little carbon. The ecologists at the conference were fairly confident that fast-growing exotics can transition to native but it requires active management.
Most tree species will result in better water and soil outcomes than pasture.
From my experience the only way to economically justify planting natives and still have the opportunity to sell carbon is by councils/govt incentivising it by allowing land to be revegetated in natives in return for "new" titles that can be either developed on the farm or transferred to specifically zoned areas for higher density living (eg country side urban living). The general rule is 5ha of Native revegetation for 1 new title.
This system is working within several of the local councils removes the "risk" that planting all pines poses for the environment and in return gives the farmer an appropriate return on capital as well as reducing the other risks such as fire/disease/market.
We have recently registered our property via the ETS, having produced additional titles by planting out previous pine plantation areas as well as marginal pastoral land in natives. After 5 years we now have kiwi etc returning as well as native bush thats now 5-6m tall and a healthy Carbon balance that will keep growing for little effort. On top of this we also have the new titles that we can sell or transfer/sell at any time for a great Capital Gain.
Auckland, Northland, Waipa (but limited to SNA (significant natural area zoned) areas, and no doubt others. Typical of NZ every council has a different District Plan so it is area specific, however every landowner has the right to be part of the submission/appeal process of Draft District Plans so its up to you to put pressure on council for change.
"... they will still be able to find a pathway to approval for these overseas investors. That sends a chill down my spine."
This is such a big risk. It is easy for international companies to work around local laws - e.g. charging a NZ company a 'license fee' for their carbon forestry operating model and software. The worst case scenario here is carbon farming effectively becomes an import market (net capital flows offshore that add to to our trade imbalance). Add on to this the billions we are planning to spend buying offshore credits and this looks like terrible economic strategy.
https://www.mpi.govt.nz/dmsdocument/4762-a-guide-to-look-up-tables-for-…
Skip to page 39 (pdf page 43)
Keith - A couple of questions regarding your article.
You mention $15k, $17k and $14k per hectare in parts of the North Island. Real estate agents also do this.
However there are at least three different land measurements carbon farmers may use in negotiations.
The gross area of the farm -100% of area for sale
The grass effective area of the farm - between 70% and 90% of the area for sale (for farmers to compare)
The plantable area of a farm after deducting setbacks from neighbours, roads, rivers etc - a further 5-10% reduction in area.
Which one are you quoting?
My second question regards your view on allowing forestry as of right on steeper less productive land and regulations or consents needed to plant trees on easier more productive land.
With you having already stated trees out earn beef and sheep farming regardless of contour or quality surely we would reach the arse about face situation where more remote/ steeper/ lesser quality farms would be worth more per hectare than regulated but better quality farms? How would this be fair?
Wilco
The figures I were given were per total ha but for large blocks where setbacks etc are not an issue. Increasingly we are seeing examples where all the land is going forestry because other outcomes, such as subdividing based on land class create too much hassle
Yes, under permanent exotics the steep back country does have a similar value to the softer front country. That is one of the remarkable features of carbon forestry.
Another fascinating feature is that it means the forestry value of a block is higher if it is currently in pasture than if it is already in forest.
As for fairness, that always depends on whose judgment it is.
I try and not define what I think is fair. Rather, I try and lay out what I think is happening and what I think will happen based on evidence. I then leave it to others to decide what is fair.
KeithW
You make some good points Wilco, and from personal observation on some properties I have watched for sale, they haven't stacked up for exactly the reasons you state. Don't worry this situation where remote steep country is worth money, simply will not last. Just remember, once the carbon age is over the land in unharvestable forest will in effect be economically worthless, much the same as native bush now. So the money invested in land will only return a dividend while carbon is being legitimately stored and is worth something. That is another good reason to keep carbon farming in the poorer back blocks where farming is unfeasable anyway. And as far as planting on good productive farming land goes it should be absolutely restricted because of the need to have a diverse economy.
Things should be simple but unfortunately the need for a return on investment rules. This is no different to the early farmers who cut the native forests down on country that should never have been cleared. But who can blame them when wool was worth good money. So now there is money in reaforestation, go figure.
When the carbon age is over, the carbon credits will be worth nothing, so there is no financial penalty to harvesting the trees. I would say it would be worth planting species with high wood value, for that reason.
But at the rate we are reducing our carbon output, I would say it's your great grandchildren that get to harvest without replanting.
With their solar-powered chainsaws?
Yes, there will be harvesting, but earlier than that. The collapse will presage real-time solar energy, rather than digging back through pre-human solar energy. Real-time energy applied to food and cooking (which is a way of eating wood, via the digestion-energy displacement of cooking) will see us gobble up anything burnable (read: anything we can extract energy from). Auckland could learn from the Roman Empire (read Collapse of complex societies; Tainter 1988) but won't.
Farmers are not driven only by earning per Ha and generally have a multi generational outlook.
However once farmers are charged/fined/taxed significantly for the business of producing food then there will be a swift move to change.
Wool is a good example. Once shearing went from breaking even to a significant cost there was a rapid increase of interest and uptake of shedding sheep.
I hear that if we reforested Africa and Australia we would increase global temperatures by 6 deg, what with water vapor being the most aggressive of all the greenhouse gasses. This combined with the fact fallen trees rot and give up their carbon to the atmosphere and the economic issues associated with a reduction in agricultural exports, the one thing that keeps this economy ticking. I find myself become increasingly frustrated by the governments inaction in addressing the elephant in the room.
Thanks Keith for your research and summary. Ostensibly all these machinations are to "solve" climate change. The net result will be akin to shuffling ecological deck chairs on the environmental titanic. Grasslands and forests are not that different in amounts of carbon employed. Trees max out in above ground biomass, grassland continually accumalates in below ground photosynthetic carbon derivatives, given biomimic management.
Further we are crediting mono-cultural plantations which are not as bio-diverse or life/carbon rich as forests, thus we are not solving climate change, and we are exacerbating the bio-diversity crisis.
At what stage have we planted enough trees that stock numbers are low enough that taxing methane is redundant? There must come a point where you have done enough damage to the sheep and beef industry that you don't have to do any more.
Keith we understand at the moment that if any pastoral property, of any contour, comes onto the property market (that is not in dairy production) there is no particular reason it could not be purchased to plant in pine trees ?
It does feel somewhat that the spot light has been on the minutiae of dairying farming, while pastoral land/sheep and beef land is being sold to the highest, or any bidder. This bidder of course is now pine tree production.
If young farmers cannot compete on price for what has traditionally been the more affordable, harder land types than this is quite an issue. Plentiful sales to forestry in a non competitive market would seem the logical market outcome.
The future of the softer middle county pastoral land is interesting. Land use change is driven by price and legislation, thus last seen in the dairying boom 20 odd years ago.
Are the banks supportive of the carbon farming train as yet ?
As an aside where would your thoughts be around how intensive farm types, pork and chicken production, are likely to weather the legislative storm going forward ?
I notice there is no mention of the Paris Agreement, Keith. Was it discussed?
Someone likened this carbon credit plan to a Ponzi scheme and they could be right. However it is a ramification of the scheme that concerns me. If the returns, obvious or potential, are large enough quality arable land will be used, potentially violating the provision in the Paris Agreement that no proposal to reduce emissions should adversely impact food production.
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