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The Government never foresaw the land-use forces they were unleashing with the ETS

The Government never foresaw the land-use forces they were unleashing with the ETS
Carbon goldmine sign

In recent weeks I have written multiple articles on the Emission Trading Scheme (ETS) with a particular focus on forestry. This week I also had an extended interview with Kathryn Ryan on RNZ ‘Nine to Noon’. However, there is still lots more that needs to be said.

The bottom line is that carbon forestry is now far more profitable than sheep and beef farming on nearly all classes of land. We are indeed on the cusp of the greatest rural land-use changes that New Zealand has seen in the last 100 years.

For many sheep and beef farmers, carbon farming can now be a gold mine. The key requirement is pastoral land that will grow an exotic forest that will not be destroyed by storm, fire or disease.  

It will take a while for the pine trees to march further across the sheep and beef landscape, with seedlings and planting labour the immediate constraints. But let there be no doubt, right now whenever sheep and beef farms come onto the market, then both the purchaser and the underbidder are typically ‘thinking forestry’. They can easily outbid those who have a sheep and beef perspective.

Sheep and beef farmer options

Sheep and beef farmers now have four options.

Option 1 is to progressively plant at least part of the farm in trees. The major constraint is the cost of establishing the forest. Many farmers need all of their current cash flow for property maintenance and living. There is nothing left over to establish the forest which is likely to cost between $2000 and $3000 per hectare.

Option 2 is to lease-out the land or alternatively to take on a joint-venture partner. Anyone going down the lease path needs to be very sure they have got things worked out as to who owns both the assets and any carbon liabilities at the end of the lease.

Option 3 is to sell to a new owner who will plant a forest. Land prices are rising and the selling option is increasingly attractive.

Option 4 is to ‘hang in’. This is fine for those who love their sheep and cattle and are ‘making a go of it’ financially. It may even be the best option, at least in the interim, if land prices are going to continue rising. But eventually, managing the process of generational succession requires moving with the times to the most profitable option.

So there lie the options linked to the goldmine. In short, based on the current economics and assuming the carbon price is sustainable, then it has to be carbon farming, either as a permanent forest or in association with lumber.

In coming to that conclusion, the key assumption is whether or not carbon prices will be maintained. There lies the first potential landmine. I now turn to that issue.

Carbon pricing

Carbon farming involves no delivery of any physical product. Instead, it is about financial transfers as dictated by regulations.

Carbon trading is an artificial market based on a societal goal of climate-change benefits. From a financial perspective, it does not really matter whether the climate-change benefits are real or not. The things that matter are the rules of the game.

The current rules of the game are complex but the big-picture message is clear, at least when it comes to forests versus sheep and beef, on land that is currently used for pastoral purposes. On that class of land, the ETS is the driver and carbon is the new gold.

The emission trading scheme was first introduced back in 2008. However, until recently the ETS has largely been a background issue, with the price of carbon too low to dominate investment decisions.  To the extent that the ETS has been relevant, the key forestry focus from a Government perspective has been in association with production forests.

 It is only in the last two to three years that some people have started to realise that, with the carbon price rising rapidly, carbon farming without harvesting might actually be the option that provides the best financial return.  Associated with this, no-one in Government seems to have realised the potential for sheep and beef to be blown away by the march of the pines.

Increasingly, there is now recognition even among forestry professionals that carbon farming has the potential to not only push sheep and beef farming aside, but to also profoundly affect the lumber industry, with considerable timber production also being pushed aside.  

The spreadsheets that I run for my own analyses, confirm that non-harvested permanent forests not only look better than sheep and beef, but are also looking better than the combination of carbon plus production forests. This is certainly the case on the hard country and increasingly on the better country.

A key feature of importance within the current ETS is that the carbon price required to make urban folk change their lifestyle behaviours is much more than the price that will lead to pine trees marching across the landscape. There lies the conundrum.

For example, If the carbon price were to reach $100 per tonne, the petrol emission charge would only be 24 cents per litre. At the same carbon price of $100, then non-harvested forestry is not only looking more profitable than sheep and beef, but also looking the best financial option on a considerable proportion of current dairy land.

When I first started writing about these incongruities in mid-2019, the articles were read by some influential people on both sides of the political spectrum. But the dominant paradigm at that time was that we must plant more trees, and that carbon trading through the ETS was the way to achieve this. So there the matter lay.

The key point for the discussion here is that if the ETS is going to have a meaningful effect on emissions in the broader economy, and both sides of Parliament have already committed to that policy, then the price of carbon certainly has to be well above $50 and in all likelihood a lot higher. This means that unless the Government fundamentally changes its perspective, and hence changes the rules of the game set out in the ETS, then carbon farming looks a safe bet. 

Political options

It is important to note that no-one of major influence across the political spectrum has said that they want to blow away our existing land-based industries, although some have said they wish to see a decline in these industries.  Of relevance here is that, according to the Ministry of Primary Industry’s recent State of Primary Industries document, 83% of New Zealand’s physical exports are from primary industries. We live in an export-led economy with primary industries doing the leading.  

Carbon farming, as currently set up, does not earn foreign exchange. In the long run, that could change, but that prospect is a long way off.  

Climate Change Minister James Shaw has been stating recently that higher prices for carbon are desirable and indeed needed to change emitter behaviour. Similarly, the Climate Change Commission has advocated with success for the upper limits on the carbon price to be raised to $110.15 by 2026.

There seems to have been a failure by both the Minister and the Commission to recognise what high prices do to land-based activities. In contrast, the supposed price limit for 2021 was only $50, but that number was itself blown away by the market. As I write this article, the current price is $64.50 and the futures price for 2026 is above $73.

There would seem to be an inevitable conclusion that the ETS as currently structured may not be fit for purpose. That is a conclusion that will not sit at all well with Government.

Put another way, within an ETS there is no price of carbon that will substantially change emitter behaviour without being sufficiently high to blow away sheep and beef.

Changing the rules of the game will be messy. Almost certainly, there will be lots of defensive attitudes within Government and lots of upset people outside Government. That will include many sheep and beef farmers, together with the new breed of investors, if the new goldmine is subsequently taken away by any countermanding set of regulations.

The position of industry organisation Beef+Lamb seems to be that regulatory limits are needed.  But one should not assume that this is what many sheep and beef farmers themselves necessarily think. They might prefer the goldmine.

I said at the start of this article that there was a lot more that needs to be said. That remains the situation. I have only scratched the surface.


*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.

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105 Comments

These pine trees don't payout every year forever do they?

Eventually they reach maturity and just lock up the land and prevent its use for anything productive, forever?

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Brock,
The expectation is that credits can be claimed through to at least 75 years. Government has made that explicit, but so far the look-up tables that owners with forests less than 100 ha have to use have only been calculated through to 50 years.  The rest of the NZU credits have yet to be defined.

Yes, you are correct that once the forest reaches maturity (whenever that may be) there are no more credits and no more income. This  is important from a societal perspective if one believes, as per the Moody Blues, that our 'children's children's children' are important, but this is too far in the future for financial analysts to be concerned.  The DCF techniques used by financial analysts discount that distant future to being insignificant. In economic parlance, the societal rate of discount can be much lower than what businesses use as their rate of discount and there lies the basis for lots of arguments.
KeithW

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Silly Brock. It’s about making huge profits now through clever accounting tricks, not sustainability for future generations you silly goose

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Thar has been the case for 50 years; clever accounting far, far outweighs real productivity, by many orders of magnitude. The ETS was dreamed up by the same ideologues - how can we make money out of this?

The reality is that society can no longer afford itself - as the increasing issuance of unrepayable debt makes quite clear. Even as it can't afford itself, its exhaust gases are going to render its habitat unlivable, and depletion-rates point to the fact that we are in gross overshoot.

Yet we are attempting to carry on, by fooling ourselves that we can 'reduce carbon' while partying on. We can't; the problem is too big to address by sequestering. This is proved by the fact that even in the early stages, the attempt is turning 'values' on their heads in unprecedented magnitude. Its a little like paying people to mop their stateroom carpets, so the Titanic will stay afloat. By the time a seedling - any  seedling - does anything worthwhile its already all over.

This all won't last long; the debt is only backed by belief, the ponzi is eye-wateringly undefusable, post crash there won't be a 'market' for carbon, or much else.

 

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Yes. No other species on this planet can do what humans can. And that is consume today on the promise of doing something in the future to pay it back. Any animal that doesn't layer up enough fat before winter, or get to their winter grounds or shelter is doomed. We on the other hand are much smarter than that.

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Hey the Chinese have just built enough apartments to meet their future needs for the next fifty years.

like a squirrel saving nuts over summer. 
 

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The Chinese population is projected to halve over the next 60 years so by your metric they've been knocking down more old buildings than they've been building new ones ;)

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This is the New Zealand way.  Sell off the family silver for a quick buck.

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I am guessing that the carbon price required to drive changes in consumer and business choices ($150 per tonne?) would be more than enough to make native shrub and tree planting viable. So, why not just rule out any new exotic mono-plantations from 2023. They are a nightmare for biodiversity and a scar on the landscape anyway 

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That’s what happens when you only consider the profits of what you’re planting. Little regard for environmental or social implications. A textbook example of greenwashing.

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Jfoe,
It is easy to underestimate the challenges of establishing native forests. Nature tends to do it rather well over very long time lines but it is very challenging to hurry the process along. Even at $150 per tonne, the sequestration would be modest in the first thirty or so years and require  a very big area if it was to provide useful quantities of carbon offsets. The Government is very keen to encourage native plantings but as the old saying goes, 'there can be many a slip between the cup and the lip'. There is a lot of back country that has been allowed to revert naturally and that is certainly a good option for land that has been found through hard experience to have no other economic value.
KeithW

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Thank you for taking the time to reply Keith.

Many a sip between the cup and the lip for sure. I guess my frustration is that we are about 30 years beyond the point at which market mechanisms would have been a viable primary tool for reducing emissions. Globally, we have around 400 Gigatonnes of CO2 budget left to give ourselves a 67% chance of staying below 1.5 degrees of warming [link - p41]. We will use our per capita share of this budget (253 Megatonnes) in around 5 years. And, that's without even talking about nitrous oxide or methane, which will be a hot topic at COP26 given that US and EU have committed to a 30% reduction in methane (quick climate wins given potency of methane).

We simply cannot manage the pace of change required without having an actual plan - sending price signals and encouraging speculators to make a quick buck then run is not going to cut it (literally). But herein lies the opportunity. Surely a coherent 20-year transition strategy is perfectly do-able and sell-able - who doesn't want to live in a country where there is mass re-wilding of the land, a reduced dependence on China, farmers that produce high quality food primarily for domestic consumption, clean swimmable rivers, new green energy infrastructure (e.g. Onslow hydro), major build of new sustainable warm homes, efficient public and personalised transport, world class universities and innovation in the best place to live in the world etc?

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Jfoe,
Onslow hydro will allow existing energy to be shifted from off-peak times to peak times but won't produce any new energy.  The energy required to pump the water up there up there will be more than the energy captured when it is released. There will also be considerable energy required to build the system.

I am linked into prospective projects looking at technologies to reduce nitrous oxide emissions and also methane, but so far we have failed to convince the powers that be to provide the funding for the detailed investigations. At times it is a bit like tilting at windmills.
KeithW

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Onslow hydro will allow existing energy to be shifted from off-peak times to peak times but won't produce any new energy. The energy required to pump the water up there up there will be more than the energy captured when it is released. 

As suggested in another comment of yours, it means we can build out wind farms and solar without having to worry about intermittency.

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Yes, but preliminary costings for Onslow are of the order of $4 billion and these costs always seem to increase as construction gets closer. So that has to be all factored into the wind and solar cost. 

The great untapped hydro scheme is to bring water from the Landsborough River through the Alps (a tunnel) at around 550 -600 metres altitude and release it into Lake Ohau and from there into the Waitaki system. The notion has been around ever since engineer and mountaineer Norman Hardie played around with some numbers in the early 1950s when he was working on the Pukaki scheme.  But the Landsborough is protected conservation land  so currently it is not on the drawing board.
KeithW

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This would put a tunnel directly across the Southern Alps, which move a significant amount per year in earthquakes.  I very much doubt a tunnel through this area would last for very long, hence I doubt anyone wants to build it.

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The Otira Railway tunnel is coming up to 100 years old , and has had no major problems. 

The railbed is coming up for renewal , they could put a concrete channel underneath it , and use it to create pumped storage. Some small rivers could be diverted through it from west to east , but in the main it falls towards the west coast end

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I heard that our govt spends $10m per year on research to reduce agricultural methane and nitrous oxide emissions.  That does seem to be a pittance compared to the billions for CRL or the money thrown at the Americas cup or the All-Blacks.

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Sounds nice.

How are we paying for this nice future of new and improved things, which by definition all cost more than what we currently have?

As Keith said in his article, carbon credits are purely an internal trade thing at present, and the ability to sell them internationally is a long way off.

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Keith - I enjoy your articles and they help challenge and sometimes confirm my thoughts on future land use and my own family's future in agriculture in NZ.

Could you please help me understand the following.

If carbon pricing of say $70 to $100 causes 'dirty' energy such as coal to be non profitable versus wind or solar surely that is a win for the environment?

If enough farmers sell or plant trees is there a realistic potential for an oversupply of carbon credits onto the NZ market and therefore a potential drop in value? Or alternatively if there was widespread uptake of EVs could there potentially be a surplus of credits that we could sell overseas for foreign exchange. 

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Wilco,
Yes, a high carbon price will encourage more wind and perhaps solar. Also perhaps geothermal. One of the ironies of the current system, however, is that approximately 8 million free credits (now worth about $500 million!) are handed out each year to big companies, with the four biggest being the overseas owned aluminium smelter, NZ Steel (actually owned by BHP), Methanex and Fletchers.  So this distorts the process somewhat, with the emissions associated with construction getting a free ride.

Another challenge is that as wind power becomes more important, then the pesky issue of how to store energy for when the wind is not blowing also becomes more important. 

Yes, there is potential in the long term for over supply, but if that did occur and the price dropped then the ETS would become ineffective in dampening use of fossil fuels and so the carbon price might rise again. But the point you raise is a good one: we don't actually need all of the sheep and beef land to be converted to forestry to manage our emissions, unless agriculture is also to be brought into the ETS.  And that may still happen.

Yes, in theory we could sell any excess units overseas, but there is currently no easy way of doing this. In the long run, we could link our system to the EU system, but currently the EU system does not include forestry.  If we were linked to the EU system, then the price of a carbon unit would already be around $100. 

Something else I have not gone into in any articles so far is that currently we are getting substantial credits from the wall of pine trees planted in the early to mid 1990s. These are coming up to be harvested rather soon and will earn no more UNFCC offsets for NZ.  So we do need more new forests to be planted (and not just replacing  existing forests) to even maintain our existing offsets. It is these sorts of issues (and others) that caused me to say at the end of this article that I have still only scratched the surface. 

KeithW

 

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We have been holding onto a second class hill country beef farm even though it barely covers operating costs. This has been my back up plan to have cheap land available to plant in trees if we needed to offset our dairy farm against potential future carbon costs.

The issue now is that while it provided a minimal return on the purchase price recent offers from forestry companies make the opportunity cost of doing something else with that money hard to ignore especially as no one has defined yet what farmers' contribution will be.  

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I am aware of  number of farmers mulling over exactly this issue. The challenge then becomes to find a new investment if you should decide to sell. The money should certainly not be left in the bank. 
KeithW

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Keith - My wife would disagree with your last sentence.

As we approach our twilight years she keeps introducing new words into our vocabulary such as freehold and mortgage free and holidays and hobbies.

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Good luck Wilco! I know how you feel.

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I don’t understand how all our wives think and say the same thing!!!

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Wilco,
I am in agreement with your wife. But it is also disheartening to see the nest egg getting smaller in a bank account. But mortgage free, holidays and hobbies is the perfect way as long as there is a steady albeit modest cash flow to supplement the pension, with that cash flow and underlying asset not destroyed by inflation.
KeithW

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We could just reduce methane emissions (globally) for an immediate effect towards keeping within a 1.5 degree rise.

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Why don't they cross Exotic out of the rules and replace it with Native?

At least then we'd get native forests and high value wood at the end of it that could be selectively logged. (thinking Totara that grows relatively quickly)

Not sure if they soak up enough carbon but fruit trees would be better than dirty old pines.

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Orchardist asked why they can't get carbon credits - first reply was the trees don't grow high enough.  Another time answer was - well you prune them each year so you're not consistent with carbon sequestered.  So in another word - it's in the too hard basket. ;-)  Even pine nut plantations can't claim carbon credits - Keith if you can shed any light on this one it would be appreciated.

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First, if extended to orchards then it could only be for land that was not in orchards already as at 31 December 1989 as well as not being in forest at that time.
Second, credits would only be for carbon growth, and most orchards only sequester carbon in the first few years. 
Third, the area oforchards in NZ is very small (in the greater scheme of things) and the costs of the scheme would be high in relation to the the amount of carbon.

That is my perspective as to how I think the officials would have been thinking, but it is just my perspective.
KeithW 

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Thanks Keith.  Lake Dunstan started to fill in 1992 and was completed in 1993.  So most of the orchards around Cromwell would qualify.  Considerable areas of new plantings have gone in, in last few years, but as you say, in the grand scheme of things it's not large.  On the other hand is it fair to tax someone, when they have zero emissions?;-) https://www.forestlodge.nz/

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Thanks for the link to forestlodge.nz. Very nice.
One of my first jobs as an Otago-based agricultural economist with Ministry of Ag a very long time ago was to try and figure out the economics of apricot orcharding on what has now become Lake Dunstan. Those were the early days of figuring out  what the implications would be of building the Clyde Dam. They were probably the best apricot orchards in NZ with great natural frost protection from the winds in the Gorge.
KeithW

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Forest Lodge isn't ours, but it is exciting to see what they are doing there. I hear some of the old timers here rue the loss of those orchards in the Gorge.

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Will the pine forests be non self-seeding? If not, you'll have pine forests popping up on one side of the fence and then wilding pine control on the other. Madness.

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We planted 3.5 acres of pines to help hold what was unused and slip prone land covered in knee deep Kikuyu grass. The reason is pines grow very fast and they are incredibly cheap. Native plants are incredibly expensive and you cannot just whack them in the open ground. Some species like the Kauri need to come through existing ground cover so you would probably need to start with Manuka. In reality this takes 10 times longer and is cost prohibitive.

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You can't wack natives in open ground?  That's rubbish.

Kauri don't 'need' to come through existing ground cover, they need sunlight, which is why when you plant them you clear the area around them.

Ask the Great Barrier locals who 40 odd years ago turned down having 5000 Kauri planted on their island because the Manuka around each Kauri seedling needed to be cleared until the Kauri were big enough to become established.  Those Kauri are now growing just north of Coromandel township...

But my original reference was to Totara rather than Kauri

Assuming you want to use your pines for wood at some stage you're not just walking away from them after planting them either though.  There are still costs involved.

And pines are cheap as chips because they're set up for production forests, natives being slower growing will never be as cheap but if there was a drive to plant them instead of stinky pines it wouldn't be as cost prohibibative.  But then you'd probably need to set up another Forest Service so we're stuck with pines everywhere.  

Don't get me wrong, pines have their place but they're a short term view on the almighty dollar.  Shit wood that grows fast.

Much better for stopping slips than natives though.

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I've been expanding my 30 ha of existing natives by gradually fencing off the steep, dangerous and erosion prone areas. With a large seed source nearby it's amazing what comes up, in fact in a few square metres in my garden under some trees I found 2 totara seedlings and numerous tairaire, nikau, pittosporum and karamu.

The problem I have is keeping on top of the privet and woolly nightshade, it takes many hours per hectare per year. It certainly doesn't help that WDC has plantations of noxious weed along every roadside.

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If it continues as is it will eventually find a new equilibrium, though people may not like it.

As supply of land based produce (mostly food) dries up, prices will skyrocket. 

Prepare for very expensive meat, dairy, wool etc

Although it's possibly more likely we will import more instead.

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Correct, you cannot eat pine trees so those that are forward thinking can see the price of beef and lamb just skyrocket. Someone needs to shoot the whole carbon thing down before it gets out of control. We don't need it in New Zealand unless we are planning to screw ourselves long term. Its just a total joke, next thing you know we are growing even more trees to export to China and importing all our food, how is that any good for the carbon footprint ?

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Carlos67,
The current demand for logs to China links closely to their infrastructure development. That market can be expected to slow right down over the next 15 years.
KeithW

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I thought that China were aiming to be self-sufficient in timber by 2035? China heavily subsidises the import from NZ into the Chinese sawmills. When that stops, we will find ourselves with no market, no sawmills, and imported Chilean pine through China!!

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Jfoe,
I am not sure whether or not that is an official target, but my understanding is that China is already over 80% self-sufficient for timber.  And I have seen some very big forest projects in China when I have been over there on non-forest projects.
I am sceptical as to whether China really subsidises its sawmillers. I suspect that is largely propaganda by our own sawmilling industry who don't like the prices they have to pay to compete.   Ironically, if China has been subsidising the import of NZ timber then that would have been very much to the advantage of our own foresters. 
KeithW

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Labour govt oversaw the biggest landuse change in modern NZ history with the expansion of dairy.  Marion Hobbs, removed as Chair of ORC (2021), was Minister for the Environment at the time Dec 1999-Oct 2005.

Current Labour government is overseeing another substantial land use change - pastoral farming to forestry, pastoral farming to horticulture - avocados, kiwifruit, apples etc

Approx 131,000ha was removed from dairy due to land use change 2017-2019.

Landuse change has always happened, the difference now and in previous Labour govt is the speed of it.

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Precisely. A lot of our land is better off environmentally in forest…

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Not pines though.

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Nothing deader than a pine forest and if you are not even getting timber out of it? dead for generations.

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This is one of the best Interest articles I've read in months!

Made me login to leave the comment and I hate logging in.

I can imagine this problem isn't limited to New Zealand, and as industries globally get more pressure placed on them to reduce or offset emissions this should only further exacerbate the problem, exciting.

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I look forward with Interest to your future expositions re the bumps in the road.

Gubmint seems to have been blindsided by the reactions - the auction debacle, the land use changes, the domino effects possible for rural communities and timber producers, and the miniscule changes in consumer behaviours.  The siloes are all too evident.....

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Dr Geoff Bertrm has written on the ETS-its a dogs breakfast, has never worked and needs to be "thrown out the window". We can see now its a tool for speculation and riches for those in the know on playing markets. IMHO we would be much better with a full carbon tax, e.g. $70/tonne and increase quickly like $10-20 p.a. and  government  could then guarantee a price for carbon for carbon farmers to get the desired annual Ha planting of pine. E.g. start with $40-50/tonne. The difference could then be used for other carbon reducing projects and to fund biodiversity- 1st maintenance of existing old growth native forests which is sorely neglected and will bring large carbon benefits, and new native plantings/ plantation or targeted areas like adjacent to existing native forest or waterways - even help farmers plant out their waterways. Also pest control for native forests. Much of the population will be prepared for tax dollars to go to protecting the environment.
Reducing stock numbers is a good thinng- we need 15% methane reduction by 2030. But current government doesn't seem to have a clue about whats  happening with the ETS- probably believe their advisors and their own BS.

 

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The other really important use for any income from a carbon tax (or from a proper ETS) is providing for a just transition across society to a low carbon economy.

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And in other news this carbon scam will not make a blind bit of difference. What is 0.4% of  3/5 of FA of 0.17 degrees in 2100?

 "Not a single G20 country is in line with the Paris Agreement on climate, analysis shows

... Of particular concern are Australia, Brazil, Indonesia Mexico, New Zealand, Russia, Singapore, Switzerland and Vietnam"

https://edition.cnn.com/2021/09/15/world/climate-pledges-insufficient-c…

 

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Yip. Barring some natural cataclysm, I don't see humanity keeping warming under about 2.5°. And unexpected tipping points could easily push it higher (eg arctic permafrost melting and methane clathrates).

Cataclysms? Large meteor impact. Mega volcano erupting. 9.5M+ earthquake in the Cascadia fault that largely destroys California. Geomagnetic storm that seriously damages most of the world's electrical grid. Less likely than the others but possible - new disease(s) that rips through staple food crops globally such as corn, rice and wheat.

All of these things could take out large numbers of humans and cause investment in recovering from the damage, giving a window to build things more sustainably - which will probably be ignored due to expense and time required, but at least it's possible.

 

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So said every polluter on the planet. It's called Tragedy of the commons.

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This is engineering another enormous social change. If you like steak, pies, hamburgers, sausages, mince, milk, cheese, clothes made of wool....then this idea will cause both a shortage and huge permanent price hikes in these items such that you will be forced to change your eating habits. Yep, just vege on the BBQ with your mates. 

Not to mention destroying our main export revenues.

So, food shortages and further economic ruin are coming down the pipeline folks.

Do you like that idea?

The World Economic Forum has recorded in their now infamous Agenda 2030 that we will be permitted an average of 1.3 eggs per week (don't know how) come 2030. I wonder if these life-changing ideas come from them and are being planted on us.

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You shouldn't be wondering at this late stage. Academia, the media and your caring leaders should have informed you.

Oh - and economics would have anticipated the problem, and warned you. Didn't happen? Shucks....

The system we have created, depended on 'surplus energy'; the energy available over and above food production. That surplus is now shrinking, and the problem is compounded by it needing to mitigate itself even as it attempts to continue itself. The problem is that the system got too bid and ran into systemic Limits, which we aren't identifying very clearly because we look at one small issue at a time.

https://surplusenergyeconomics.wordpress.com/

https://advisory.kpmg.us/articles/2021/limits-to-growth.html

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And what do you think a global average temperature rise in excess of 1.5 degrees would do?

Hint - it will not be pretty. 

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Warming seems to be better than cooling - but then the written history is mainly of the temperate zones.  1.5 degrees would hit coastal tropical areas hard - just try living when the outside temperature is above blood temperature and the humidity is high.  On the other hand plenty of land becomes viable for agriculture -eg Russia and Canada but also highlands of PNG, Scotland and East Africa.  Maybe it is not the 1.5 degrees but the sheer speed of the change - it doesn't give time for ecologies to adapt.

If all that happened was all the temperatures in the world went up by 1.5 degrees tomorrow then it would be tough but survivable.  My worry is the unknown factors and particularly those that generate feedback - for example the methane released if the Siberian permafrost melted or the emissions released if the Amazon and Congo basins changed from rainforest to massive fires.  Those are known unknowns but the unknown unknowns are likely to exterminate humanity.

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I chuckle at the greens facilitating a huge cash transfer from everyman to the few land holders, increasingly likely to be overseas based. 

An occuring atrocity is third world land grabs (taking the commons off the most vulnerable people) to plonk on carbon offset trees and collect a divy from everyman globally. 

Seems to be the outcome of global gabfests.  A new frontier for capitalism.

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Yes , they should really leave the money grab to property developers, and not let farmers who have worked hard all their lives have a retirement option. 

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Random question keith - how much of NZ's productive farm land would need to be in forest to completely offset all GHGs produced here?

As you indicated no foreign exchange is earned through carbon credits, but the question here is should there be? Why couldn't the Government mandate that carbon credits can not be sold to a foreign buyer?

A qualifier here i seriously disagree with the ETS I think it is rank BS, and just a way for wealthy individuals and organisations to avoid accountability on their polluting ways, while ordinary Kiwis pay big time for it. So I am totally with PDK on this. 

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For $600/million a year we could be carbon zero tomorrow utilising the most efficient carbon sequestration projects on the planet. They powers at be who tell you this is an emergency don't act like it is an emergency. Why sequester carbon for $2/tonne when you can do it for $70/tonne, take out pesky farmers and enrich your mates at the big end of town?

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Any links to documentation to support your reckon?

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2019 net emissions 55 million tonnes  x $11/tonne = $600 million/annum. Plenty of carbon projects out there for $11 or less per tonne. Be hey green zealots are never about efficient solutions to their perceived problems when there is social engineering and filthy lucre to be had.

We just squandered $600 million when James blew out the ETS cap the other day. He could have been carbon zero for the same money if he acted like it was an emergency.

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On the contrary, the Government was paid for the additional credits it released onto the market. The downside is that future taxpayers will have to pay for the shortfall one way or the other.

I assume you are talking about overseas carbon projects because there are few in NZ apart from planting trees. There is no mechanism for NZ participation international exchange of credits, presumably that will be discussed in Glasgow. You are probably quoting marginal prices, reducing emissions to near net zero will cost a lot more.

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Rubbish - Article 6 lets NZ participate in exchange of credits - but I as said James chooses to not act like it is an emergency - other than to fly to the other side of the planet rather than do a zoom call.

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"A recent paper in the American Economic Review reported that a forest conservation project in Uganda managed to sequester carbon for a cost of $US1 per tonne. At that rate, the electric vehicle fund mentioned above could have removed 19 million tonnes of carbon – equivalent to about a third of New Zealand’s net emissions each year.
Previously, we found projects in the Brazilian Amazon rainforest achieving a carbon offset for $US2 a tonne. But even at a conservatively-high $10 a tonne, New Zealand could offset all its net emissions for an annual cost of under $600 million."

https://www.nzinitiative.org.nz/reports-and-media/reports/policy-essay-…

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I can assure you that the Brazilians and anyone else who has excess credits to sell will be selling them for the maximum international price to the highest bidder. The UNFCCC commitments relate to the concept that everyone has to do their bit if thee is to be any global impact. And that is what we signed up to, rightly or wrongly.
KeithW

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Murray86,

If pastoral land is converted to production forest then it can be credited with 300-450 NZUs (tonnes of carbon) over a period of 16 years.  So this averages 20-25 tonnes per annum over this period, but starting slowly and then increasing. Under the new rules coming in next year, no further credits will ever be available through to eternity for those forests, but there will also be no repayments when the forest is harvested as long as it is then replanted in another rotation of trees (which don't earn credits).

Alternatively, if the first rotation trees are registered as a permanent (non-harvested) forest then the credits can continue, probably through to at least 75 years, although the specifics for beyond 50 years have yet to be promulgated. 

New Zealand's gross emissions are currently of the order of 80 million tonnes per annum. But against this we claim in the national carbon budget an offset of around 25 million tonnes for forestry sequestration.  Much of this 25 million tonnes comes from post 1989 forests that have not been registered in the ETS but can still be claimed in our 'Paris budgets'. 

This figure of 25 million is going to decline rapidly in coming years unless we plant a lot more new forests. Indeed, if we don't plant more forests, or alternatively turn the current production forests into non harvested forests, it will whittle away to zero.

For every 40,000 ha of new production forest that we plant then we will sequester another 1miilion tonnes of carbon per annum. Obviously this depends somewhat on the regions where the trees are planted, so that is a broad figure.  So if we planted 40,000 ha per year out of sheep and beef, then after about ten years we would be sequestering about 10 million tonnes from a total of 400,000 ha of forest. But within another six years and thereafter, as various cohorts reached 16 years of age and stopped earning credits, then the overall credits would decline.  So, for each 10 million credits per annum that we need to keep churning out from forestry, the pine trees need to march across the country at an ongoing rate of 40,000 ha per annum.

of course the ongoing rate is much slower if they are permanent (non-harvested) forests.

We have committed that we will be CO2 neutral by 2050 (ignoring for the moment agricultural methane and nitrous oxide).  Currently we produce about 40 million units of CO2 per annum. So, by 2050 we need to be sequestering one tonne of forestry emissions for every tonne of CO2 that is still coming from fossil fuels.

We have also committed to reducing methane but that is another story.

There are no simple solutions, unless we agree to ban all cars and trucks, ban pastoral agriculture, and live in grass huts. Our economy is built around energy, with the current sources being the sun and fossil fuels. Even hydro energy comes from the sun, which raises the water up into the sky and drops it down again as rain. The other big way that we capture the sun's energy is by photosynthesis which drives all plant growth. 
KeithW

 

 

 

 

 

 

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I can't help looking around our district and seeing 1000s of hectares of abandoned farmland, much was left to revert in the 70s more recently the manuka honey people have bought several large farms and planted or left to revert but in the end basically abandoned. In one of your recent articles Keith you alluded to large areas of lost land. Most of this country is in private hands so presumably rates are paid etc. In the right areas, as in remote hard hill country that in all reality should never have been cleared, I can't see any reason not to plant permanent exotic forest. But I do agree with you that we need to have a close look at where these forests are planted. Economic diversity is key and that is why I have always advocated existing landowners plant a percentage of their harder country in either permanent or production forest. Everything is basically in the hands of existing land owners. Either get involved and control the land use or let investment syndicates take over which I am not a fan off. This is definitely a thorny issue and you are right that there needs to be some form of regulator to insure good stable productive land stays in production to keep NZs economic diversity.

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China built 1 coal power plant every week last year. 5x more than the rest of the world together.  Why are we committing suicide as a country when it will make no difference at all apart from enriching the Elites

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China is doing the world's shit manufactering. they also manufacture and use the worlds solar panels . The average chinese citizen uses a lot less resources than us . 

 

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I did some work in the early 2000’s in Australia on carbon sinks, as they were known then, mainly involving large tracks of degraded (cheap) land where particular species of trees could handle the conditions and still capture significant amounts of carbon. At the time some of the larger property trusts were showing interest in carbon sinks as long-term investments. The big issue was how do you secure a growing and in particular mature forest against drought, bush fires, arson, disease and so on. Such operations were un insurable and the maintenance costs quite high. It certainly wasn’t a plant and forget operation. Things may have changed but back then the banks wouldn’t touch them.

In addition there were problems with acceptance of such long-term cash flows particularly as regards appropriate discount rates etc. and other odd issues, for example, the rate of carbon capture varies over the life of the tree, with some species 80% of the carbon capture may be accomplished in the first 25 years of a 40 year project.  

I know these matters may fall well outside a farmers concerns, however, don’t under estimate how much the price of food may rise in response to, of all things, climate change!

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Solardb,
Yes, I am involved with Peter Gostomski and his work. Peter is a professor at University of Canterbury. But alas, our application to the 'Bright Ideas" program run by MBIE did not get funded.  We plan to apply again, but  each year that slips by can never be recovered.  That particular work involved what we call some 'science stretch' and until we do that work we are not sure what the outcomes will be.  But there is a more general problem with NZ R&D that projects based on 'thinking outside the square' face major barriers to funding. It is much easier to get funding for projects that cross a few t's and dot a few i's within existing paradigms of conventional thinking. 
KeithW

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Keith is the science referred to for barned cows?  Otherwise how would it work in a cowshed - most cowsheds are open sided where the yards are.

I know other scientists who have also come up against being 'thinkers outside the square' when it comes to funding. So much opportunity being lost.......

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Yes, the methane science does link to the 'composting mootels' and shelters. But it is still about cows that go out to graze every day of the lactation unless the weather is particularly foul.  With methane, even if we can reduce the quantity by 10% then that would reduce the pastoral-sourced methane in the atmosphere and hence lead to some cooling.
Keith

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Thanks Keith. makes me glad I did not apply for some of my own solar based ideas.

A friend has brought a home biogas unit from Israel, I suspect it may not live up to the hype , but will be interesting to see how it goes.     

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And then we get this vandalism threatening to undo every other effort...on our doorstep and an Auckland property developer (which would surprise no one)

An Auckland property developer is involved in a company linked to carrying out deforestation in Indonesia, where virgin rainforest is being bulldozed to grow palm oil plantations

Dreams, Dollars and Destruction of a Rainforest | Newsroom

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You mention in this article 'the supposed price limit for 2021 was only $50, but that number was itself blown away by the market.', and in your article on the 8th of September 'and still the Government could not hold the supposed maximum price to $50.'  The $50 Cost Containment Reserve price level is a trigger level. It is not a cap, ceiling, maximum price  or price limit, it is a trigger point at which more volume would be offered through the auction. If the CCR was triggered the clearing price was always going to be above $50, the question was going to be by how much. There seems to be a misunderstanding of this mechanism by people publishing articles on the ETS as others have miss referenced the $50 level as well

You also keep referring to a futures price. There is no futures market for NZUs. A futures contract is a standardised contract traded on an exchange. The NZU market is not exchange traded, it is OTC (over the counter), with trades done bilaterally between participants. There is forward pricing but these contracts again are OTC traded and a function of basically funding a transaction through to the future date. They are in no way a guestimate of where someone thinks prices will be in say 3 years time

 

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ScottM
I agree on some points but some points only.

Technically, you are correct that the trigger price was not a cap or a maximum in a legal sense, but it was widely described as the maximum, including on Government websites. Everyone that I can find considered it to be a 'de facto' maximum and I believe that included the Minister.

The trigger price of $50 could only be exceeded if the cost containment reserve was exhausted, not just triggered.  So to that extent it was meant to be a cap. And I cannot find anyone who was saying in advance that the containment reserve might be exhausted at the last auction.   The auction was for 4.75 million units and they had to add the full 7 million units in the containment reserve in trying to 'cap' the price. At that level, we are now in line to exceed our 'Paris' commitments and the Minister acknowledged that. 

Yes, you are correct in saying that they are forward contracts not futures contracts. My bad. But the practical implications are similar. There are very large numbers of units now being held by market players. My understanding (open to confirmation) is that prior to the last auction there were 71 million units held by ETS registered foresters. Many non-forest companies also hold these units as a risk management and speculative strategy.

Basic economics tells us that the forward price is indeed the market's best guesstimate of where the price will be at that time.  There is a whole body of economics called 'expectations theory' supporting this, including at least one Nobel prize. Of course it is highly unlikely that these forward prices will be the spot price or the auction price at that time. But they are the best estimate thereof as perceived collectively by those involved in the forward markets.
KeithW

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I am 100% correct on the cap, maximum price or what ever else you want to call it. This relates to primary issuance of units via the auction. There is no mechanism in place to cap prices in the secondary OTC market where units trade and have done so for the last 10 years or so, whether the CCR was at $50 or any other level. This was also the case when the fixed price option was available. The secondary market traded above that. This again was perceived as a cap, well it wasn't. It was a mechanism like the CCR to try and help manage extreme price volatility, that was all, it was not a cap or ceiling in the main OTC market.

he FPO over the years was continuously miss reported and agree the government communication on that wasn't great either and the same is happening with the CCR

Re forwards and futures both are price risk management tools but both are very different too. The NZU forward curve doesn't trade like an oil curve or a wheat curve. There is no guesstimate at all around future prices in the NZU curve.  It is a cost off carry i.e. spot rate adjusted for funding and credit through to maturity. I have understanding of this via direct use

 

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I agree that the spot price and the forward price are tied together by funding and credit costs through to maturity. No argument about that. But expectation and derivative theory has quite a lot to say about whether spot prices push or forward prices pull. And for commodities like carbon, the spot price is itself very much a function of expectations albeit discounted by those same funding and credit costs. The last auction was very much a situation where people were purchasing as a function of  future expectations rather than because of immediate need. They may be right or they may be wrong, but the market price reflects the overall market expectation, which is the sum of the expectations of the players in that market.   
KeithW

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Most of these problems would be averted if we started 20 -30 years ago. but at least Trees are been planted , there is a cost to emitting carbon (albeit low and free to some), and the issues are been discussed. I think we will get a shove along from the up coming Glasgow convention . 

http://www.footrotflats.com/strip-archive?strip=1467

 

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Who is going to shove? It is a gravy train.

"Not a single G20 country is in line with the Paris Agreement on climate, analysis shows"

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I expect it will be different this time because the USA is on board. And countries like Brazil haven't got an idiot like Trump to goad them on. 

I'm not sure in what way it is a gravy train? . 

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The climate doom industry is a gravy train in about 2 trillion ways - "Interest in climate change is becoming an increasingly powerful economic driver, so much so that some see it as an industry in itself whose growth is driven in large part by policymaking.

The $1.5 trillion global “climate change industry” grew at between 17 and 24 percent annually from 2005-2008, slowing to between 4 and 6 percent following the recession with the exception of 2011’s inexplicable 15 percent growth, according to Climate Change Business Journal."

https://www.insurancejournal.com/news/national/2015/07/30/377086.htm

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China makes a start , if only in developing countries it funds. 

https://www.nytimes.com/2021/09/22/world/asia/china-coal.html.

Largely symbolic I guess , but I expect more leading up to Glasgow. 

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The limit to the carbon price in my opinion will be set by yet to be developed DAC technology. In the article  https://techxplore.com/news/2021-09-negative-co2-emissions-aussie-techn… the medium term goal is $100 per tonne carbon. I have read a science paper ( lost the reference sorry) that projects a theoretical cost about half that number is possible- which suggests to me that the long term maximum price of carbon should be somewhere in the range $US 50 - 100, so the NZ carbon market price is possibly already near the long term price. 

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Nigel,
I find it extremely difficult to estimate the long term price. But I am reasonably confident that it will not crash like it did around ten years ago.  But with markets where the rules are set by governments,  one never really knows.
Keith 

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Why not just use the solar panels to produce power for the grid , and have zero emission power in the first place. ?

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An example of my typical week.

Ive just been with 5 farmers clients in Otago this week.

They are now planting between 50% and 100% of their farms in trees. (300 to 600ha+ each)

Why ?

Common message – (theres not mine)

  1. They cannot make more than 1 to 2% profit on a good day – they are bigger farms up to 10,000 stock units and 3rd to 4th generation.
  2. They all state without something changing there is no chance of passing on the farm within the family again – this is the only route they have plus they can see some/most of their children like other things as well, without selling the land.
  3. They all want to invest any new capital gained from carbon(or anything) off farm as it’s a non performer on farm  - they see no point or future in adding more into this category.
  4. Meat/milk prices are great this year but fertilizer costs are up at least 50% so nothing’s changed return wise.

What they don’t like (this is there view not mine)

  1. Large overseas owners buying up large properties – don’t seem so concerned about NZ owners
  2. Permanent large scale radiata plantings – happy on smaller scale. Large permanent radiata areas do worry them. Production forestry OK. Other species Redwoods etc OK

Other

  1. Virtually no one really understands the ETS, how it works even at a high level and its intention to change behaviour i.e. NO more fossil fuel being burnt in 30 years time. Higher prices will continue until this is achieved - its not a side show it’s the main show in town now - always political risk here.
  2. Once the farmers get a bit of understanding its all go for a larger and rapidly growing number.

This is snap shot of what we are seeing across NZ among farmers – our phone is off the hook with farmers ringing to learn and plant.

On the ground report for the week. Have a great weekend.

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Thanks Jack,
A great illustration of what is happening. 
KeithW

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Thanks from me too.  Great to hear from those with actual skin in the game, keep it coming.

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So how would one go about finding out if a piece of land is worth turning to Carbon Farming?

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This is the best summary i've found so far. I think you pretty much need a consultant to make the decision. though.

https://beeflambnz.com/news-views/money-can-grow-trees

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Note they are no longer taking applications for funding by the 1 billion trees program . It already has more applicants than money allocated 

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Pine carbon forest as a nurse crop for natives . 

https://www.nzif.org.nz/assets/Adam-Forbes.pdf

I am wondering if this can be adapted for lifestyle block owners, such as myself. An intensive planting , Pine plus natives palnted to gether , or soon after.

Maybe Keith or Jack can comment wether you can claim extra credits, A block of high value( and nutrient) land,  planted  at a higher than normal stocking rate , and managed intensively, to sequester more carbon. I am thinking also for dairy farmers , increase their riparian plantings to 30 metres wide , and feed it all the cow effluent etc .  

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If you want to end up with a native planting and are doing mainly riperian strips there are few rules you have to meet to get credits. As you note it needs to be 30m wide and be at least 1 hectare in total area. Another way to get the area is to have a "forest" area of 1 hectare and then run riperian strips off that - they do not have to be 30m wide then but they must be connected to the area of 1 hectare. Not 1 tree wide but say 5m wide. You cannot have breaks in the strip for any more than 15m (gateways) In effect you create a spiderweb coming off 1 larger area.

Also the land must be eligible land - it must not have been forest land at 1990.

If you want to combine exotic and native on smaller areas like this you maybe better to use a species like Eucalypt as it has less shading. The key to natives is very good grass and weed control. Grass is enemy number 1. Obviously keeping grazing animals out is impt as well. The Eucs grow faster and provide more carbon yield. Over time you can remove these but it hasn't been sorted how they will determine the carbon yield as you remove the high volume stored exotic for lower volume native, as the stored carbon will drop. A new rule is that the carbon table you use is determined by what is the intended predominant species - if its native you may have to use native tables. Again we await clarification.

If you are happy to have a mixed exotic/native riperian you could easily claim a exotic hardwood carbon flow as the eucs remain. They will need to be thinned out over time to allow more of the native through - if that is what you want more off but Euc will always be the predominant carbon store. In many cases its ok to use straight natives but you need to start with very hardy species - manuka/kanuka and then introduce more succulents once shade and shelter are established. Natives are slower and require more ongoing care and attention

Never use cheap really small seedlings - its false economy, use larger seedlings - cost more but more carbohydrate in the stems and hence much hardier.

Finally get someone who knows the ETS to check any plan before you launch into spending a lot of money to make sure it meets the eligibility requirements first. Also remember there is a $500 fee to register if you do it yourself so very small areas are marginal but if carbon keeps going up it become more viable. For many farmers this could be a good route for off setting farm emissions along with meeting water requirements as well - hopefully there will be a lot more financial support for this type of planting coming.

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Thanks , there's more info in this post than i've been able to find in months of searching. 

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Good luck and never, ever forget do grass and weed control with natives.

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Thanks. I've had the block 15 years , and yeah , have been slack on the weed control. I've probably planted around 5000 natives,  I would say less than 1000 have survived . Not only do i have grass to contend with , but a long river border, every flood i get the town upstream weeds. the vines are the worst , they just smother everything. But most of the ecu.species are 15-20 metres high.

Lately I've been going for big trees , 2nds off big tree suppliers,and digging biig holes for them with my little digger, hopefully a better survival rate. but my next plan is to buy seedlings and pot them into big bags .to plant later.  

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That's interesting. I always wondered why, for example, Totara flats in the Tararua ranges remains grass (following a man caused fire decades ago) despite being slap bang in the middle of the forest park.

 

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Long grass cuts out virtually all light to the soil, and probably sucks most of the moisture out of the soil.I looked under 2 or 3 Karamu trees , fruiting prolifically in the reserve next door. i found one seedling , out of all the 1000's of seed that must be dropped there. Plenty grew in a seed tray i sowed.  

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