Carbon farming presents both opportunities and threats, with lots of uncertainty, and big decisions needed by new government to resolve current predicament

For the last 12 months I have been sitting on the sidelines, watching and listening to ongoing debates, but too distracted by my own battle with pancreatic cancer to play an active part. That battle goes on, but right now I have found the energy to step up again.

There are lots of issues I would like to discuss, but I have decided to start with carbon farming, where big decisions are needed right now.

Although this is my first post for a year, I did step out during that year on two occasions with oral presentations about carbon farming, one to Hurunui Landcare Group back in June while on a short break from chemo, and again in late August to the Carbon Forestry Conference in Rotorua. In both presentations I said that carbon farming regulations were a mess, and we needed to do better.

The starting point is to acknowledge why carbon farming will be increasingly important in New Zealand. The key reason is that New Zealand has agreed at the United Nations as part of the Paris Agreement that we will, by 2050, reach zero net emissions of long-lived greenhouse gases.

Net emissions of zero for long-lived gases means that any remaining emissions of carbon dioxide and nitrous oxide must be balanced by carbon sequestration. Given the current lack of alternative sequestration mechanisms, that has to mean lots of forestry.

In 2021, New Zealand further committed at COP26 in Glasgow, as part of its ongoing Paris commitments, to a 50 percent reduction in its net long-term emissions by 2030 relative to its gross emissions in 2005. But that figure is a public-relations figure. It compares a net 2030 figure after deducting forestry offsets to a gross 2005 figure that was prior to forestry offsets. This flawed practice of comparing current and future net emissions to historical gross emissions has been perpetrated by New Zealand governments of both the left and right since at least 2015.

When I started writing this post I planned to explain more about our targets. But I decided that it is impossible to describe the various targets and associated numbers in simple terms. Here are some reasons.

1. There are domestic targets and there are international commitments known as NDCs. There is no simple alignment between these.
2. There are targets relating to specific years – such as the 2030 targets - and there are targets which relate to aggregate time periods – for example 2021 to 2025 and 2026 to 2030.
3. Some numbers are net of forestry sequestration and some are before deduction of forestry sequestration.
4. Some of the targets include purchase of units from overseas and others don’t include any allowance for overseas purchases.
5. Some of the targets include only the long-lived greenhouse gases, while others include the long-lived gases plus the short-lived methane. 

The Climate Change Commission has called for more transparency of communication. In the case of forestry that includes specifics of how much heavy-lifting is likely to be needed over each five-year period.  The Climate Change Commission has also said that gross emission targets of carbon dioxide and nitrous oxide need to be explicit, not just net figures after inclusion of forestry sequestration.

Until now, New Zealand’s climate change policies have been based on the notion that it will be possible to purchase NZU-equivalent carbon units from overseas countries that have surplus units to sell. The Climate Change commission has expressed concerns as to the availability of such units.

I am also aware from a reliable source that the Labour Government at one of its last pre-election Cabinet meetings changed its policy by determining that buying overseas units should and would be a last resort. I was part of a group to whom this was communicated, but the overall meeting was implicitly under Chatham House rules, which means I can communicate the information but not the source.

To the best of my knowledge, that decision of Cabinet was not reported in any media. In essence the Cabinet decision was an acknowledgement about the unlikely availability of overseas units that have integrity.  The consequence of that acknowledgement is that even more heavy-lifting from forestry will be needed.

Of course, the new government will make its own decisions on these matters. However, there are some matters that have to be based on hard realities. The new Ministers of Forestry and Climate Change could each find themselves holding a poisoned chalice.

Under the Paris Agreement, forestry-sequestration credits can only be earned either from new forests or alternatively from new management strategies that increase growth in older forests.

In line with these requirements, and in the case of radiata-pine production forests, Emission Trading Scheme (ETS) credits can only be earned for the first 16 years of a first-rotation forest. Subsequent to harvest, typically at 25-32 years, the forest must be replanted but no further credits can be earned. A second-rotation forest cannot earn credits even if the first rotation was not registered in the ETS.

In contrast, if a first-rotation radiata pine forest is registered in the Permanent Forest Scheme, then it can earn credits for as long as the forest continues to grow.  The specifics depend on the region of New Zealand, but at 50 years they range from about 1000 NZUs in Canterbury to more than 1300 NZUs in much of the North Island.  This is between three and five times the carbon that can be earned for pine production forests that are harvested at the normal time under the averaging time.  Additional growth occurs beyond 50 years for permanent pine forests, but accurate figures have yet to be determined.

In its most recent advice (April 2023), the Climate Change Commission presented the need in what it calls its ‘demonstration path’ for 500,000 ha of new exotic forest between 2021 and 2035, but it has not specified how much of this should be production forest and how much should be permanent forest. That distinction makes a big difference.

Under the new accounting systems, radiata-pine production forests planted before 2034 will have stopped contributing to our Paris commitments by 2050. Also, these estimates still include an assumption that New Zealand will be purchasing additional units overseas, which now seems much less likely.

As I write this post in mid-November, the value of a NZU, being one tonne of carbon dioxide equivalent, is bouncing around at about NZ$70. A year ago, it was around $80 but then it dropped precipitously when the Government went against advice from the Climate Change Commission for a change in auction settings. The Government then caused further distress among those interested in forestry when it suggested that the forest sequestration price for NZUs could be less than the emissions price.  At that point the dollar price declined to the mid-30s. Not only would that put a brake on converting farms to forests, it would also provide a very nice income to the Government as the middleperson in the business.

The key reason that the price of a carbon unit increased from those mid-30s in the middle of the year to the current price of around $70 was that Lawyers for Climate Action (LCANZI) took the Minister of Climate Change James Shaw to court seeking a judicial review for Cabinet pricing-decisions that were inconsistent with the decisions processes required by Climate Change Act Amendments.  Somewhat ironically, James Shaw as the plaintiff was in agreement with LCANZI that the Cabinet, as the operative arm of the Government, had messed things up by operating outside the bounds of the relevant Act. That led to an easy decision by the Judge, who decided that the Government must reconsider its previous pricing decisions. The Government then responded by aligning the rules for ETS auctions with the Climate Change Commission’s advice.

However, carbon farming plans are still held back by concern that the sequestration price will be set lower than the emission price. Ministry for Environment has been beavering on how such a scheme might work.

The new government will need to make clear decisions on this matter if new forests are to be planted. Quite simply, with export log prices in a slump, plus uncertainties about carbon pricing, the forest industry is currently in a big slump. 

A further raft of regulations came into force on 3 November 2023, called the National Environmental Standards for Commercial Forestry (NES-CF).  These regulations, which apply to both plantation and permanent forests, and for any forest of more than one hectare, make consenting processes for forest establishment plus subsequent management considerably more complex.  

Responsibility for implementing these regulations lies with regional councils, who currently lack the staff to implement these rules. Accordingly, anyone who has not yet gained necessary approvals for 2024 plantings under the rules has almost certainly left it too late, as regional councils have now been given eight months to deal with applications under these new rules.

I had planned to say something in this post about consequent carbon strategies for sheep and beef farmers, and how they might choose to respond to the current and emerging situation. However, I have decided that it is a topic deserving its own post.   

The bottom line for this post is that new forest plantings are currently grinding to a halt. There are big issues ahead that have to be faced. I hope the new Ministers of Forestry, Agriculture and Climate Change can quickly get on top of the issues. I reckon they are going to be very busy.

*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.