NZ: Big ETS pluses for farmers
THE Emissions Trading Scheme (ETS) presents unique opportunities for many rural landowners in New Zealand; carbon forestry will allow landowners to use the scheme to their advantage and gain a new income stream.
Marginal farmland throughout the country can be converted into forestry and as long as any conversions are undertaken in an informed manner, landowners potentially have a lot to gain.
Forests can offset farm emissions and improve overall farm profitability. About five years after planting, carbon forestry can provide an annual stream of carbon credits, in the form of NZ Units (NZUs), which can be sold on the open market, kept in the bank or used to meet potential emission obligations associated with farming at some point in the future.
It is estimated that there are about 2 million hectares of such land in New Zealand; land that is suited more to forestry than agricultural farming but has not yet been planted. In addition, forestry provides additional benefits for farms such as erosion control, biodiversity, shelter and, eventually, a potential alternative income source.
The forestry industry has been operating under the ETS since January 1, 2008, despite the scheme having numerous downsides for forestry owners. For example, any forests planted before 1990 (i.e. before New Zealand signed the Kyoto Protocol) are not eligible for carbon credits but are eligible for liabilities if the forest area is cleared without replanting. A limited level of units set at around 5 percent of projected emissions liabilities is proposed as compensation, i.e. enough carbon credits to cover, at most, 13 percent (average less than 7 percent) of the liabilities incurred.
Forests store carbon, therefore those who own forests can take part in the “trading” part of the ETS. Forest owners can sell the carbon credits earned as the forest grows. When the trees are harvested, about 75 percent of the credits earned have to be returned to the Government. About 25 percent of the carbon from the trees (i.e. stumps, roots etc.) remains with the land until the new crop becomes established.
To offset the liabilities incurred when plantations are harvested, large forest owners ensure they have a mix of harvest dates and species.
Farmers could also maximise opportunities this way. By working together under expert advice, farmers could aggregate their forests to share and/or trade the credits and offset the liabilities. In this way, farmers can generate credits and become active traders rather than just emitters.
Carbon forestry, like all investments, has associated risks and opportunities that need to be carefully considered. But there is now research available for landowners wanting to make an informed decision.
Those landowners who don’t want to risk any short-term harvest liabilities can plant species such as Douglas-fir, which take 50 years to be ready for harvest. In the meantime, they collect carbon credits.
Currently, there are about 28 countries that have an ETS in place. It is only a matter of time before the global carbon market becomes a true force and influencer.
New Zealand is not operating in isolation. Being an ETS leader can only enhance our clean and green brand, and prove to overseas visitors that we take our role in climate change seriously. Our size shouldn’t dictate whether we take action or not.
The ETS provides a myriad of opportunities for those operating in the rural sector but to exploit them some landowners need to change their mindset and look at the positives rather than the negatives.
• Ernslaw One is a vertically-integrated softwood plantation company with the fifth largest forest estate in New Zealand, owning a total of 25,135 hectares of post-1989 forest in Gisborne, Manawatu, Wairarapa and western Southland, and growing both Radiata Pine and Douglas-fir.