Carbon Profit Grows on Trees as Kiwi Farmers Ditch Sheep

New Zealand’s sheep farmers are flocking to a government carbon trading program that pays more to plant trees than sell wool and mutton.

The system, begun in 2008 and the only one of its kind outside Europe, awards farmers credits that are sold to offset greenhouse gas emissions. The project may earn them about NZ$600 a hectare ($172 per acre) a year on land unprofitable for grazing animals, said David Evison, a senior lecturer at the University of Canterbury’s New Zealand School of Forestry.

Forests planted for carbon credits may increase to 30,000 hectares a year compared with 3,500 hectares in 2009, the government estimates. The system is a welcome alternative for sheep farmers who’ve struggled for decades from a combination of slumping wool prices, drought and competition for land from the dairy and lumber industries, says Neil Walker, a forester in the Taranaki region of New Zealand’s North Island.

“If you’re an industry in decline, you have to see what options are available,” said Walker, who also heads the Taranaki Regional Council’s policy and planning committee. “There’s an economic case to be made for converting hill- country sheep farms to forests.”

Sheep have been in decline for decades and have fallen in number from a 1982 peak of 70 million to about 40 million, official data show. Carbon trading is embraced by some farmers and rejected by others as too harsh a change for New Zealand, the world’s biggest sheep meat exporter last year.

The nation’s carbon-trading project was expanded in July to require energy producers to pay for their emissions. By 2015, the system will include agriculture, forcing farmers to pay for emissions their cows and sheep make through belching.

Farmer Opposition

That, says Don Nicolson, president of Federated Farmers of New Zealand Inc., is too big a burden on its 25,000 members. The Wellington-based group opposed the program, particularly after it became clear the nation would adopt the policy largely alone. Australia’s government shelved a carbon trading plan in April.

“We’re the only national emissions trading scheme outside of Europe,” said Nigel Brunel, head of futures trading at Auckland-based OM Financial, which acts as a broker for carbon trading. “If at the end of 2012 we’re the only country standing there, then we will give up.”

Spot prices for carbon credits were NZ$18.45 per metric ton on Aug. 16. The market remains in limbo until more credits are available and the deadline for offsetting emissions comes closer, Brunel said.

One-for-Two

Until December 2012, there’s a transition period in which companies in the system have the option to pay a carbon tax on emissions capped at NZ$25 per ton, or buy carbon credits backed by forestry. They also need to offset only one ton of emissions for every two they produce.

“Demand will be constant and supply is likely to be lumpy and infrequent,” Brunel said.

Even the government says the program will have little impact on global greenhouse gas emissions. New Zealand ranks 51st in greenhouse gas emissions with 0.2 percent of the global total, according to the United Nations.

Rather, the government introduced carbon trading to enhance the country’s green image, boost exports, attract tourists and increase influence in global climate talks,” Prime Minister John Key said on Television New Zealand in June.

The difficulties for back-country sheep farms began when the government deregulated New Zealand’s economy in 1984, scrapping the subsidies that had incentivized farmers to convert marginal scrubland to pasture since the 1960s, said Edwyn Kight, a farmer on the east coast of New Zealand’s North Island.

Converting Land

Over the years, the converted land became more unprofitable as fertilizer prices rose when subsidies were removed, Kight said in a telephone interview from his 3,600-hectare Akitio Station. He’s planted 600 hectares of forest since carbon trading began and plans 800 more. He’s keeping 1,000 hectares for livestock.

Carbon has the “potential to markedly alter the profitability of New Zealand’s hill country,” he said. “That land is not marginally economic to farm for sheep and cattle, it’s totally uneconomic. There’s a real opportunity for land use change here.”

Introduction of carbon trading incentives will add to an existing trend to convert pasture land for forest, driven by sales of lumber to China.

Since 1990, about 3.5 million hectares, or 28 percent, of land used for grazing sheep and beef has switched use. About a quarter went to dairy and the rest to forests, urban development and conservation, according to Meat & Wool New Zealand Ltd., an industry group.

Chopping Trees

Log exports from New Zealand to China more than doubled in the year ended March to 5.4 million cubic meters, driving a NZ$300 million increase in log export earnings to NZ$1.1 billion, official data show.

Carbon trading makes planting forests even more appealing, the University of Canterbury’s Evison said. Instead of waiting for trees to grow before they can sell the timber, they’re now paid annually for storing carbon, he said.

“It turns forestry into a cash flow business,” Evison said.

Not all farmers are happy with the trend.

Federated Farmers’ Nicolson estimates 20 percent, or 2,800 sheep and beef farms could be replaced by carbon forests, harming communities that rely on livestock farming for jobs as shearers, mechanics and vets.

He said farmers are being sold on the profit in carbon farming without understanding the risks, such as losing trees to fires or disease or the government canceling the program.

Rural Flight

“You can’t blame farmers who’ve had their profitability tested from taking a punt on their marginal land,” Nicolson said in a telephone interview. “The trouble is it comes with massive risk and that’s not what’s being talked about.”

Many hill farmers are already struggling and rural depopulation from loss of jobs is already taking place, said Kight the farmer.

“It hasn’t happened because of forestry, it’s happened because of economics,” said Kight, who is a member of Federated Farmers.

For farmers like Kight, whose sheep and cattle are part of the exports Key wants to protect, the trading scheme is a means to stay in business.

“You don’t want it to be a call for the last one around to turn out the lights,” he said. “That’s what it was coming to.”