Why did Nick Smith hide the facts on forestry?

targetGovernment ministers have deliberately played down the role of forestry in meeting emissions targets, documents released under the Official Information Act suggest. Diligent digging at No Right Turn has uncovered a Ministry of Agriculture & Forestry paper [PDF] titled New forest planting and harvesting intentions under high carbon prices, which makes clear that forest planting will increase significantly under a stable Emissions Trading Scheme, and that even a modest ($20/tonne) carbon price could trigger planting of up to 100,000 hectares a year — a rate not seen since the forestry boom of the 1990s, and enough to offset a huge chunk of NZ’s emissions to 2020 and beyond. Climate change minister Nick Smith did not mention these figures during the target consultation process, though it is clear he must have known about them. His failure to front with the facts on forestry amounts to a clear attempt to manipulate public perception of the difficulty of meeting steep targets, and raises serious questions about the agenda driving government policy.

The MAF paper uses well-established forestry modelling, and data from two independent studies (by the University of Canterbury’s School of Forestry, and Scion) to look at the implications for both planting and harvest intentions at carbon prices of $20 and $100/tonne. Here’s a key passage:

In the context of previous new planting rates, [returns] based on just $20 per tonne CO2 would theoretically be expected to drive new planting rates at close to their all time peak levels of 90,000 to 100,000 hectares per year, assuming no physical, planning or capital restraints…

If prices are higher, forestry returns become too high to be calculated by MAF’s model. The report also looks at what carbon prices imply for forest harvest intentions. MAF reckons that around $20/tonne, most forests in the ETS would be harvested at maturity, because the timber value more than compensates for the cost of buying carbon credits to cover the emissions cost of clear felling. At higher carbon prices, the picture changes: the cost of covering the harvest carbon is less than the timber value, but the value of the standing carbon in the forest is high. This has a significant impact on harvesting intentions.

This […] would have a dramatic effect on New Zealand’s overall net position between around 2018 and 2030 when the current models assume the existing post-1989 forests are harvested. High carbon prices (along with high levels of participation by foresters in the ETS) will likely mean the emissions “bulge” not only does not eventuate, but in fact becomes significant ongoing sequestration.

The so-called “wall of wood” has long been touted as a problem for NZ emissions policy — the target consultation pamphlet mentions it — but at high carbon prices it simply goes away. This is — or ought to have been — big news for future emissions targets.

Throughout the target setting process, Smith, Key and a Greek chorus of big emitters and business interests have been playing up how hard it will be to make emissions cuts and achieve challenging targets. They’ve been willing to misuse economic reports to concoct high “costs”, while at the same time sitting on information that undermines that stance. What has looked like incompetence in constructing policy now begins to look more like deliberate tactics, and begs the obvious question: in whose interest is the government acting?

According to Carbon News, talks between National and Labour on amendments to the current ETS legislation have run into difficulties because (amongst other things) the government has failed to provide full analyses of the cost of the changes being discussed. “Softening” the impact of the scheme on big emitters and agriculture has the effect of increasing the cost to taxpayers, as those sectors will in effect receive carbon subsidies. Meanwhile, foresters are pointing out that changes that have been floated, such as capping the carbon price at a low level (as intended in Australia), and banning export of carbon credits will bring forest planting to an abrupt halt.

It is now clear that New Zealand’s climate policy, initially derailed by Key’s craven coalition deal with Hide and the deniers in ACT, is being rebuilt to favour National’s supporters. By planning to increase the (already large) carbon cost cushion for big emitters and farmers, the government is not only increasing taxpayer subsidies to big business, but actively designing policy that will increase the country’s net emissions by suppressing forest planting. This goes far beyond simple incompetence, and strays into the realms of mendacity. I suppose it’s hardly surprising they don’t want the public to know the truth.

15 thoughts on “Why did Nick Smith hide the facts on forestry?”

  1. Never ascribe to malice what can be described by stupidity…

    Socialising costs? sure, it is a National government after all… but I think saying they’re trying to suppress forestry is going too far.

    I put it down to trying to be too clever and pandering to farmers without considering the foresters until it’s too late (i.e. now).

  2. Interesting that when modelling disagrees with your opinion it is worthless but when it fits your world view it can be taken as gospel.

    Quite alarming – they are saying that, through discounting future cash flows, a 30 year cash flow from carbon credits is more valuable than a perpetuity from lumber. Will mean the end of the forestry industry in New Zealand? No more lumber mills and the associated jobs?

    One factor to consider is that if all foresters reach the same conclusion in Annex-1 nations, and REDD rules are successful, the price of lumber will rise.

    I did find one error strait away: They claim that there will be less harvesting between 2013-2020 with high emissions prices due to the cost of harvesting. This is not immediately correct. The forestry credit/debit rule means that a forester will never be liable at the time of harvest for an amount greater than they have received in credits. A forester who harvests in 2013 will only be liable for sequesteration from 2008-2013, not the entire tree.

    Therefore, there is actually an incentive to harvest if the tree was planted pre-2008. Because if you wish to permanently plant, and you own a pre-2008 forest, you can receive more credits by harvesting and then replanting than by sitting on a tree that has only creded for sequesteration for half its life time. The higher the price, the more trees that will be harvested, until about 2038.

    1. I think you have effect of that rule wrong: if a forester takes credits and sells them, he gets the price current at that time. At harvest, they then have to purchase and retire credits for the equivalent amount, but the price may be higher than the initial sale value. That creates a disincentive to harvest. If prices are lower, then there is an incentive.

      If carbon credit prices rise, then a forester who has “banked” credits can sell or harvest without penalty. However, as the report suggests, large companies will undoubtedly create balanced portfolios of age classes of trees and banked/traded credits.

      You are right, of course (as I have said before) that timber prices could also rise: because of a rule change on the treatment of timber, because of an increase in the use of timber in building, or because of higher carbon prices leading to more forests treated as permanent sinks. In either event, forestry in NZ has a bright future — but it will be a different business.

      Meanwhile, until the government delivers certainty about the emissions trading regime, precious little is going to happen. New forests will go unplanted, NZ’s net emissions will be higher than they need be, and the taxpayer will foot the bill for this government’s incompetence.

      1. I dont think you understood me at all. Do you understand the credit debit rule? It states that for post 1990 forests, a harvester is never liable for more than the credits they have received.

        ie If I harvest a mature forest in 2013, I only have to pay the sequesteration credits that accrued from 2008-2013, not the full carbon value of the forest.

        1. We’re talking past each other. Of course they’re only liable for the units earned during the commitment period. Nevertheless, the dynamics of the business will be as I describe. Ask a forester.

          1. No the dynamics are very different. The cost of harvesting is lower, and that is what this study is basing the permanent afforestation on: (para 24-27)

            “This [the cost of harvesting] would have a dramatic effect on New Zealand’s overall net position between around 2018 and 2030 when the current models assume the existing post-1989 forests are harvested. ”

            Its not as simple as this study suggests. Yes towards the 2030 end they may be correct. But if I have trees ready to harvest in 2020, I have only 12 years of sequesteration credits, and liabilities. And if I want the full afforestation benefit I am forced to harvest and replant. Otherwise I never receive the full credit.

  3. Gillian Tett has a PhD in social anthropology from Cambridge University and is an assistant editor of the Financial Times. In this week’s column she discusses the reasons why there has been so little comment about the proliferation of middlemen in America’s financial world.

    Why? The obvious answer is that the banking sector has been very powerful. Three decades ago, Pierre Bourdieu, a French sociologist, observed that elites in a society typically maintain their power not simply by controlling the means of production (ie money), but by dominating the cultural discourse too (ie a society’s intellectual map). And what is most important in relation to that cognitive map is not what is overtly stated and discussed – but what is left unstated, or ignored. Or as he wrote: “The most successful ideological effects are those which have no need of words, and ask no more than a complicitous silence.”

    Perhaps this also goes some way to explaining why Nick Smith hid the facts on forestry.

    Tett recently spoke at the LSE about her book Fool’s Gold :How Unrestrained Greed Corrupted a Dream, Shattered Global Markets and Unleashed a Catastrophe.

  4. The current NZ ETS design poses absolutely no threat to NZ’s wood processing industry (sawmilling, MDF plants or pulp mills) as all the wood these plants currently use comes from pre-1990 forests. Furthermore, NZ exports a significant proportion of its annual sustainable log harvest, meaning that there is potential to expand NZ’s domestic wood processing if demand & profitability is there (which it isn’t).

    Yes a high carbon price is likely to temper the harvest / constrain the wood fibre flow from NZ’s post-1989 forests (sometime after 2020) but this may be a good thing as it wont alter the current supply demand dynamic that dictates domestic log prices for growers. ie In a ‘Business as Usual’ market (without an ETS), greater wood availability after 2020 will drive log prices down for all growers. Forestry growing will then be even less attractive than it is today (given the presumption of further increases in harvesting, trucking and ocean freight costs)

  5. First let me unashamedly own up to being a farm forester (but not a paid up one)..

    Much depends of land prices, which ultimately depend on the profitability of all the rual sectors that compete for land. This itself is a function of costs faced by some of the more intensive land based sectors under the RMA for externalities (eg nitrate discharges to water – streams and groundwater), and whether NZ’s Agriculture sector will face a cost under ETS for net increases in nitrous oxide from urea fertiliser & manure above 1990 levels (lets leave enteric methane out of this discussion until farmers can actually do something about that emission please!)

    No oen would give up good dairy land for trees, so if I am to buy more land to offset emissions from intensification elsewhere, then I want a good return on investment (> 10% IRR is OK, but I’d ideally seek > 15% given the sovereign risk in all this, with the inherent risk of future governments policy flip flops).

    My back of the envelope calculation, based on “cheap” land being available in high rainfall areas at $3K/ha, suggests that NZ$25 tonne is the threshold at which things only start to become attractive. However things are looking attractive at carbon prices > NZ$40 tonne, especially for a long rotation crop like redwood or Douglas-fir.. (short rotation pines arent the only tree in town)

    What worries me in all this is what some future government may do to forestry blcoks around the year 2020, esp. if the current crew in power don’t get new planting underway real soon.

    On the pastoral farming front, I need to know if a carrot or a stick will be used to incentivise urine & manure management (will I get an incentive to install a bio-digester, apply eco-N or at some future date bio-char, or will I be punished for not doing this). All this feeds into price of pastoral land (as does expectations of sector profitability & capital gains) , which ultimately affects the price of marginal land suitable to afforestation.. and hence the price of Carbon.

  6. /begin speculation

    A couple of Fridays ago there was a paragraph in the “gossip” section of the Business Herald suggesting that some rich folk were busily buying up marginal land with a view to growing carbon credits further down the track.

    In a recent NatRad interview Nick Smith claimed that his strategy on emissions targets was to “under-promise and over-deliver”. He has repeatedly rubbed the noses of his Labour and Green critics in the fact that emissions increased significantly while they were in charge. Maybe he sees forests as his hole card and a few Blue/Greens are aware of this.

    /end speculation

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