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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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.

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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)

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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.

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“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.

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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.

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