Brian Fallow: Forest scheme deserves chance to grow

Permanent forests offer a number of benefits. Photo / APN

When climate policy is debated the focus is almost always on costs and hardly ever on the associated opportunities.

Yet, if done right, one man's cost is another man's income. The trick is to be the other man.

A government scheme still barely in its infancy, which promises to be as valuable economically as it is environmentally, is under review and at some risk of being scrapped.

It is called the Permanent Forest Sinks Initiative and it is designed to foster carbon forestry - the growing of forests for carbon credits rather than timber.

The key word is "permanent" and that is what distinguishes the scheme from its much bigger but younger brother, the emissions trading scheme, in which credits allocated for commercial plantation forests dominate the supply side of the market.

The initiative is designed to encourage the afforestation or reforestation of steep, erosion-prone and often inaccessible country where roading costs are liable to render it uneconomic to grow radiata pine for harvest.

Under the Kyoto Protocol's rules the land in question must not have been forested in 1990, the treaty's year zero.

Since then active steps to create a forest must have been taken, such as planting or facilitating natural regeneration of native bush through fencing, pest control and so on.

A covenant, which is a contract between the landowner and the Crown, is registered against the land title.

It locks the land into forestry for at least 50 years.

If the landowner then terminates the covenant, all the carbon units issued for the forest have to be repaid.

The scheme is designed to be fiscally neutral for the Crown and to ensure that anyone else who receives benefits from the sequestration of carbon by such a forest is also accountable for any future carbon loss - even if it arises from a disaster such as a fire or an introduced pest.

It is also intended to have local environmental benefits, as well as global ones, from avoiding soil erosion, improving water quality and reducing the risk of flooding downstream, and improving biodiversity.

Mark Belton is the principal of Permanent Forests International, the leading aggregator and marketer of the scheme's credits.

He says that forest projects have tended to be marginalised in international carbon markets because of two concerns. Forest sink credits are excluded altogether from the biggest carbon market, the European ETS.

One concern is that carbon dioxide removals from the atmosphere by forest sinks are not permanent; they are reversible if a forest is harvested.

(The New Zealand ETS recognises this by imposing a corresponding liability upon harvest when a forest owner accepts credits for the carbon taken up while the trees grow.)

The second concern is a lack of what in Kyoto jargon is called "additionality".

It is the idea that credits should only be given for climate-friendly projects which would not have occurred without that extra income stream.

The scheme deals with the permanence issue by the covenants and the stringent obligations associated with them, Belton says, while additionality is addressed by the fact that the forests are dedicated carbon forests with carbon sequestration as the primary economic driver.

Some selective harvesting of logs is permitted, but it has to be on a "continuous canopy" basis that maintains at least 80 per cent of the forest at all times.

"There is no reason why in 40 years' time some of these forests should not have some superb timber of a high enough value to justify low-impact helicopter harvesting," Belton says.

"But at this point I don't think anyone is going into the PFSI with the view of getting a stream of income from the timber. It's just the carbon."

A permanent forest will sequester several times as much carbon over time as the same area planted in a commercial forest which is periodically clear-felled.

These distinctive features make the carbon credits acceptable to discerning international buyers, including the Danish Government, Belton says.

"Our experience to date has shown some buyers will pay more for PFSI units. In one case 30 per cent above the spot [New Zealand unit] price," he said.

"It is a mechanism that is quite singular globally and recognised as being an outstanding template other jurisdictions are seeking to emulate."

Bryan Smith, a former senior Ministry of Agriculture and Forestry official deeply involved in international climate negotiations, now works for the Wellington City Council which has 1300ha of indigenous forest it intends to bring into the permanent scheme.

Smith says other governments are likely to introduce similar schemes rather than fully integrating forests into emissions trading schemes in the way New Zealand has. This would make it easier to extend international market access for permanent forest credits in the future.

And it will be especially important if there is no successor to the Kyoto Protocol, creating inter-governmental obligations, and instead a kind of archipelago of national or regional carbon markets, linked by agreements for the mutual recognition of credits.

With all these things going for it, one may ask, why is the scheme being reviewed, with one of the questions for the review committee being whether it should be discontinued?

For one thing, uptake has so far not been huge.

Last month's Budget estimates $10 million worth of units will be allocated under the scheme in the coming year, up from $6.1 million in the fiscal year just ending.

That compares with $900 million and $1.23 billion respectively for allocations (not just to forestry) under the ETS.

By the end of last year, MAF says, 20 covenants had been registered and another 15 were under way, representing 9200ha in all, with just over half in natives.

But it is early days.

The scheme gained Cabinet approval only in 2007.

"Given carbon markets are relatively new and highly uncertain it is not surprising that relatively little new planting has yet occurred," Smith said.

"Instead the key question is whether the PFSI properly facilitates access to carbon market."

Belton points to Landcare Research estimates of how much land is at very high risk of erosion - about 700,000ha - as an indicator of the potential scope of the scheme.

Other afforestation schemes are also being reviewed: the Afforestation Grants Scheme, the Hill Country Erosion Programme, the East Coast Forestry Project (at least in part) and, indeed the ETS itself.

Some rationalisation may be possible.

But the political risk is that in a climate of fiscal belt-tightening, and with MAF preoccupied with its merger with the Ministry of Fisheries, the permanent forest scheme gets scrapped or subsumed into the ETS for no better reason than to marginally simplify officials' lives and before it has had a chance to prove itself.

That would be a crying shame.

This is a sapling that deserves the chance to grow.