Brian Fallow: Treaty of Waitangi must come first

When the members of the select committee reviewing the emissions trading scheme come to draw up their recommendations, there is one matter which need not detain them long.

It is a case where the principled thing to do also makes sense environmentally, economically and politically.

It is an area where two treaties collide, Waitangi and Kyoto. The former must take precedence.

The problem is deforestation. The solution, or a large part of it, is called offsetting.

The issue arises because deforestation - cutting down trees and not replacing them - has been and is still a major source of carbon emissions. So it makes sense for the climate change treaty to have provisions to discourage deforestation and encourage afforestation.

But the rules are badly designed, to put it mildly.

As they stand, if a pine forest planted before 1990 is felled and that very land is not replanted in trees, the carbon in the trees felled is deemed to be emitted then and there and New Zealand is liable for those emissions.

The "then and there" part is silly, of course. If the wood is used for building it is only because it is not going to turn into carbon dioxide and blow away any time soon.

And the "that very land" part makes no sense either. It makes no difference to the atmosphere whether the new tree grows where the old one stood, only that while it grows it pulls the same amount of CO2 out of the atmosphere.

If there is a more productive use for the land deforested its owners ought to be allowed to meet the reforestation obligation by planting a new forest with the same carbon sequestration potential on less valuable land elsewhere. That is called offsetting.

New Zealand has no shortage of bare eroding hillsides that would benefit from such a land-use change.

Indeed flexibility in land use has been fundamental to the country's economic progress. Barriers to exit from one land use to a "higher and better" one constitute an economic own goal.

Offsetting is provided for in the ETS legislation passed last year, but only when the international rules allow it. The earliest that could happen is 2013.

In the meantime the deforestation liability is prohibitive.

An average hectare of mature pine forest upon harvest would be deemed to emit 800 tonnes of CO2. At $25 a tonne that is $20,000 a hectare.

As the legislation stands it is not about reducing the climate impact of deforestation. Offsetting achieves that just as well.

It is all about reducing the cost to the taxpayer. That is not a trifling consideration when the Government's accounts are deteriorating rapidly.

But forestry is an industry that is all about long-term investment, for which confidence and a secure policy framework are essential.

The effects of devising policy with short-term fiscal considerations paramount have been calamitous.

Deforestation jumped to 20,000ha in 2007 as forest owners scrambled to escape the liability which kicked in at the start of last year. At the same time, new planting has collapsed to the lowest level since 1945.

The most recent survey of forest owners' intentions, completed in February 2009, indicated that intentions for land-use change (out of forestry) between 2008 and 2020 are in the range of 29,000-90,000ha. The upper end of that would be a liability of $1.8 billion even at today's rather depressed carbon prices.

Roger Pikia, who chairs the Maori Reference Group on Climate Change, told the select committee on Monday that of the 176,000ha of Crown Forest Licence land due to be transferred to central North Island iwi this year under a Treaty settlement, at least 30,000ha have enough water to allow a higher-value land use.

And Mark Solomon of Ngai Tahu told the MPs his iwi had acquired, as part of its settlement 10 years ago, 84,000ha of exotic forestry assets with the open intention of converting the land to its best use at the expiry of forestry licences. The ETS's treatment of such forests would cost Ngai Tahu between $40 million and $120 million. It accuses the Government of bad faith and is not persuaded at all by a QC's opinion to the contrary.

Though none of the Maori leaders appearing before the select committee this week was so crass as to say so outright, the treatment of pre-1990 forests under the ETS has "potential Treaty grievance" written all over it in great big letters.

But they did make the broader point that while there was no dispute that climate change is an issue that needs to be dealt with, the burden of doing so should not fall disproportionately on Maori.

In three respects, as things stand, it does. To the extent that the treatment of pre-1990 exotic forests locks that land into sub-optimal use, it affects Maori disproportionately because they own most of it either outright or presumptively (in the Crown forest licence land set aside for Treaty settlements).

The second issue arises from the fact that the scheme can be seen as a regressive tax. It will impose a carbon cost on every litre of petrol and diesel sold, from the start of 2011, and on every tonne of coal and cubic metre of natural gas burned by electricity generators from the start of next year.

The Government on the other hand is only liable for the increase in emissions from 1990 levels, not for every last tonne of greenhouse gas emitted. So the scheme over-recovers from consumers of electricity and transport fuels, to help offset the fact that the taxpayer is picking up the tab for most of the emissions from the trade-exposed sectors.

To the extent that electricity and petrol costs make up a larger share of the expenses of those on low incomes, among whom Maori are over-represented, the burden is disproportionate.

Finally there is the impact of the scheme on agriculture.

It is the last sector due to to be brought into the scheme, from 2013. The rules are completely unknown beyond the fact that the sector will be, at least at first, heavily grandfathered.

Part of the case for including agriculture is that land values will adjust to reflect this new cost.

But for communally owned Maori land that adjustment does not work. The land is not a commodity to be traded, but a sacred trust.