KEY POINTS:
The Government needs to abandon its pig-headed and penny-wise, pound-foolish approach to the forestry industry if it expects to be taken seriously in its rhetoric about aiming for carbon neutrality.
Antagonising the industry that can do most to reduce New Zealand's net emissions of greenhouse gases is no basis from which to progress.
It was apparent to anyone at the Ministry of Agriculture and Forestry's public consultation meeting in Wellington last week - and others in other parts of of the country were reportedly no different - that there is a profound and widespread sense of grievance among forest owners at what the Government is proposing.
Telling people who are so aggrieved, and have been for five years, that they are not entitled to feel that way is a waste of breath.
Officials and ministers can argue until the methane-belching cows come home that Kyoto forest owners, who planted forests since 1990 on land not previously forested, have no property right to forest sink credits unless the Government chooses to devolve them, and that no other Kyoto government has done so.
It cuts no ice with the thousands of investors involved.
The same goes for arguing about whether, or to what extent, investor expectations of receiving some share of the carbon credit value created by their trees were ever officially endorsed.
Kyoto forests will generate more than $1 billion in value between next year and 2012 at current carbon prices and exchange rates.
It took the Government's signature on a treaty and investors putting trees in the ground to generate that value. Neither alone would do it.
The debate now should be about how to share it.
Policymakers need to focus on what will get trees put in the ground in the large numbers required.
It is not just the one-off environmental benefit from a change in land use that Kyoto recognises.
In the carbon-constrained economy 30 years hence, trees planted now will be a valuable resource, whether as a low-carbon building material, a source of paper for a more populous and literate world, or as a feedstock for biofuel production.
For pre-1990 forests, the issue is the liability which arises for the country when forests are cut down and not replanted - if, for instance the land becomes a dairy farm.
Under Kyoto's rules, the carbon which built up in the trees as they grew is deemed to be released all at once when they are harvested, as if in a giant bonfire.
In the case of a mature stand of pinus radiata that is about 800 tonnes of carbon dioxide a hectare. At $14 a tonne - the Treasury's current estimate of the carbon price - that is a liability of more than $11,000 a hectare.
"Why should the taxpayer bear that cost?" asks Forestry Minister Jim Anderton.
MAF now estimates nearly 50,000ha of land will be deforested between next year and 2012, creating nearly twice the emissions the Government had indicated it was prepared to pay for.
Hence plans to introduce a cap-and-trade system of deforestation permits which will impose a cost on landowners who opt not to replant after they harvest.
Not all forested land is suitable for conversion to pasture. One industry source puts it at about 200,000ha of the 1.7 million hectare plantation forest estate.
But farm land prices have virtually doubled in five years, so for the owners of suitable land, the opportunity cost of being locked into forestry is high.
And while the Government may see this as a policy intended to influence future behaviour, for the landowners involved it is a retrospective impost, penalising them for decisions they - or someone else - made on perfectly rational grounds maybe 20 years ago.
But quite apart from any issues of fairness, there are a couple of practical reasons for the Government to be wary of an aggressive policy to discourage deforestation.
One is the general point that exit barriers can discourage entry. If would-be planters of new forests are worried that they will be in effect locked into that land use when the trees mature, even if prices then indicate another one would be better, they may be put off.
Anderton's comments try to distinguish between small pre-Kyoto forest owners who will have nothing to worry about because their plots will fall below a minimum threshold - not yet decided, but of the order of 100ha - and big corporate investors, often foreign, who will be caught by the deforestation rules but who invested with their eyes open.
But the rules will target those who can decide the next use of land after harvest and that will generally be the land owner. Different parties own the land and the trees in about a third of the forest estate.
So the other reason for the Government to be wary is that a lot of forested country suitable for deforestation is owned by Maori, either outright or presumptively in the form of the land held by the Crown Forestry Rental Trust pending treaty settlements.
Devaluing that land by locking it into a sub-optimal use invites a hefty treaty claim. Is the Government really ready to say, "You can have your land back now that the Crown has largely destroyed its value?"
Because of the time trees take to grow, forestry depends on investors being able to trust the Government not to expropriate them.
That is why it is essential for it to make peace with the industry now.
As one industry figure says, it is like the way an army treats its wounded. The cold-blooded calculation might be that they will be no use in the next battle, so don't waste resources on them.
But the effect on the morale of able-bodied survivors would be catastrophic.
It is idle for the Government to expect sentiment among existing investors to have no effect on those who come along next and who might be attracted by the incentives likely to be available.
The fundamental problem is that emitters of greenhouse gases face no cost. Instead, it is entirely borne by the taxpayer.
The Government's tightfistedness reflects the fact that the taxpayer's Kyoto bill would be about three times more than the present $600 million if the Government had not retained the forest sink credits.
What needs to happen is that a carbon price should be put into the economy. Where better to start than on the carrot side of the ledger, especially given how long trees take to grow and the fact that net afforestation has dwindled to zero?
Even if the Government passed on all the value in those credits to the Kyoto forest owners - and no one is suggesting they should get it all - and even if it assumed all the deforestation liability for pre-Kyoto forests, the fiscal hit would only be similar to the cost it cheerfully accepted when it scrapped the carbon tax.
And what did that fiscal sacrifice buy us?
