Marty Verry: Harvested Wood Products to be included in ETS at last as politicians align

Wood processors may finally get treated fairly and consistently with foresters in terms of their carbon storage value. Photo / Alan Gibson

OPINION

Here’s a way we can avoid having to plant so many farms in trees, substitute gross carbon emissions in hard-to-abate cement and steel sectors, store carbon longer, de-risk reliance on China’s waning log appetite, process more logs here, save $1 billion on the Paris Accord 2030 bill, and all at no cost to the taxpayer.

I know, it sounds too good to be true, right? But it is true.

James Shaw and Shane Jones tried to make it happen four years ago before Covid intervened, and both the Act and National parties have just announced this policy plan.

Let me briefly explain. Under UN carbon accounting rules, if logs are milled into long-life wood products, the rules reward this extended carbon storage time. This extra storage value is known as Harvested Wood Products or HWP for short.

The longer the life of the wood product, the higher the HWP value. A piece of framing timber has a higher value than a wood pallet, for example. New Zealand’s oldest building is 243 years old and made of timber. It was originally built in New York State around 1780 as a barn. It makes good climate policy sense to incentivise locking carbon away for centuries in this way, and HWP is how product production is incentivised.

HWP value is also now included as part of each country’s Nationally Determined Contribution reporting toward Paris Agreement commitments. So, it’s legitimate. Increasing it could save billions on our Paris commitment shortfall bill in 2030.

Scion estimated the potential value of HWP to be worth $75 million per year between 2022 and 2050. That was in 2019 when carbon’s value was $25 per tonne, so that HWP value would be worth around $200m annually at current carbon pricing.

Three policies are crucial to making this happen, and the good news is they are either underway or being developed by the Government.

The first is government procurement of lowest-carbon building options. This is getting good traction, although it still has gaps that end up in high-embodied carbon-steel and concrete structures being built. It needs tightening up with some strong political willpower.

The second is the Building for Climate Change regulation to reduce embodied carbon in buildings by regulating the carbon per square of newbuilds. That will also drive demand for HWP materials, as they are carbon-negative.

But the main policy that will drive more wood processing is to issue NZUs to wood processors that generate more HWP value. Wood processors can then trade these on the ETS. This dual income stream, from being able to sell both timber and carbon, will transform the wood processing sector’s feasibility. Modelling estimates investment in excess of $1.5 billion will follow.

How do we know that? It has already worked to transform the forestry sector. Planting boomed once both log income and NZU carbon income could be factored into feasibility models.

So why hasn’t it been implemented yet?

Red Stag Group chief executive Marty Verry.

Ministers Shaw and Jones instructed Ministry for Primary Industries (MPI) and Ministry for the Environment (MfE) officials in 2019 to develop a scheme to bring HWP value into the ETS. Covid intervened, but in 2022 the advisory group to the sector’s Industry Transformation Plan made sure bringing HWP in the ETS was a centre-piece policy for the transformation recipe.

The latest Climate Change Commission’s consultation paper makes it clear that it is open to adding HWP value to the ETS but is awaiting MPI to complete the policy work. MfE and Minister Shaw both confirmed recently that they, too, are awaiting MPI to develop the policy. Both National and Act have also just announced policy to issue NZUs to wood processors for incremental production over a baseline volume.

For its part, MPI has now finally engaged consultants MartinJenkins to run a “policy dialogue”. The industry, with Scion’s expertise, has progressed a workable scheme structure in the meantime. All this has been a torturously slow way for MPI to develop a scheme that the key ministers asked for over four years ago. With all five main political parties now pursuing the policy and the prospects of a National/Act-led Government, it looks set to finally happen.

Wood processors may finally get treated fairly and consistently with foresters in terms of their carbon storage value.

As the world moves from “climate warming” to “climate boiling” and with emissions from building materials and construction accounting for more than 10 per cent of global CO2 emissions, let’s hope MPI, MfE, the Climate Commission and politicians get in behind this win-win policy urgently.

Marty Verry is CEO of the Red Stag group, which invests in forestry, sawmilling, and engineered wood processing.