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Home / New Zealand

<i>Brian Fallow:</i> Expensive flip side to forestry

Brian Fallow
By Brian Fallow
Columnist·NZ Herald·
11 Sep, 2008 04:00 PM4 mins to read

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Brian Fallow
Opinion by Brian Fallow
Brian Fallow is a former economics editor of The New Zealand Herald
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KEY POINTS:

Forestry is the sector which can do most good, in the short to medium term, when it comes to reducing New Zealand's net contribution to the level of greenhouse gases.

Growing trees remove carbon dioxide from the air, which is returned when the wood rots or is burned.

An expanding forest estate will therefore represent an offset to growing emissions elsewhere in the country and the Kyoto Protocol's rules allow the Government to claim credits for the carbon taken up by forests, provided they were planted since 1990 on land not previously forested.

The flip side is that when the trees are felled the carbon is deemed to be emitted then and there and the country will have to account for those emissions.

This makes a big difference to the size of the country's Kyoto liability.

The Government's most recent published estimate, released last May, is that over the next five years emissions from energy use, agriculture and industrial processes will push us 82 million tonnes or 26 per cent over the Kyoto target, which is to return to 1990 levels.

But the estimate for the amount of carbon soaked up by Kyoto forests is 84 million tonnes, give or take 20 million tonnes.

That largely reflects the growth of trees planted in the 1990s, however. While the area of plantation forest increased by nearly 500,000 hectares or 40 per cent during the 1990s, by 2007 it had gained only a further 60,000ha and had been shrinking since 2003.

Partly, that reflected an increase in deforestation, both to switch land use to dairy farming and to avoid the Kyoto liability for deforestation which applies from the start of this year.

But it was also partly a reflection of anger among the owners of Kyoto (post-1990) forests that the Government planned to retain the carbon credits generated by their forests. The Government relented on that point last year and the bill passed on Wednesday devolves the credits to the owners of the forests. But only if they want them.

Accepting the credits implies accepting liability for the carbon deemed to be emitted when the trees are felled.

This makes it hard to guess how many forest credits will be available for local oil and power companies and large industrial emitters to buy.

Some owners of Kyoto forests may take their credits and put them in the bottom drawer, knowing they or future buyers of their forests will need them upon harvest. Others may decide it is all too hard and not opt into the scheme at all.

But larger forest owners with the smoother cash flow that comes from a mix of ages and classes are expected to be sellers into the carbon market.

Owners of pre-1990 forests get no credits but under Kyoto's rules they are liable for the emission of the carbon stored in their trees if they harvest them and do not replant the same land with new trees.

They will get a free allocation of 60 units a hectare if they bought the forest before 2002, but would need an average of 800 units a hectare if they deforest. At current prices for high quality emissions units, that would cost a prohibitive $32,000 a hectare.

They complain that this is a retrospective impost and locks some land into a second-best use, thereby devaluing it.

The Government has a financial reason to keep it that way.

With the credits from new forests roughly balancing the liability from rising emissions from cars, cows and smokestacks over the next five years, it is the liability from deforestation that will drive the size of the bill the country faces when the time comes to square accounts with other Kyoto countries for the 2008 to 2012 period.

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