Wednesday, May 22, 2024

Costly carbon crunch coming for NZ

Neal Wallace
Exports will suffer if NZ fails to meet its Paris targets – and it can’t do so solely by domestic measures.
Jarden commodities head Nigel Brunel says that on current projections NZ will have to spend $1 billion a year for the next eight years buying carbon units.
Reading Time: 3 minutes

New Zealand could be in the international market for millions of tonnes of carbon offset credits to meet its obligations as a signatory to the Paris Agreement on climate change.

That was the sobering message from Nigel Brunel, the head of commodities at Jarden, who told the Carbon Forestry conference this week that NZ is never going to meet the carbon reduction targets committed to at the 2015 Paris conference by relying solely on domestic measures.

On current projections the Treasury estimates NZ needs to buy 99 million metric tonnes of carbon units at a current cost estimated by Brunel at about $8 billion over about eight years.

He estimated that equated to 1% of government spending over that period.

Ignoring the agreement is not an option, as to do so would run the risk of violating newly signed free trade agreements and exposing NZ’s exporters to tariff-type taxes.

Brunel said NZ should use its expertise to help developing countries decarbonise – initiatives that can be used to offset our own emissions, and are allowed under the Paris agreement.

He told the conference he cannot find what – if any – such projects NZ is currently involved in.

Free trade agreements such as that recently signed with Europe include a requirement to adopt acceptable climate change reduction measures, and Carbon Border Adjustment Mechanisms (CBAMs), effectively a tariff on imports, can also be imposed.

“If you don’t have decent carbon policy, you are likely to be hit by CBAMs if you want to have free trade policies,” Brunel said.

He suspects this is a reason Australia has in three years shifted from being a country that wasn’t doing much internationally to a country that is doing more than NZ.

Brunel said in seven weeks the price of NZ Units traded on the Emissions Trading Scheme (ETS) fell from $88/tonne before collapsing to $34/t, but in recent weeks it has recovered to $68/t.

He said NZ will not decarbonise at $68/t and international studies estimate real change will happen at about $175/t.

The government is establishing what he called guardrails for the ETS to ease such fluctuations.

Brunel said from next year the government will not sell units when the price hits $64/t, and at $180/t it will release more units onto the market to ease pricing pressure.

NZ’s largest carbon farmer told the conference the country does not have an oversupply of carbon credits as has been claimed by government officials.

NZ Carbon Farming business manager Scott Pollard told the conference that too few trees have been planted to offset our emissions, meaning the taxpayer will need to buy international credits.

He put some of the blame on nimbyism (not in my backyard) when it comes to forestry, when in reality productive farmland can be balanced with areas of commercial or permanent forestry, helping landowners economically and with their lifestyle and land use.

The company’s manager, Peter Casey, said it has 67,000ha of commercial and permanent forestry, mostly in the North Island.

Land in permanent forestry is in the process of regenerating from exotic to native forestry, a process that can take 75 years.

At age 30, exotic species sequester carbon at five to 10 times the rate of natives, which provides annual income to fund further projects and the regenerative process, which he said is expensive.

Casey said the regenerative process followed depends on the climate, topography, altitude and soil of each forest.

It requires thinning of exotic trees to improve sunlight, nurturing the native under-storey regrowth through weed, pest and fire control, and helping regrowth by introducing native plants, an annual cost of about $200/ha.

Casey said NZ Carbon Farming plants 120,000 native trees a year to effectively push the regeneration process.

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