Along with criticisms of some government headline policies including borrowing for tax cuts, the OECD’s latest economic survey of New Zealand runs a tough eye over the country’s climate change policies.
The bi-annual economic survey report takes a particularly close look at NZ’s Emissions Trading Scheme, concluding that this country’s “no limits” approach to using afforestation to absorb carbon makes it almost unique internationally, and leaves it at risk of over-investment in it as a solution.
The report’s authors note that the heavy reliance on forestry pushed planting to an all-time high in 2022, with 60,000 hectares going under trees, well up on the government’s own expectations of about 35,000ha.
It notes how, in NZ, using trees to offset carbon costs about $50 per tonne of CO2, making it by far the cheaper option to adopting carbon reduction technology that kicks in from about $100/tCO2.
Drawing that to its natural conclusion, the report points out that for the forests to be effective they need to remain in existence for as long as the CO2 – hundreds of years.
“If gross CO2 emissions continue, this would require ever increasing plantings and land use change,” it says.
That land would also remain locked in forestry until such time a way is developed to move the carbon locked up in the trees to another, more cost-effective, mitigation-sequestration option.
The OECD’s concerns echo those expressed by the pastoral sector in previous years, including Beef + Lamb NZ’s independent report released last year that supported the introduction of limits to carbon offsetting using forestry to store carbon.
Aside from Kazakhstan, NZ is the only country in the world to allow 100% carbon offsetting by forestry within the ETS.
Additional risks in relying on forestry include greater fire risk in future, something that has not been priced into valuations through the ETS.
The OECD’s experts propose an alternative that also echoes suggestions made by NZ’s red meat sector. It is one where forest carbon offsetting is removed from the ETS, and limited to issuing units for afforestation to a separate methane-based scheme.
This would more closely match methane’s more rapid decay (than CO2) in the atmosphere against the rapid growth and carbon storage capacity of exotic forests, based on the GWP* model of methane’s lifespan and contribution to warming.
“In addition, provided total methane emissions do not increase through increased animal numbers, there would be no need to continue expanding forest cover, unlike when afforestation is used to offset CO2 emissions.”
Meantime, the slower growing carbon-sequestering native forests could be tagged to longer lived carbon dioxide emissions, and continue to earn credits in the ETS scheme.
The report notes the new government has undertaken not to pursue further ETS reform, on the grounds the ETS market needs greater certainty.
However, it points out that this risks changes being kicked into the future, and they should be addressed now given advice has already been received from the Climate Change Commission and the Parliamentary Commissioner for the Environment about ETS changes to address its flaws.
It also calls for some agricultural emissions pricing to be introduced, having stalled under He Waka Eke Noa.
If a separate agricultural emissions pricing scheme is to go ahead, the report recommends free unit allocations that decline over time could be considered, also keeping the option for farmers to earn units for carbon sequestration by forestry.
