The amount of forestry land being registered under the Emissions Trading Scheme (ETS) has grown massively and rapidly in the past year, according to data from the Ministry for Primary Industries.
To earn carbon credits under the scheme, forestry must be registered.
Registration data shows from the beginning of 2018 until the second quarter of 2021 about 4000ha of forestry were registered a quarter. Since then the number of hectares has increased rapidly to more than 80,000ha each quarter.
Some farming groups have raised concerns that the high cost of carbon is driving the conversion of good farming land into pine plantations, some intended to be permanent and cropped rotationally.
New Zealand carbon units (NZUs) are currently trading at $83.20 on the secondary market after falling back from a high of about $88 before the last auction.
Public data available from the ministry on what type of land is being planted covers up to June this year, so it doesn’t cover the most recent registrations.
It shows that unproductive land not suitable for arable farming makes up the vast majority of the land being planted and registered under the ETS.
Land types are classed from one to eight. Classes one to four are considered suitable for arable or pastoral farming; classes five to seven have serious limitations for arable farmers, but can be suitable for pasture or forestry. Class eight is generally unsuitable for any land use other than being left aside for conservation.
Of the forestry land registered under the ETS, 36,194ha is on one- to four-class land. Of this, just 104ha is class one and 882ha is class two.
Class seven is where most planting has taken place, with more than 200,000ha, followed by 135,000ha on class-eight land.
The regional breakdown shows the vast majority of forestry land registered under the ETS is exotic, mostly radiata pine, but also Douglas fir and other exotic softwoods and hardwoods.
Most planting is on the East Cape and central North Island.
Over the years there have been wide swings in land-use types, from forestry to dairy pasture and then in some areas back to forestry.
Much of this has been driven by commodity prices, with dairy conversions dwindling in the past decade.
There has been much speculation that carbon prices have become a major driver for decisions about the conversion of land into forestry.
At one point, the government was considering banning permanent pine plantations from the ETS. This was partly a result of concerns that areas of land may just be planted up to gain carbon credits and lost to any productive use.
Ministers have backed down from any immediate decisions on this after pushback from landowners – including iwi businesses – over being told what to do with their land.
Currently, the government is also consulting on changes to the ETS settings after Climate Change Commission advice to tighten up the supply of NZUs through auctions and to increase the price of carbon.
There are complex dynamics at play with the ETS, carbon prices and forestry.
A higher carbon price drives up the incentives to plant more forest. But more forestry also could increase the supply of carbon credits and potentially push down the price.
The commission is also concerned that while planting trees sequesters more carbon, it also wants actual emissions to be reduced. It fears if the emphasis moves to forestry those emissions will be harder to cut.
One analysis by secondary market trader Carbon Match estimated at the end of June the area of ETS post-1989 registered forest land stood at 386,999ha. As of the end of August, this increased to 414,002ha.
The government’s recent consultation document on ETS settings and the emissions price could have a material impact on land-use change, such as the conversion of farmland to forestry.
It said planting commercial forestry could achieve a significant level of sequestration, with the most likely changes in the short to medium term the conversion of sheep and beef farming land to forestry.
The paper noted the scale of such conversions and associated unit supply into the ETS over time is potentially significant in comparison with NZ’s gross emissions. As such, the price at which conversion to forestry becomes cost-effective could set the emissions price in NZ for many years.
The commission has repeatedly urged the government to develop a credible response to the gross/net imbalance in emissions reductions.
Decisions on permanent exotic forestry in the ETS will influence this response, officials said.
