Sunday, August 14, 2022

OECD pushes for higher carbon value

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As the OECD calls on New Zealand to lift its carbon price higher and faster, Federated Farmers is urging government to put the brakes on allowances made to foreign companies to purchase land for carbon forestry here.

IMPACT: Federated Farmers president and climate change spokesperson Andrew Hoggard said a rapid rise in carbon values will only feed through to higher costs in the food supply chain.

As the OECD calls on New Zealand to lift its carbon price higher and faster, Federated Farmers is urging government to put the brakes on allowances made to foreign companies to purchase land for carbon forestry here.

While offering a generally favourable review of NZ’s response over the global pandemic, the OECD’s latest economic survey also raises concerns NZ will not achieve its zero carbon goals at current carbon prices or emission reduction rates.

The report states the current carbon price is too low and calls for “complementary measures” to help address market failures, including environmental taxes, waste levies and greater vehicle electrification.

But Federated Farmers president and climate change spokesperson Andrew Hoggard says any significant rise in the carbon prices will only put greater pressure on the entire food supply system and also play into higher fuel, distribution and ultimately food costs in the future.

NZ’s carbon unit prices have already almost doubled in only a year, now trading at $76.25 a unit, with April 2024 prices secured at $82.22 a unit.

For NZ to achieve its carbon zero goals by 2050, the Climate Change Commission maintains prices will need to be at $140 a tonne of carbon by 2030.

Feds’ meat and wool chair William Beetham says sorting out the special forestry test would be a good “first step” in restoring some balance to land use policy and with carbon hitting almost $70 a unit, industries looking to offset greenhouse gas emissions are behind big increases in the value of land used for sheep and beef farming.

His concern is the land is being purchased under the special conditions and converted to trees ultimately destined for carbon sequestration, rather than for felling.

Forest Owners Association president Phil Taylor said this can’t be true because any overseas investor using the special forestry test to obtain Overseas Investment Office consent is banned from carbon farming.

About 25,000ha of pastoral land was approved for sale to overseas buyers under the special forestry test between 2017 and 2020.

But Forest Management Group Ltd owner Dave Janett said in his experience a larger portion of land purchases for forestry are being conducted by farmer-led businesses and families who see the opportunity in having investment in both the pastoral sector and in forestry, with carbon credits forming a valuable part of the enterprise’s income stream.

“They are the top end of agri-business operators and they see the opportunity there,” Janett said.

“This is not going away, there is sweeping change coming through, dictated by overseas markets. You can question the right or wrong of land going into trees and the money from them going offshore, and that is certainly worthy of some debate.”

Beetham said the Feds were pushing towards more agnostic land use rules for foreign ownership.

Market experts are already predicting NZ’s carbon unit price will continue to rise at a rapid clip.

This is partially based on forward values of $76.75 set for April purchases, already well up on the Government’s pre-set trigger price of $70 a unit.

The $70 a unit price marks the point where government adds additional units from its cost containment reserve at its first carbon credit auction in March.

But most in the market expect that even if the entire year’s seven million additional units are committed in the first quarterly auction, they will do little to quell the continuing push upwards in values.

In her latest review of NZ’s carbon market, ANZ analyst Susan Kilsby points out NZ’s carbon prices still sit well below levels recommended by the IMF and economists.

The IMF estimates NZ’s carbon price needs to be at about $107 a unit. The majority of economists estimate globally carbon prices need to be at about US$100 a unit ($150) to keep warming under 1.5degC.

Europe leads the way in prices at $152 a unit, and Kilsby said the lift in EU units has contributed to expectations NZ’s unit price would continue to lift.

“But there is quite a gap between us and many of the world’s economies. China, for example, is only about the equivalent of US$5, not enough to make a difference,” Kilsby said.

She noted the average carbon unit price for the world’s 20 largest economies is only $7 a unit.

She was not sure NZ would reach $100 a unit by year’s end, despite the rate of increase already experienced.

“It would only take a change in government policy around ETS and there are a number of factors feeding into the ETS that may change – even if they are not directly related to price, they may still impact it,” she said.

Analysts maintain some of the changes that could come in coming months include adjustments around forestry plantation regulations and the likely influence of the Government’s emissions reduction plan, due out in the first quarter.

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