By Colin Jacobs, executive director of investment banking and corporate advisory firm Lewis Tucker & Co
Dear Minister
With just over six years until the Paris 2030 Climate Accord deadline, we are deeply concerned about New Zealand’s climate change response.
The country is on course to fail to meet its climate change commitments and is facing a potential emissions bill of more than $23 billion. Investor confidence in critical areas of the economy, including gross emissions reductions and forestry-based carbon removals, is being seriously damaged by constant uncertainty.
The consultations around the fundamental direction of the Emissions Trading Scheme (ETS) and forestry sectors have been particularly disappointing. The ETS, until late last year, sent the price signals to encourage investment in emissions reductions and supported investment in forestry as the country’s bridge to a low carbon economy.
At present, emitters covered by the ETS pay for 100% of their emissions in NZ, yet the government has failed to incentivise decarbonisation of the agricultural sector, in which biological emissions represent half of the country’s total. Trade-exposed emissions-intensive industries remain heavily subsidised.
The current review of the ETS is being attributed to a failure to cut gross emissions. However, it is government decisions and subsequent uncertainty that have driven this failure, including more than halving the price of carbon (from nearly $89 to $38), blocking the price signals required to drive behaviour change and directly subsidising fossil fuels. Add to this the lack of agricultural emissions pricing and it’s hardly a surprise that gross emissions are not reducing fast enough.
We support the government partnering with industry to drive gross emissions reductions. The NZ Steel agreement is a good example of this; the Clean Car Discount scheme another example of effective policy. But the carbon market and the ETS must drive rational economic decision-making. At present, both are paralysed and there is a lack of confidence among those wishing to make long-term investments in decarbonisation or sequestration. At a time when the country needs long-term certainty and confidence in our climate change policy settings, we have less than ever before.
Lewis Tucker is an agri advisory firm that was set up 10 years ago to help the country’s agricultural sector innovate, raise capital and invest in its future. We are passionate about what diverse, innovative, and well-capitalised agricultural and forestry sectors can deliver for our economy, rural communities and our climate change commitments.
Our operations are clearly aligned with the government’s economic and environmental objectives. The forests we plant are on marginal hill country and we ensure that productive farmland remains in pastoral farming. We actively support native regeneration across the land we manage and undertake large-scale professional pest control, with remarkable results.
It is our view that no changes to the ETS are needed and that the government should explore alternative means to incentivise gross emission reductions and ensure responsible exotic rotation forestry.
We reject the notion of “permanent” exotic forests and cannot understand why any organisation would leave a valuable timber resource in the ground to simply fall over. The implications for rural communities of “permanent” exotic forestry are profoundly negative and the science as to the long-term environmental impacts of these forests is unclear, at best.
We are also very surprised at how quickly the government has adopted the concept of “transition forestry” (the idea that through selective management, an exotic forest can transition to an indigenous forest over time) despite the absence of robust science. This speculative concept is not in the interests of rural communities, particularly if attempts at transition prove unsuccessful.
However, all landowners should have the same rights and responsibilities for their land, and the suggestion in the recent consultation document that planting permanent exotic forests be allowed only for Māori landowners has the potential to heavily distort the rural property market and give unfair advantage to some over others.
We understand that people have concerns about poor forestry practices. We share them. Forestry has to be done well, on the right land, and be subject to appropriate controls and regulation. Like permanent exotic forestry, blanket planting of productive farmland is unacceptable.
We share your view that forestry is no silver bullet for the climate. However, forestry buys the country the time it needs to cut emissions and provide a stepping stone to a low carbon economy.
The Climate Change Commission has repeatedly stated that we cannot meet our climate commitments without a strong contribution from forestry over the next 25 years. If we plant the right trees on the right land, realise the value of high-quality timber products in both the domestic and international markets, and build value-adding timber processing facilities in our regions, responsible forestry can make a profound contribution to our climate and economy.
Responsible rotation forestry can support rural communities, increase and diversify farm income, stabilise marginal soils and protect waterways. It can improve our productivity and balance of payments.
The government’s current proposals run the risk of shutting down our forestry industry when we need it most. Handing forestry planting decisions to local government will take land-use decisions out of the hands of farmers. Requiring local government to determine where forests should and should not be planted will result in entirely subjective and inconsistent decision-making. The overarching national benefits of exotic forestry, both for timber and for carbon, will not be considered and we fear that the development of responsible forestry will stall.
More than a year after we proposed a simple policy solution that could address many of the community and government concerns about the scale of current forestry operations, and add significant value to NZ’s climate change goals, this has gone nowhere.
An exotic tree is, under the carbon accounting rules, allowed to earn carbon credits for a period of 16 years. This short timeframe incentivises foresters to plant where they can maximise early growth. This drive for early growth leads to some foresters planting productive land that should stay in farming.
But an exotic tree will grow and absorb carbon well beyond that 16-year period. A forest in a slower-growing area – say Southland – can catch up with an early growth forest – in, say, the East Coast – over time.
Extending the length of time a tree can earn carbon credits by an additional 10 years could address almost all of the current concerns.
This simple policy change would incentivise rotation forestry on the marginal country where it belongs. It would encourage geographic diversification of the forestry estate, deliver benefits to rural communities and reduce the risks of forestry concentration in certain regions. The benefits of forestry, including jobs, income and productivity will be realised more equitably across the country.
Additionally, allowing forests to absorb more carbon over a longer period of time could halve the volume of land required for forestry to deliver the required carbon outcome.
Furthermore, such exotic forests will assist to absorb agricultural emissions as proven in recent studies conducted by Scion and the University of Lincoln.
In our modelling of this option, the benefits have been obvious. Yet despite writing to ministers, making submissions, raising the idea in meetings and discussing the potential in the media, not a single MP, minister or official has ever provided a reason why government appears to be no longer considering it.
A responsible, well-governed forestry industry is in everyone’s best interests. However, we fear that rotation forestry in the ETS has fallen victim to short-term political decision-making and the potential for its transformational benefits is at risk of going unrealised.
We remain committed to partnering with government in service of our economy, rural communities and climate but we now need to place on the record our disappointment in the absence of meaningful engagement around the country’s long-term climate change goals.
As always, you are welcome to contact me directly and at any time.
