Friday, February 23, 2024

Using forestry to offset carbon emissions

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Forestry, for sheep and beef farms, is usually the most economic solution to offset GHG emissions in the short term
The cabinet was concerned that high carbon prices seemed to be driving the planting of more trees and not reducing emissions. This triggered a wider review of the ETS, which sent carbon prices even lower earlier this year.
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 By Phil Journeaux, Hamilton-based AgFirst agricultural economist

This article follows on from an earlier one, “GHG: no silver bullets”, where I discussed changing farm systems and land use change into horticulture as GHG mitigation strategies. I now want to look at forestry as an offsetting strategy, where a forest is planted and the carbon sequestered by the trees is used to offset GHG emissions from a farm.

As part of our case study work on farm, we have routinely incorporated forestry as an offsetting scenario, to investigate the costs and benefits of doing so. The main tree species we model is, of course, Pinus radiata, mainly because to the large amount of information readily available around growth rates, sequestration rates, and costs and returns. This is not to say we’re advocating pines, as they are not necessarily the best in all circumstance – it comes back to the mantra “right tree, right place”. We also look at another exotic species, usually cypress, as an alternative special purpose species, and of course natives.

For our case study farms we planted up 10% of the farm – usually the less-productive farmland, into trees. There’s nothing magic about the 10% figure – just a good figure to use, and many sheep and beef farms could easily incorporate such a regime without much effect on the remaining pastoral operation. For dairy farms it’s a bit different, as most dairy farms have relatively little lower productive land, and even with the current carbon price the profitability of most dairying is much greater. If the carbon price gets to $170+/NZU, that situation changes rapidly.

What the modelling has shown is that forestry, for sheep and beef farms, is usually the most economic, and probably the most practical solution, at least in the short term, in offsetting GHG emissions, relative to other mitigation options.

Again, this is important for sheep and beef farms, in that they are proportionally much more vulnerable to a carbon levy compared with dairy farms. This due to two factors: the average sheep and beef farm emits 67% more GHGs in total compared to the average dairy farm, while operating at around 20% of the dairy farms’ profitability. In this situation, forestry can be very valuable in ameliorating the situation.

An example of the impact of forestry is shown in the following analysis on an actual 1,620ha farm. In this example we’ve used the carbon levy prices suggested by He Waka Eke Noa in their original proposal to the government, and a carbon credit value of $85/NZU in 2025, and $138/NZU for 2030.

This example demonstrates a number of things:

• By 2030 the gross carbon levy, in the absence of any mitigation/offsetting, is starting to bite at 11% of Ebitda

• The addition of forestry has significantly offset the cost of the levy

• The level of sequestration is directly related to the amount of carbon credits generated, with pines greater than cypresses, which are greater than natives

It is important to note that the addition of the 10% area in forestry has not made the farm carbon neutral – that’s an entirely different story.

Another aspect to consider is, if the carbon credits from the forestry were solely used to offset the carbon levy, rather than converted to cash, then in the above example the offset would last for 30+ years. Something to think about. 

The other issue with using forestry as an offset is, of course, that gross emissions are not decreasing – something New Zealand as a whole is yet to grapple with.

Another study investigated the impact on two representative farms, in Northland and Hawke’s Bay, of planting 10%, 30% and 100% of the farm in forestry – pines, cypresses, natives and a combination of all three.

At a farm level, planting up the less-productive land resulted in an increase in farm profit, meat and wool production, and greenhouse gas emissions per grazed hectare on the more productive land, but a reduction in total farm output across all three. In the absence of a carbon value, the 10% planting of radiata gave a very similar return to the original farm. 

Applying a carbon value ($85/NZU) significantly improved overall profitability, with the most profitable option being to plant 100% of the farm in pines, followed by 100% in cypresses. On the other hand, planting in natives resulted in a much lower Ebitda relative to the pastoral (base) operation.

For the purposes of the exercise, the areas on farm were planted immediately. A thought, though, would be to stagger this to smooth cash flow– so, for example, if you were planting say 50ha, the idea would be to plant 10ha every five years. Once you’re harvesting the first trees the semi-regular harvesting of trees thereafter would significantly aid the business cash flow.

While planting 100% of a sheep and beef farm to exotic forest would be, under current settings, the most profitable option, there are negative impacts across the regional economy.  For the 30% and especially the 100% planting into forestry, GDP and employment were significantly reduced over the period of the rotation up to harvest.  At harvest, though, there was significant increase in both GDP and employment as a result of the harvesting/processing.

From an employment perspective, staggering planting and harvesting would certainly help. 

Another thing to consider is that the addition of a value for carbon provides no net gain in GDP, as the impact of a value for carbon is essentially an internal wealth transfer, with no overall net benefit at a national level.

Current policy settings mean that planting whole farms into forestry is very profitable, thereby promoting the activity. As an alternative, the addition of “woodlot” forestry on farms can directly improve the financial resilience of the farm business and make a significant contribution in offsetting carbon emissions. In this respect therefore, the mantra should be “trees on farms” not “farms into trees”.

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