The forestry sector is hoping the new government will give clearer direction on the Emissions Trading Scheme as investment in the sector threatens to dry up with investor uncertainty.
Grant Dodson, president of Forest Owners Association, said the sector has had a whirlwind of ministerial and policy changes over the past 12-18 months, leaving both overseas and local investors rattled.
He took some confidence from the National-NZ First coalition document, which promises to stop the current review of the ETS and restore confidence to the carbon trading market.
The most controversial reforms proposed by the previous government in its review process were four proposals put forward to revamp the ETS. These included separating forestry ETS units, and limiting the number of NZ Units (NZUs) emitters could use to offset their emissions.
“But there is no doubt, a tonne of carbon dioxide is the currency of climate change policy regardless of what shape or form it takes,” Dodson said.
“It would be like saying the money out of one bank is worth less when its taken to another.”
Another proposal was to create two ETS markets, one for emissions reduction and one for removal. Big emitters could not use forestry NZUs to offset, and NZUs would be sold to the government, or on a separate market.
These proposals were further complicated by other government plans including centralising the sale of NZ carbon units, putting existing carbon traders out of business.
Add into this mix has been a limitation on foreign investors’ ability to buy land for forestry, having originally been favoured under the “special forestry test”. There has also been a significant increase in ETS charges.
Dodson said these machinations have impacted significantly on investor confidence.
“If you look across the sector, none of the foreign entities that were looking to buy in NZ are at the moment.”
Farms bought for forestry conversion by overseas operators now have to be subject to the “benefit to NZ test”.
“This is kicking to touch the opportunity for being able to expand here.”
Meantime NZ investors are looking at smaller plots, often in conjunction with farmers, but even here the government had muddied the waters by proposing limitations on how much land could be converted on farms.
Land and water reforms are also slicing significant areas of land off forests, due to the major stepbacks required around water courses, far in excess of what is required for farms.
NZ carbon unit holders also took a hiding on their units earlier this year, again due to government intervention when it failed to take the Climate Change Commission’s advice and let units rise over $100.
The ensuing slide in values when the government released more units wiped millions from investors’ carbon books.
The amount of land submitted for ETS forestry peaked last year at 200,000ha, with the Ministry for Primary Industries estimating that by January 1 this year 500,000ha of land had been entered under ETS.
It had taken 10 years to reach 300,000ha by January 2022.
But Dodson said much of what remains for planting in the coming year will be mopping-up areas, with the surge well past.
“There is just a trickle of investment from domestic interests.”
