Forestry planting falls to near zero

16:00, Oct 01 2012

The low price of carbon credits is a factor but probably not the root cause of new forestry plantations dropping off to near zero over the past few years, according to a leading economist.

The comments from Infometrics consultant Adolf Stroombergen follow an open letter by a group of forestry executives to the Prime Minister calling on the Government to block the sale of international carbon credits in New Zealand.

The letter claimed the introduction of the cheap overseas credits has lowered the returns in the forestry sector to the extent that there was no incentive for farmers to plant new forests.

However Stroombergen said that would apply only to marginal planting in those areas that were not suitable for harvesting such as steep slopes, which farmers are unlikely to plant now that carbon costs are so slow.

As it stands carbon credits were trading at around $5 per tonne of emission, down from $22 per tonne a year ago and $25 when the scheme was introduced.

The cheap international carbon credits typically come from Eastern Europe, where slow industrial activity since the 1990s has left many former Soviet bloc countries with a glut of credits granted under the 1990 Kyoto Treaty.

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The ETS Amendment Bill, which is currently before Parliament, seeks “not to introduce a new power that specifically allows for quantitative restrictions on the number of international emissions units that can be surrendered”.

Carbon credit earnings represent about a 2 per cent boost to revenues per hectare, down from about 10 per cent in 2008, based on a stable log price.

Stroombergen said blocking overseas credits would have the effect of lifting prices, as is currently done in the US, Japan, and part of Europe, but it would go against the principle of an international carbon market.

“How can we say we don't believe your credits but we expect people to buy our credits?” he said.

Glen Mackie, a senior policy analyst at the New Zealand Forest Owners Association, said uncertainty around the ETS Amendment Bill was delaying decisions on new plantings, but other factors also came into play.

“The economics from forestry in general have not been good enough to do new planting in any volumes for some time,” he said.

Figures from the Ministry of Primary Industries show new forest plantings have tailed from around 90,000 hectares in the mid-1990s to around zero in 2008, with deforestation starting to occur from 2005 onwards.

BusinessDay.co.nz