New Zealand's ETS and Land Use Change Challenge
The quandary for the New Zealand government is that, while the New Zealand Emission Unit (NZU) price is insufficient to drive meaningful behavior changes by greenhouse gas emitters, it is sufficient to facilitate land use change. (Especially with current low financial returns for traditional dry stock, hill country farming).
The New Zealand Government’s announcements in December to limit ETS eligibility for farm conversions is trying to crack an egg with a sledgehammer. You will only end up with an omelet and eliminate the options of poached, fried, hard or soft-boiled, etc.
New Zealand has benefitted from a relatively free-market ability to change land use with a pioneering can-do attitude in our rural community. This is now being taken away.
Hill country farmers are now limited as to how they can improve returns, add resilience, and better allow for farm succession. Annual income from ETS eligible trees can contribute significantly to a farm’s viability. Limiting ETS eligibility on trees planted to 25% of a farm will restrict options for farmers to generate income on the less productive areas of their farm.
The impact of climate change may render more parts of a farm less productive in some locations, so this policy change further reduces our ability to adapt to climate change.
We will also see an imbalance in land prices. While farm prices will reduce overall, there will be perverse situations where a farm that has a higher proportion of the steeper Land Use Capability (LUC) class 6 land will be worth more than a neighboring farm with rolling country. This is because there is an avenue to apply for ETS eligibility for the LUC class 6 land, with 15,000 hectares allocated each year on a first-in basis. We wait to see how this allotment for ETS eligibility for LUC class 6 land will be allocated.
The even steeper country in LUC classes 7 and 8 may be worth even more, as there are no ETS eligibility restrictions. However, planting trees on steeper land with shallow erodible soils can lead to future problems. We need to be careful that this policy doesn’t lead to perverse outcomes.
Farming and forestry groups should work together to raise the economic returns for primary land use in New Zealand. This should be based on an overall understanding that we need more trees in New Zealand as well as the need for food production by farming the better land. Instead of sniping with emotive messaging around what happens in the margins.
While not feasible, I have wondered about having a small council of erudite but practical and fair-minded people, who would pass approval for which farms can be converted to forestry and incorporated into the ETS. Their decision-making would take into account the overall benefits to New Zealand. If only it was that simple.