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Clarky's Comment - August 2009, Plantation Forests

Plantation Forests and the Environmental Benefits They Provide Should Not be Treated as a Public Good to be Nationalised

The NZ Government has been grappling with a fine balancing act. How do we portray New Zealand as a responsible global citizen, but also protect jobs, trade-exposed industries and agriculture from the full impact of the international price of greenhouse gas emissions, at least for a period until we get a level playing field with other nations?

While a temporary cap on the price industry must pay for its emissions above a particular base allocation may be appropriate, attempts to restrict the sale or cap the price that forest owners will receive for forestry credits is not. These two ideas need to be de-coupled now. The reason is simple but compelling. It is all about trust in government.

Forestry investment is a long-term game, and because of that has plenty of risks attached to it. Investors can live with, and to some extent manage, the biological, fire, wind and technical risk. What they cannot manage is governments treating plantation forests and the environmental benefits they provide as a public good to be nationalised.

There is evidence of this behaviour in New Zealand already with the allocation of nitrogen pollution rights around Lake Taupo and the Rotorua lakes. In effect the unequal treatment of land uses is like the Resource Management Act polluter-pays-principle working in reverse. The environmental good guys get to pay (through reduced land value) so that the polluters can continue to pollute! The deforestation carbon liability in the Emissions Trading Scheme, without full compensation for loss of land value, is another example.

Talk of a "temporary" price cap or any restriction on export of NZUs (by further restricting the conversion to AAUs - see Recent Large Sale of AAUs) leaves forestry investors very nervous about how much we can trust this, or future governments, not to interfere with plantation forestry harvesting in the future - or what "temporary" really means if the going gets tough for NZ Inc.

Forest investors need to be able to trust governments not to behave in this way. Investment will flow to where the trust is greatest.

New Zealand needs new forests, and lots of them, to help meet even modest national net emissions targets. We can get these forests either by the taxpayer funding the planting and maintenance, or by setting up the right investment environment for private sector investment. In my view the latter will result in lower total costs to the taxpayer and better risk management in the long-term.

The government has every right to phase-in the impact of climate change policy at a rate that minimises overall damage to the economy. However any shielding of "at risk" sectors must be underwritten by the total taxpayer base, not by the forest industry.