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Clarky's Comment - November 2011, Trees - A Cost Effective and Reliable Offset to Agricultural Emissions

The publication of the Federated Farmer's Election 2011 General Election Manifesto piqued my interest in how the Federation now views the Emissions Trading Scheme and specifically the role of forestry planting as a means of both neutralising farm stock emissions and making money. See: A farming manifesto.

Forest owners and farm foresters as primary sector, export oriented rural landowners and members of rural towns and communities have much in common with drystock, dairy and crop farmers. We find common ground with Federated Farmers on most of its position statements. It was disappointing however that Federated Farmers continues to claim that biological agricultural emissions should remain out of the ETS "far beyond the current entry date 2015, until mitigation tools are available and our competitors do the same", and that "there are few, if any, mitigation technologies farmers can cost-effectively take up with confidence."

Agricultural emissions comprise nearly 50% of New Zealand's total greenhouse gas emissions. As long as agriculture remains out of the ETS, the rest of industry and taxpayers in general are picking up the tab for this sector. With the agricultural sector vote comprising a small and reducing portion of the total voting public, if I was a farmer I would not be reliant on the lobby machine to keep me out of the ETS forever.

There are thousands of drystock farmers that have commercially viable woodlots on their farms. Hundreds of those have taken advantage of improved log prices over the last couple of years and received significant cash for harvesting trees planted 25 or more years ago. With the ETS the returns from planting trees for a mix of carbon and timber now potentially outstrips any forestry returns seen for over 20 years. It certainly outperforms the average rate of return experienced for sheep and beef farms over the last 6 years. These are quoted in Section 12 of the Manifesto document as ranging from -0.4% to 1.3%. The real rate of return for carbon/timber forestry forecast in our models depends on land value inputs, growth, location, terrain and use of debt finance, but without debt is in the range of 6% to 12%. If land for that portion put into trees is valued at a rental equal to the contribution to farm profit foregone, the rate of return jumps substantially.

Furthermore, once agricultural emissions are included in the ETS, offsetting those emissions with CO2 sequestered in trees is a cost effective and reliable way of managing the liability for most drystock farmers. A study led by AgResearch published in February 2010 found that sheep and beef farmers could both completely offset all farm emissions AND make the farm business more profitable by planting between 10% and 22% of the farm in plantation forest. See: MAF Publications and enter keywords "Carbon Price Exposure".

It takes about 5 years for newly planted trees to start sequestering significant amounts of carbon. And 2015 is not that far away. Agriculture may or may not enter the ETS in 2015. If it does some trees planted now can help. If not the economics of converting some portion of the farm into a carbon/timber cash crop looks pretty compelling in any case. That is something that wise farmers are no doubt cogitating on.

As far as the Federated Farmers Manifesto is concerned; some of the policies that New Zealand Forest Owners Association has been promoting as part of the ETS Review are specifically targeted at on-farm planting. Offsetting (changing locations of forests to maintain land use flexibility) has recently been announced as National Party policy commencing 1st January 2013. An averaging scheme whereby 50% of the total mature tree crop carbon would be allocated to the woodlot owner with no harvest liability provided the area is replanted has also been endorsed by the Review Committee and is under consideration by the government. It would have been nice to see Federated Farmers also endorse these positive changes to the ETS.