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Clarky's Comment - May, Land Use Change

Land Use Change

Land is one of the cornerstones of wealth generation in both New Zealand and Australia. The flexibility to change land use in response to market signals has been historically important in both countries. From time to time politicians have sought to tilt the playing field in favour of a particular land use for reasons divorced from markets. This is entirely legitimate as when it comes to aligning public and private good, markets often fail.

In New Zealand we had the Emissions Trading Scheme (ETS) seeking to restrict conversions from plantation forest to pasture by requiring deforesters to surrender internationally recognised greenhouse gas units equivalent to the loss of carbon from felling the trees. This policy failed as the government also allowed low-cost international units to be used by all emitters. Until these units were recently banned the [ETS-related] cost of forest conversion was very low. What the policy did do, however, was discourage further forest planting on the grounds that the government signalled that pastoral farmers faced no financial penalties for on-going greenhouse gas emissions, but forest growers did.

In Australia vast areas of pastoral land were planted in plantation trees during the early 2000s. This was encouraged by the generous tax write-off made available in a well-intentioned policy to increase forest cover and diversify the productive land use. The policy was only partially successful as much of the land planted was marginal for good tree growth and too distant from wood markets. Most of the original retail investors lost their trees as the promoters folded in the wake of the Global Financial Crisis. Many of these plantations are now being reverted back to their original pasture state or in some cases to higher-value cropping.

The point of these observations is that non-market mechanisms that "screw the scrum" in favour of one land use over another must be carefully researched and understood if national net wealth is to be sustainably created, rather than destroyed.

For both an investor and the wider public to get the most out of our land resources the policy settings should encourage private land use investment decisions to align well with non-market national benefits of economic diversity, water use and quality, greenhouse gas pollution, biodiversity etc. This can only be achieved through a mix of regulation and monetising of environmental and social benefits and costs. But to create overall wealth to a country and the flexibility to change land use as market forces change, that regulation and monetisation needs to recognise the environmental effects and land-use capability rather than the politically easier route of allocating land use rights based on "grand parenting" i.e. referencing rights to historic land use.

It is encouraging that the Forest Stewardship Council has acknowledged that plantation forests are just another form of cropping and the restrictions to convert from plantation back to pasture or crops are to be lifted.

As both NZ and Australia enter the process of setting national targets for greenhouse gas reductions in the lead up to COP 21 in Paris, the role of Land Use and Forests and Land Use Change in setting those targets will be very important. We do not know what the international rules will be and no doubt both countries will want to set targets conditional on certain assumptions around those rules.

What we do know is that land use regulation and policies should increasingly seek to align private and public benefits. This means polluters should pay and providers of positive public benefits should receive payment. Also we must retain the option to change land use. Such change should be permitted as long as pollution and soil and water protection impacts are monetised and therefore are factored into the private decisions to change land use. A Nitrogen trading platform with initial allocations based on land capability rather than historic use should be seriously considered for sensitive catchments.

Land use conversion

PF Olsen is harvesting blue gum plantations in Western Australia using a mobile chipper and reverting some of the land to higher-value canola cropping.

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