Clarkys Comment - Climate change and the Maori economy

Peter Clark, CEO, PF Olsen Ltd

Last week I attended and presented at a Climate Change conference in Rotorua organised by the Te Arawa Federation of Maori Authorities. The very fact that Te Arawa took the initiative to arrange this conference illustrates the commitment Maori leaders feel to prepare New Zealand for the climate change challenges ahead.

Many presenters mentioned the opportunity to expand forests, both native and plantations, as a part of New Zealand’s domestic climate change response. Wood as a climate-friendly building material and source of bio-energy is part of that opportunity.

For my own contribution I made the following points:

  • Forests are carbon sinks. They do not offer a permanent solution but can buy time to adjust to a carbon-constrained world.

  • Forests offer a means of meeting international greenhouse gas reduction obligations domestically, at no cost to the taxpayer.

  • Green credentials matter for both food export marketing and tourism – the mainstays of the NZ economy.

  • With commercial forests being just 6% of NZ land cover versus 42% under pasture and arable, there is suitable land available.

  • At a $25/NZU price, Motu modelling shows that the plantation forest estate would grow by around 300,000 ha by 2025. PF Olsen observations of new planting when carbon was at around $20 in 2009 and 2010 support this modelling.

  • Forest investors need 7% on after tax cash flows. Current market land values do not support this. Therefore there is no new planting.

  • Pastoral farmers accept 1-2% ROI. This supports high land values that block forest use.

  • Maori land that is not for sale should be allocated to best economic use that can be assessed using Land Expectation Value (LEV) as the measure.

  • With carbon at $25/NZU forestry generates higher LEV than dry stock farming.

  • This analysis is supported by comparisons of past annual profits from Kaingaroa Timberlands and Landcorp.

  • We have not heard the last of Nitrogen Discharge Allowance allocations and freshwater quality in NZ. Polluters will need to pay more for off-farm environmental impacts.

  • To make the most of the forestry opportunity we need a functioning “All Sectors, All Gases” ETS and Nitrogen Discharge Allowances based on land carrying capacity rather than current land use.