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Carbon Profit Grows on Trees for New Zealand Farmers (Update1)
2010-08-19 05:34:09.31 GMT
(Adds tree sapling sales in 17th paragraph.)
By Stuart Biggs
Aug. 19 (Bloomberg) -- New Zealand's sheep farmers are
flocking to a government carbon trading program that pays more
to plant trees than sell wool and mutton.
The system, begun in 2008 and the only one of its kind
outside Europe, awards farmers credits that are sold to offset
greenhouse gas emissions. The project may earn them about NZ$600
a hectare ($172 per acre) a year on land unprofitable for
grazing animals, said David Evison, a senior lecturer at the
University of Canterbury's New Zealand School of Forestry.
Forests planted for carbon credits may increase to 30,000
hectares a year compared with 3,500 hectares in 2009, the
government estimates. The system is a welcome alternative for
sheep farmers who've struggled for decades from a combination of
slumping wool prices, drought and competition for land from the
dairy and lumber industries, says Neil Walker, a forester in the
Taranaki region of New Zealand's North Island.
"If you're an industry in decline, you have to see what
options are available," said Walker, who also heads the
Taranaki Regional Council's policy and planning committee.
"There's an economic case to be made for converting hill-
country sheep farms to forests."
Sheep have been in decline for decades and have fallen in
number from a 1982 peak of 70 million to about 40 million,
official data show. Carbon trading is embraced by some farmers
and rejected by others as too harsh a change for New Zealand,
the world's biggest sheep meat exporter last year.
Belching Cows, Sheep
The nation's carbon-trading project was expanded in July to
require energy producers to pay for their emissions. By 2015,
the system will include agriculture, forcing farmers to pay for
emissions their cows and sheep make through belching.
That, says Don Nicolson, president of Federated Farmers of
New Zealand Inc., is too big a burden on its 25,000 members. The
Wellington-based group opposed the program, particularly after
it became clear the nation would adopt the policy largely alone.
Australia's government shelved a carbon trading plan in April.
"We're the only national emissions trading scheme outside
of Europe," said Nigel Brunel, head of futures trading at
Auckland-based OM Financial, which acts as a broker for carbon
trading. "If at the end of 2012 we're the only country standing
there, then we will give up."
Spot prices for carbon credits were NZ$18.45 per metric ton
on Aug. 16. The market remains in limbo until more credits are
available and the deadline for offsetting emissions comes closer,
Brunel said.
One-for-Two
Until December 2012, there's a transition period in which
companies in the system have the option to pay a carbon tax on
emissions capped at NZ$25 per ton, or buy carbon credits backed
by forestry. They also need to offset only one ton of emissions
for every two they produce.
"Demand will be constant and supply is likely to be lumpy
and infrequent," Brunel said.
Even the government says the program will have little
impact on global greenhouse gas emissions. New Zealand ranks
51st in greenhouse gas emissions with 0.2 percent of the global
total, according to the United Nations.
Rather, the government introduced carbon trading to enhance
the country's green image, boost exports, attract tourists and
increase influence in global climate talks, Prime Minister
John Key said on Television New Zealand in June.
Scrubland to Pasture
The difficulties for back-country sheep farms began when
the government deregulated New Zealand's economy in 1984,
scrapping the subsidies that had incentivized farmers to convert
marginal scrubland to pasture since the 1960s, said Edwyn Kight,
a farmer on the east coast of New Zealand's North Island.
Over the years, the converted land became more unprofitable
as fertilizer prices rose when subsidies were removed, Kight
said in a telephone interview from his 3,600-hectare Akitio
Station. He's planted 600 hectares of forest since carbon
trading began and plans 800 more. He's keeping 1,000 hectares
for livestock.
Carbon has the "potential to markedly alter the
profitability of New Zealand's hill country," he said. "That
land is not marginally economic to farm for sheep and cattle,
it's totally uneconomic. There's a real opportunity for land use
change here."
At Cambridge Forest & Native Nursery in the center of New
Zealand's North Island, the emissions trading scheme is a
"significant" reason for year-on-year sales growth of 35
percent, owner Jonathan Sudano said in a telephone interview. He
declined to give revenue figures.
Lumber for China
The company has already sold all of next year's supply of
radiata pine saplings, a softwood used to make frames for houses,
he said.
Introduction of carbon trading incentives will add to an
existing trend to convert pasture land for forest, driven by
sales of lumber to China.
Since 1990, about 3.5 million hectares, or 28 percent, of
land used for grazing sheep and beef has switched use. About a
quarter went to dairy and the rest to forests, urban development
and conservation, according to Meat & Wool New Zealand Ltd., an
industry group.
Log exports from New Zealand to China more than doubled in
the year ended March to 5.4 million cubic meters, driving a
NZ$300 million increase in log export earnings to NZ$1.1 billion,
official data show.
Storing Carbon
Carbon trading makes planting forests even more appealing,
the University of Canterbury's Evison said. Instead of waiting
for trees to grow before they can sell the timber, they're now
paid annually for storing carbon, he said.
"It turns forestry into a cash flow business," Evison
said.
Not all farmers are happy with the trend.
Federated Farmers' Nicolson estimates 20 percent, or 2,800,
sheep and beef farms could be replaced by carbon forests,
harming communities that rely on livestock farming for jobs as
shearers, mechanics and vets.
He said farmers are being sold on the profit in carbon
farming without understanding the risks, such as losing trees to
fires or disease, or the government canceling the program.
"You can't blame farmers who've had their profitability
tested from taking a punt on their marginal land," Nicolson
said in a telephone interview. "The trouble is, it comes with
massive risk and that's not what's being talked about."
Many hill farmers are already struggling and rural
depopulation from loss of jobs is already taking place, said
Kight the farmer.
"It hasn't happened because of forestry, it's happened
because of economics," said Kight, who is a member of Federated
Farmers.
For farmers like Kight, whose sheep and cattle are part of
the exports Key wants to protect, the trading scheme is a means
to stay in business.
"You don't want it to be a call for the last one around to
turn out the lights," he said. "That's what it was coming
to."
For Related News and Information:
Bloomberg New Energy Finance Carbon Model: CARX <GO>
Emissions Market Monitor: EMMK <GO>
Most-read environmental news: MNI ENV <GO>
Most-read renewable-energy news: MNI ALTNRG <GO>
--Editors: Peter Langan, Todd White
To contact the reporter on this story:
Stuart Biggs in Tokyo at +81-3-3201-3093 or
sbiggs3@bloomberg.net.
To contact the editor responsible for this story:
Reed Landberg at +44-20-7330-7862 or
landberg@bloomberg.net.
