February 14, 2008 (New Zealand Herald) – Ministers and officials are grappling with some thorny issues over how to parcel out more than $1 billion worth of free carbon credits to the owners of commercial forests planted before 1990. They ought to have better things to do with their time.
Under the rules of the Kyoto Protocol, if a forest planted before 1990 is harvested and not replanted, the carbon stored in those trees (about 800 tonnes a hectare for a radiata pine forest) is deemed to be emitted then and there, and the country is liable for those emissions.
Under the Government’s planned emissions trading scheme the owners of land under pre-1990 forests who opt not to replant, but instead switch the land to another use such as dairying, will be liable for the emissions involved.
To soften the blow it proposes to allocate free 55 million tonnes worth of “New Zealand units” – tradable carbon credits. That is equivalent to what would be needed to cover deforestation at historic rates, when only a portion of the exotic forest felled was not replanted.
Now the Government is exercised over how those units should be allocated.
Should it be pro rata by hectare?
That would represent a windfall to landowners with no intention of deforesting, but it would cover only about 5 per cent of what those who do want to deforest would need, requiring them to buy the rest. But if you wanted to target the allocation at those landowners for whom deforestation is an option, how would you determine that?
Alternatively, should it be targeted at those who bought their land before 2002, since those who bought forested land more recently did so in the knowledge that Government policy is to impose a penalty on deforestation?
Or should it be targeted at those landowners, many of them Maori, who for one reason or another were unable to join the “chainsaw massacre”, the scramble to deforest before the start of this year when the liability kicked in?
Should it be targeted at smaller landowners only?
Graeme Hart, it might be thought, is rich enough already without the transfer of at least $100 million worth of units from the taxpayer. But where would you draw the line?
These are not easy questions.
Well here’s a suggestion: Forget the whole thing.
Not just the free allocation of 55 million tradable credits but the policy for which it is a partial offset, the retrospective deforestation tax.
The fundamental question to ask is what the object of the policy is. Is it to reduce New Zealand’s net greenhouse gas emissions, or to limit the financial risk to the taxpayer?
If it is the former – as it should be – there is a real danger that the policy of penalising deforestation will prove counterproductive.
And if so it will also be an own goal from a narrow fiscal point of view in the long run.
The policy is intended to discourage a switch in land use from trees, which store lots of carbon as they grow, to grass whose carbon is quickly returned to the atmosphere.
Increasing the proportion of New Zealand that is covered by plantation forest from 7 per cent would buy time, decades, in which the economy could adjust to a low-carbon future.
But if the policy effectively locks some forested land into a second-best use there is an opportunity cost. Export receipts, incomes, jobs, profits and taxes will all be lower than they might otherwise be.
The importance of land-based industries to the economy argues powerfully against reducing flexibility of land use.
And even from an environmental point of view there is a risk that erecting a barrier to exit from forestry will deter people from getting into it in the first place.
If the decision to change a block of land from grass to trees is seen as effectively irreversible, people may think twice about doing it.
Policy makers are liable to think a bird in the hand is worth two in the bush.
They can see how much land is deforested but they cannot measure how much afforestation that might have taken place does not because landowners fear lock-in.
And they cannot measure the broader chilling effects on investment that might flow from imposing what amounts to a retrospective tax.
The Government might see devolving a deforestation liability as incentivising future behaviour (replanting) but those affected by it are likely to see it as penalising past behaviour (planting the forests in the first place) which cannot be changed and which indeed was actively encouraged at the time.
Retrospective tax changes are generally regarded as odious. They are also a bad look for a country which needs to attract investment capital. Some of the largest owners of pre-1990 forests are international groups like Hancock, Weyerhauser and Juken Nissho.
The Greens argue that converting land from forestry to dairying is a double-whammy from a greenhouse point of view.
Not only do you lose the carbon sequestration services of the trees, you get more cows whose bodily functions are a major source of emissions. The cost of bovine emissions and the value of arboreal offsets ought to be factored into the land use decision.
But the way to do that, surely, is to make farmers liable for their livestock’s emissions and to reward replanting.
The Government does plan eventually to bring farming into the emissions trading scheme, something no other country seems to be contemplating. But that will not begin until 2013, and will be heavily grandfathered.
And on the forestry side there is an inequity. Someone who plants trees on land not previously forested can opt into the carbon market, getting credits for the growing trees (while accepting liability at harvest). Someone poking identical seedlings into land that was already forested in 1990 gets no such option.
For pre-1990 forests it is all stick and no carrot.
The distinction flows from an arbitrary line drawn through Kyoto’s rules which treats 1990 as year zero.
But there is at least a possibility that the rules will change.
The Bali road map agreed late last year for negotiations for a post-2012 international regime that acknowledges the global importance of deforestation – a source of emissions comparable to the world’s entire motor vehicle fleet.
As most deforestation occurs in developing countries it seems likely whatever regime emerges will be focused on compensating them for not deforesting rather than penalising them for doing so.
New Zealand of course is not a developing country and the rules within whatever follows Kyoto for developed countries might be different from those devised for Indonesia, Brazil and the like.
But Is it too much to hope the negotiators who draw them up the rules will bear in mind the long-term need for convergence between the two?
In the meantime, while we wait and see what international rules emerge, it would seem to make sense for the Government to shelve plans to devolve the deforestation liability, and avoid the complications around the associated allocation of free units.
It should focus more on what will encourage the afforestation of a millon hectares of bare, erosion-prone land and less on locking in what may be a sub-optimal use of country already forested.