CARBON CREDITS: Mark Belton on Smarter Forests
Mark Belton is Director Permanent Forests NZ Ltd (PFNZ) & Emerging Forests Ltd and an expert on forestry and carbon credits. In this article he advocates the use of redwood rather than Radiata Pine, arguing there is an urgent need to reduce risk and make the farming sector more resilient to major cyclones. Belton suggests that Government should partner with landowners and finance growing trees to reduce erosion and sequester carbon on high erosion risk land.
2016: “New Zealand was the world’s biggest buyer of Russian and Ukrainian credits which did not represent any reduction in greenhouse gas emissions.”
2023: Treasury reports NZ may have to spend between $3.3 billion and $23.7 billion buying overseas carbon offsets to hit 2030 climate goals.
When will we ever learn?
In a 2016 NZ Herald Article, Isaac Davison wrote
New Zealand is being accused of cheating to fulfil its international climate change obligations. A new report by the Morgan Foundation, released today, says foreign carbon credits which New Zealand bought to reach its climate targets were fraudulent. It says that New Zealand was the world’s biggest buyer of Russian and Ukrainian credits which did not represent any reduction in greenhouse gas emissions. That meant New Zealand, despite achieving its target on paper, had done little in reality to reduce global emissions.
In 2023, the Treasury reports
NZ may have to spend ‘multiple billions’ buying overseas carbon offsets to hit 2030 climate goals. Between $3.3 billion and $23.7 billion it projects.
Forestry experts say that money could be better spent in NZ, making it economically viable for the private sector to plant trees, especially where land-stripping has created flood and slip hazards that prove catastrophic as storms of the century become more frequent. Forest scientist Mark Belton writes a proposal, reproduced with permission, below.
While other forest scientists argue only natives should be planted, but Belton argues the cost is 10-times higher, and it takes centuries not decades.
Exotics or natives, the core message is for NZ to neutralise its emissions, not weaken its economy by purchasing billions of dollars of overseas credits.
Almost all the roots of native trees rot when the tree is cut, as does Radiata Pine. The cut forest must be replanted and the roots do not hold the hill to protect from slips.
In contrast, some exotic species regrow from the stump after cutting. The most successful demonstration of this in NZ is the Redwood forest in Rotorua. The root system remains alive and actively holds the land.
MARK BELTON
TREES ON FARMS FOR LAND PROTECTION
AND PROFIT –
A RESPONSE TO BOLA
AND GABRIELLE
There is an urgent need to reduce risk and make the farming sector more resilient to major cyclones. In this article, Mark Belton suggests that the Government should partner with landowners and finance growing trees to reduce erosion and sequester carbon on high erosion risk land.
Cyclone Gabrielle and at-risk landtypes
The calamitous deluges being delivered across our country have one positive dimension – our most powerful political and economic constituencies, urban and rural, are forced to acknowledge the need for urgent climate action. The concept of ‘trees on farms for land protection and profit’ is not a new theme, but its time has come.
Our land-use sector is the most important for NZ Incorporated’s collective economic well-being and requires urgent climate action to help safeguard its future. In my view, there should be no climate change deniers left. Just a 1.1°C increase in average global temperature is delivering storms of unprecedented intensity and frequency. With much worse to come, greenhouse gas (GHG) loadings are already sufficient to lock in global temperature increases to 1.5°C, and if current levels of emissions continue we are fast-tracking towards a 2.5°C–3.0°C increase.
The land-use sector underpins our country, and we need to work out what it can do to better survive, and better profit, going forward into this future. For a start we need to build greater resilience into our farming sector. In particular, we must build greater resilience across 800,000 ha of steep hill country pasture identified as being at high risk from landslip erosion. Across these ‘at-risk’ landtypes, rates of slip erosion under pastoral farming are amongst the highest in the world. The downstream consequences are catastrophic:
- Soil, rock and tree debris dumped across valuable flatlands, destroying fences, tracks, roads, railways, homes, factories and telecommunications, and sewage and stormwater infrastructure
- Scoured water channels
- In-stream ecosystems destroyed.
Effects of Cyclone Bola
The financial losses and distress caused to those directly impacted are indeed catastrophic. With each destructive storm event there is massive loss of valuable topsoils and the productive capacity of our land collapses further.
In 1988, Cyclone Bola delivered 900 mm of rainfall in 72 hours across the Gisborne-East Cape region. Bola provided irrefutable evidence of levels of landslip erosion on pasture compared to the same landtypes under protective forest cover. Across the region, the frequency of landslips per hectare was 16 times greater under pasture than under radiata forest older than eight years age, or under mature indigenous forest.
Across the Uawa catchment, the storm epicentre, the incidence of landslips was 28 times higher under pasture than under radiata forest older than eight years of age. This was analysed in work done by Mike Marden and colleagues in 1991 on declining soil loss with increasing age of forest post-Bola. The 101 lesson: forest root systems have remarkable erosion prevention capabilities. However, when radiata is clearfelled its roots rapidly die and rot, creating (according to Rebecca Macfie in a 2018 on the pine problem), a ‘window of vulnerability, a six to eight-year period of heightened landslip erosion risk.’ The combination of storms, landslips and harvest slash all too frequently causes devastating debris tsunamis.
The 101 lesson: forest root systems have remarkable erosion prevention capabilities.
Re-afforestation of high-risk areas
It is time to banish radiata clearfell forestry from riparian areas and high erosion risk hill country, which may affect up to 200,000 ha of forest. These areas need to be managed as permanent carbon-conservation forests, not clearfell timber plantations.
In addition to addressing high erosion risk areas, there are extensive areas of rural land that are economically marginal for other reasons, such as low stock-carrying capacity, scrub weed infestation, poor soils, drought and animal pests. Farmers can readily identify these problem areas that contribute little to their net farm income and effectively have very low land value. Problematic low-value land areas could total about 1.5 million ha, or 15% of rural land.
Logic and economics would suggest a change in land use of these marginal high-risk areas to permanent protective tree cover. It makes absolute sense to attack the source of the problem and re-afforest high erosion risk landtypes. Such an approach would reduce debris discharges to 1/16th of what would discharge from pastoral hill country in a Cyclone Gabrielle magnitude storm.
Using the NZETS to advantage
The good news is that afforestation of these problem areas within farms can be extremely profitable to landowners if their carbon sequestration potential is able to be captured, as indeed it can be, in the regulatory framework of the New Zealand Emissions Trading Scheme (NZETS).
High rates of return of around >15% internal rate of return (IRR) for low input cost radiata regimes have resulted in a surge in whole-farm conversions for timber carbon averaging regimes, which under the new regulations include a removal of contingent liabilities for carbon loss at time of harvest.
However, permanent carbon-conservation forests can sequester four times as much carbon by age 50 as short- lived timber forests, and last year the Government decided to exclude exotic forests as permanent forests. Following strenuous objections from industry, the Government has agreed to continue to include exotic forests within the permanent forest category.
A big dilemma for the Government is that hiking NZETS carbon prices to pressure emitters to transition to low carbon options inevitably causes land price escalation and whole-farm conversions to pine monocultures. It also unleashes fury and political backlash.
A practical solution is to decouple the NZETS price for forest carbon credits from the NZETS price faced by emitters. Sound like an almighty mess? Yes, in my view the NZETS is a mess – a playing field for speculators while failing to deliver the economic behaviour change required to achieve a net zero economy.
Despite the current NZETS problems, forest carbon sequestration has a critical part to play in the transition to a net zero economy by offsetting intractable emissions and, more importantly, for the primary function of CO2 removals.
Satellite image of Cyclone Bola near peak intensity
New Zealand’s responsibility
New Zealand may well step up to our share of responsibility in the global efforts to achieve net zero by 2050. However, I believe that NZ Incorporated’s efforts to date have been to duck and dive and shirk responsibility. For example, we met our Kyoto Protocol emission targets in large part thanks to dubious foreign carbon credits, primarily from Russia and the Ukraine. The Government is now planning to increase our Nationally Determined Contribution (NDC) under the United Nations Framework Convention on Climate Change (UNFCCC) from a 30% to 50% reduction in net emissions by 2030 by purchasing dubious overseas forest offsets, costing billions, which do precisely nothing for reducing global CO2.
How do we determine our level of responsibility? According to UNFCCC GHG metrics, our annual per capita GHG emissions at 17 tonnes CO2 equivalent is the fifth highest in the developed world, and half of it comes from our livestock emissions.
Our historic emissions are immense as well. The first peoples to colonise New Zealand burnt about a third of the forest cover, mostly located in the drier eastern areas. More recently, and more relevant now, post-1850 colonisation saw the clearance of half of the remaining native forest for farming (this time mainly across wetter hill country areas), and extensive wetland areas were also drained. Together these land-use change emissions may have released 10 billion tonnes of CO2. Our agriculture sector’s development has therefore left a legacy of perhaps several billion tonnes of CO2 in our atmosphere, a consequence of it being the longest-lived GHG.
The 101 lesson: forest root systems have remarkable erosion prevention capabilities.
Reductions, removals and adaptation
Effective climate action comes in three forms – reductions, removals and adaptation.
Reductions
Reductions of emissions is fundamental, and all credit to our Climate Change Commission for bringing this to the fore. We cannot offset our way out of this. Significant progress on reducing livestock emissions is proving elusive, but there are many positive possibilities which once delivered will help significantly.
There will always be intractable residual emissions to address, so offsetting will have a key role in transitioning to a low emissions future. Another consideration is access to premium primary sector export markets that increasingly require the delivery of net zero produce.
Removals
For the good of our global climate the bigger challenge remains removals. The world must not only achieve net zero, but the overshoot of GHG levels (especially long-lived CO2) must be dealt to as well. Carbon Capture and Storage (CCS) technologies remain the great hope, but despite decades of effort no CCS capabilities of consequence have been delivered, and the projected costs of CCS systems are extremely high.
By contrast, the removals opportunity through re- establishing forests is huge and cost-effective. New Zealand has an exceptional opportunity to establish carbon- conservation forests that can also deliver wealth and environmental resilience for the benefit of our farming sector. Landowners are in the box seat to capture this opportunity. To achieve its full potential, landowners and the Government will need to work together. The support of land-use sector leaders, consultants and advisors will also be essential. The situation requires a NZ Incorporated private-public partnership programme (discussed later).
Adaptation
Adaptation is about flood control and managed retreat. It is also about reducing debris discharges at their source and shifting to more resilient land uses such as protection forest.
Adaptation is about flood control and managed retreat. It is also about reducing debris discharges at their source.
Economics of forest carbon markets
The economics of forest carbon markets are speculative and spectacular and there is nothing comparable in the agriculture sector. Buying a livestock farm, one may hope for returns on invested capital to be in the order of a few percent. High returns from core farming businesses are rare. For many livestock farmers, servicing debt is the biggest challenge.
Carbon income from trees can radically change this situation. If we take a real-life example, one of our farmer clients purchased a 1,300 ha hill country farm a decade ago, 500 ha of which had been planted in radiata pine and Douglas fir around 2003. Cashflow from the sale of New Zealand units (NZUs) became the farm’s major source of income, enabling debt retirement, investment in the farming operation and the purchase of a nearby farm.
The forest area was recently sold to a carbon farming investor for about $40,000/ha, enabling them to purchase another farm, thus providing for the next generation.
The unimproved hill country where the forest is located previously supported about 3-4 stock units/ha and had net earnings of around $200/ha/p.a. Under carbon forest, it now generates above $2,000/ha/p.a.
Note that Table 1 is illustrative only, and intentionally conservative, with an average radiata sequestration model, a $60/NZU flat carbon price, an 8% discount rate, and very high costs for forest establishment (Yr 1 & 2 $,6000/ha).
The Table 1 ‘sweet spot’ for farmers might be the scenario with marginal land valued at $4,000/ha, which together with establishment costs at $6,000/ha allows for high fencing costs and the establishment of forest on difficult land with a range of species with superior soil conservation erosion prevention capabilities. These high establishment costs provide for an environmental best practice approach, which might well include a proportion of indigenous and amenity species plantings.
Table 1 also illustrates that high returns and a low cost per NZU carbon unit only occur with low-value marginal land. At high land costs, IRRs are low, net present value (NPV) of the project becomes negative, and sequestration has an exorbitant cost ($/NZU-NPV).
Growing permanent forests for carbon sequesters about four times as much carbon per hectare by 50 years as occurs under an averaging timber forest regime. Projected investment returns may be >15% IRR, or even higher. However, a word of caution – current permanent forest contingent liability for carbon loss still applies at a project level.
In my view, another caution is that carbon pricing under the NZETS is entirely an artifice of government regulatory settings, with all the hallmarks of political risk. Despite these risks, with confidence in rising carbon prices speculation on land acquisition for carbon forests is hot, and land prices and sales of farmland for carbon forestry will escalate accordingly. The threatened demise of farming, burgeoning sales to foreign buyers and expansion of radiata monocultures also present a big political risk.
The question becomes how does the Government change forestry regulatory settings in order to afforest marginal lands and maximise carbon capture for the benefit of NZ Incorporated? The challenges include:
- Enabling carbon prices to increase without escalating land prices
- Slowing conversions of farms to radiata monocultures
- Protecting high-quality landtypes for farming purposes
- Building more resilience into our rural lands
- Conserving soil and water
- Reducing flood risk
- Increasing forest species diversity
- Recovering more native forest.
We need to achieve these outcomes as cost- effectively as possible, and with broad electoral support, which is a big wish list.
The opportunity – a box of solutions
What is proposed is a public-private partnership programme between farmers and government focused on the afforestation of 1.5 million ha of marginal landtypes located within existing farms. The forests would primarily be permanent carbon-conservation forests, comprising a range of tree species (not just pine) – species that have rapid sequestration and maximum carbon storage capabilities.
The conservation dimension of the carbon-conservation forests would be stabilising erosion-prone land, reducing flooding, conserving topsoils, and protecting riparian habitat and water quality.
The optimal forest types for this purpose would comprise tree species that can rapidly develop permanent interlocking root systems and have strong root-grafting and coppicing capabilities. High-sequestration species include eucalypts, redwood, Douglas fir, radiata, hybrid pine and poplar. Radiata pine, and other Pinus species, do not have root-grafting and coppicing capabilities. Nor do most native tree species.
The carbon sequestration dimension also requires fast-growing and high-sequestration capable tree species. Re-afforestation of 1.5 million ha of environmentally problematic land could remove and store 2 billion tonnes of CO2 emissions in 50 years. The New Zealand land-use sector is in the box seat to capture the extremely high monetary/ economic value from the environmentally essential task of CO2 removal and capture. The monetary value opportunity for the land-use sector requires that it captains and steers the ship, not ‘sell up and run’, and hand over to speculators and non-farming investor players.
The positives are more than just monetary as there are multiple co-benefit opportunities to be realised, the most important being to recover resilience and reduce risk across the weft and weave of New Zealand’s productive lands. In a word it is about sustainability.
The 1.5 million ha can be accommodated without the use of any highly productive farmland whatsoever, with afforestation being restricted to environmentally problematic low land-use capability LUC classes. Establishment of the 1.5 million ha of forest could require around $15 billion invested, to cover a landowner land expectation value (LEV) up to $4,000/ha and forest development costs up to $,6000/ha.
Ideally the Government would be the key investor partner with landowners, de-risking by purchasing all sequestered carbon at a set price. This would provide surety and a very high return for participating landowners, and full capture of NZUs into our government carbon account at a very low cost of carbon.
The solution proposed in this article is actually a ‘box of solutions’ designed to resolve multiple challenges in the sphere of effective carbon action and environmental resilience. Delivery could be through the NZ Forest Service – Te Uru Rakau, but other government agencies would have critical roles in order to integrate and maximise co-benefit opportunities.
Key benefits
Climate adaptation/mitigation benefits
- Build environmental resilience across high erosion risk land, to achieve up to a 16 x reduction in landslip risk
- Reduced incidence and cost of catastrophic flooding/ debris discharge, destructive of downstream land, roading, buildings and infrastructure
Environmental co-benefits
- Government and landowner control enables property- level planning for best practice carbon-conservation forestry outcomes
- Programme enables funding of best practice environmental farm plans, including Clean Rivers farm programme riparian protection
Political benefits
- 2.25 billion forest sequestration units into the Government’s accounts, at very low cost (around $30/ NZU) in 50 years, and 1.5 billion units into these accounts by 2050
- Huge cashflow and NPV value to farmers/landowners
- 1.5 million ha is marginal landtypes (LUC 6e15, 7e, 8e etc) so the proposed programme creates value for these problem land areas within farms
- Decouples forest carbon unit pricing from NZETS emitters carbon pricing, allowing emitters to face higher prices
- Stops whole-farm conversions to radiata monocultures
- A political positive – government partnership with landowners for the benefit of NZ Incorporated delivering effective climate action
- Enables New Zealand to achieve net zero by 2050, and its UNFCCC NDC targets through domestic actions, and avoids buying dubious overseas forestry units.
Conclusion
NZ Incorporated must make its land-based primary industries more resilient in the face of climate change and more extreme storm events by establishing permanent protection forests across at-risk landtypes. These forests have the potential to sequester vast amounts of carbon and create considerable wealth for the land-use sector. It also enables New Zealand to achieve net zero emissions, and to punch above our weight in the fight to combat global heating.
Acknowledgements
The author wishes to acknowledge the assistance of Mike Marden, Ollie Belton and Mathilde Batelier.
Mark Belton is Director Permanent Forests NZ Ltd (PFNZ) & Emerging Forests Ltd: Email: mbelton@emergingforests.com