Carbon sector industry players are hoping the latest government announcements on the Emissions Trading Scheme will deliver higher values, prompting greater stability and investment in the sector.
As this year’s carbon forestry conference kicked off in Rotorua, Climate Change Minister Simon Watts announced a shift in ETS settings that will have the number of carbon units available between 2025 and 2029 reduced by over half from 45 million to 21 million NZ Units.
The minister pointed to a carbon credit oversupply that has gutted carbon prices, from a high of $88 in late 2022 to plummet to $45 by July 2023.
Meantime successive carbon auctions have failed to clear the credits on offer, with the most recent auction, in June, failing to draw any bids. This left 4 million units unsold including 550,000 from the previous auction in March.
Latest carbon prices are at $54, already registering a small lift after the minister’s announcement.
Earlier this year the Climate Change Commission recommended the number of units be halved, citing the scheme as being in disarray. The numbers minister Watts intends to reduce the credits by lies roughly in line with the commission’s recommendations.
Scott Pollard, head of business development for New Zealand’s largest carbon forestry company, NZ Carbon Farming Group, told delegates the sector’s challenge has been to have a stable environment for long-term decision-making about forestry plantings.
“The short-term uncertainty has undermined confidence in this sector and for industries seeking nature-based solutions with evidence-based outcomes.”
His company has paid $134 million in leases to farmers and landowners seeking its expertise and management to plant transition forests on all or part of their land, with 75,000 hectares of managed estate and 35,000ha in the ETS.
“Two years ago we expected carbon prices would be over $100 a unit by now,” Pollard said.
The resulting low prices have been painful and required some diversification including establishing an Australian division and working with companies seeking high-quality carbon forests outside of the ETS.
The sawtooth pattern of NZ’s ETS values over the past two years reflected assorted interventions by the government, usually coinciding with the downturns.
“We now seem to be in an environment where the government is committed to the ETS being the workhorse for carbon.”
He pointed to a limited appetite for spending billions of taxpayer dollars to purchase offshore carbon credits when investment in NZ through carbon forestry is a viable solution to meet climate goals.
There are also strong international drivers that mean opportunities remain, including pressure from commercial partners and international demand for high-integrity, nature-based solutions.
With greater downward pressure on sheep and beef returns, the company is also seeing renewed interest from farmers in how they can convert some of their farm to carbon plantings on poorer land.
In the past five years the company has planted 30,000ha of greenfields land into forestry at a scale that will play a part in its transition forestry process, ultimately becoming native-dominated permanent forestry.
Initial high-density exotic plantings help generate carbon income early on in the forest project’s life, an invaluable cashflow source to help fund the future work of thinning and transitioning to natives, including pest control.
Intensive pest control of goats, deer and possums has meant thousands of head culled in recent years, and the company bought a 50% share in NZ AutoTraps.
As exotics are thinned, the size of remaining trees increases and the company can point to data over 100 years that proves exotics do not fall over once they are older than 30-plus years.
Company chief forestry advisor Bryan McKinlay said they have had more farmers from northern Hawke’s Bay approaching them, wanting another use for land ravaged by Cyclone Gabrielle and no longer farmable.
“We need confidence and stability in the ETS. More confidence means we then have the ability to accelerate transition forestry, we know it is possible and that it can be done at scale.”
