Carbon farming. Trying to get my head around this. Help would be great.

[KiwiBro]

Here's what I think I understand and a few questions I have about it. Hopefully someone can correct my misunderstandings and fill in some blanks.

Here in NZ, the NZ units (NZUs) under our govt's ETS scheme are currently working out such that there's about a 12 yr payback period on the costs of establishing a plantation. I can see while people/partnerships/pensions funds, etc are piling in but have some concerns how this will play out in the long run.

NZU pricing, like nearly all carbon credits is volatile and we are talking about a 25-30 year harvesting cycle. There are risks. To plantation owners and also govts underwriting the ETS (and thus taxpayers as the underwriters of last resort). A plantation owner has to find the best time to sell their NZUs to maximise their revenue but are also under pressure to recover their establishment costs (before the ETS rug is pulled out from under them - stranger things have happened). They then have to find the right time to harvest, within their optimum harvesting window to not only maximise harvest yields (which, lamentably, for many NZ plantations, will have forex hedging and costs or forex speculation risks) and at the same time hoping like hell they can buy enough NZUs at a decent rate to cover their NZU liabilities incurred selling their NZUs in the preceding 30 or so years. And if they don't replant, they'll also need to cover the costs of the 200t/Ha of carbon lost as the stumps and roots rot that isn't being captured by new plantings.

What's stopping companies with what could be significant ETS liabilities at harvest/maturity taking their harvesting money and folding, leaving the govt and taxpayers with significant liabilities?
What happens if the ETS mirage evaporates, leaving Fonterra, NZ's huge export $ earner and large global dairy trader with millions of dollars sunk into buying credits while at the same time having to deal with the double-edged carbon credit sword which restricts it's ability to grow productivity as farmers turn to forestry for more than just their marginal land?

It strikes me that the NZ govt is gambling, using future taxpayers money to underwrite it, and retarding the growth of one of if not the most, important export earners NZ has ever had or likely to have (Fonterra), by assuming the ETS will survive, will be successful, and that forestry companies won't take their money and leave the govt holding the ETS baby.

Can anyone shed some light on this please? thanks.

 

[StihlKiwi]

Here's what I think I understand and a few questions I have about it. Hopefully someone can correct my misunderstandings and fill in some blanks.

Here in NZ, the NZ units (NZUs) under our govt's ETS scheme are currently working out such that there's about a 12 yr payback period on the costs of establishing a plantation. I can see while people/partnerships/pensions funds, etc are piling in but have some concerns how this will play out in the long run.

NZU pricing, like nearly all carbon credits is volatile and we are talking about a 25-30 year harvesting cycle. There are risks. To plantation owners and also govts underwriting the ETS (and thus taxpayers as the underwriters of last resort). A plantation owner has to find the best time to sell their NZUs to maximise their revenue but are also under pressure to recover their establishment costs (before the ETS rug is pulled out from under them - stranger things have happened). They then have to find the right time to harvest, within their optimum harvesting window to not only maximise harvest yields (which, lamentably, for many NZ plantations, will have forex hedging and costs or forex speculation risks) and at the same time hoping like hell they can buy enough NZUs at a decent rate to cover their NZU liabilities incurred selling their NZUs in the preceding 30 or so years. And if they don't replant, they'll also need to cover the costs of the 200t/Ha of carbon lost as the stumps and roots rot that isn't being captured by new plantings.

What's stopping companies with what could be significant ETS liabilities at harvest/maturity taking their harvesting money and folding, leaving the govt and taxpayers with significant liabilities?
What happens if the ETS mirage evaporates, leaving Fonterra, NZ's huge export $ earner and large global dairy trader with millions of dollars sunk into buying credits while at the same time having to deal with the double-edged carbon credit sword which restricts it's ability to grow productivity as farmers turn to forestry for more than just their marginal land?

It strikes me that the NZ govt is gambling, using future taxpayers money to underwrite it, and retarding the growth of one of if not the most, important export earners NZ has ever had or likely to have (Fonterra), by assuming the ETS will survive, will be successful, and that forestry companies won't take their money and leave the govt holding the ETS baby.

Can anyone shed some light on this please? thanks.

Bit longer than 12 year payback period with carbon prices they way they are currently. I read somewhere early in the year that there has never been a tradeable commodity that has decreased in value so much over such a short time period.

Implementing the ETS was the Govt's way of working towards its Kyoto obligations. Not sure if it was the right step to take or not, but it seems to be in a bit of a limbo now doesn't it

 

[KiwiBro]

Bit longer than 12 year payback period with carbon prices they way they are currently. I read somewhere early in the year that there has never been a tradeable commodity that has decreased in value so much over such a short time period.

Implementing the ETS was the Govt's way of working towards its Kyoto obligations. Not sure if it was the right step to take or not, but it seems to be in a bit of a limbo now doesn't it

The global financial meltdown sure has dropped the price of NZUs but what interests me about that is there are still people piling into forestry and farm land being converted to plantations. The investors perhaps have deep enough pockets to ride out some volatility or ar, again, gambling upon a serious recovery in NZU pricing, or have they already factored into their calculations the fact they are cutting and running, leaving ultimately the taxpayer with their ETS bill?

Furthermore, NZ is a pretty open country when it comes to international trade. What if NZUs are being undercut internationally by other nations? Will forestry owners ever be able to sell their NZUs if local and international buyers can buy them cheaper elsewhere? Or will the govt need to distort the free market by insisting upon a NZU floor price and local emitters having to buy locally, undermining the international competitiveness of the likes of Fonterra?

 

[StihlKiwi]

The global financial meltdown sure has dropped the price of NZUs but what interests me about that is there are still people piling into forestry and farm land being converted to plantations. The investors perhaps have deep enough pockets to ride out some volatility or ar, again, gambling upon a serious recovery in NZU pricing, or have they already factored into their calculations the fact they are cutting and running, leaving ultimately the taxpayer with their ETS bill?

I think its a combination of all these factors. People have been planting woodlots etc for a long time, and it might just be that its becoming more common and on a larger scales as more people are interested because of the potential profits and the whole environmental thing.

Furthermore, NZ is a pretty open country when it comes to international trade. What if NZUs are being undercut internationally by other nations? Will forestry owners ever be able to sell their NZUs if local and international buyers can buy them cheaper elsewhere? Or will the govt need to distort the free market by insisting upon a NZU floor price and local emitters having to buy locally, undermining the international competitiveness of the likes of Fonterra?

That was one of the key drivers in the huge price decreases. EU countries in serious debt were offloading CER credits (dodgy ones) and flooded the market, driving down the market price of NZU's. The Govt has/is taking action to prevent CER's being used here, to encourage demand for NZU's and other types of credits. I have no idea if the plan is working, or even implemented yet though.
And I think Fonterra may have one or two bigger things to worry about than their carbon footprint, there is a large agricultural lobby group in the US demanding the disestablishment as a cooperative if they are to expand into the US market

 

[forestryworks]

Isn't carbon farming the same as buying a bunch of hot air?

 

[StihlKiwi]

Isn't carbon farming the same as buying a bunch of hot air?

Almost, except the hot air has been inhaled by a tree

 

[KiwiBro]

I think its a combination of all these factors. People have been planting woodlots etc for a long time, and it might just be that its becoming more common and on a larger scales as more people are interested because of the potential profits and the whole environmental thing.



That was one of the key drivers in the huge price decreases. EU countries in serious debt were offloading CER credits (dodgy ones) and flooded the market, driving down the market price of NZU's. The Govt has/is taking action to prevent CER's being used here, to encourage demand for NZU's and other types of credits. I have no idea if the plan is working, or even implemented yet though.
And I think Fonterra may have one or two bigger things to worry about than their carbon footprint, there is a large agricultural lobby group in the US demanding the disestablishment as a cooperative if they are to expand into the US market

And how much are those US lobby group participants paying for their ETS commitments compared to Fonterra?

 

[forestryworks]

Almost, except the hot air has been inhaled by a tree

Only the carbon part of hot air. Until the tree burns...

 

[StihlKiwi]

And how much are those US lobby group participants paying for their ETS commitments compared to Fonterra?

I know nothing about the carbon trading in the US. Not even sure if they have an emissions trading scheme, lucky them if they don't I guess

 

[KiwiBro]

I know nothing about the carbon trading in the US. Not even sure if they have an emissions trading scheme, lucky them if they don't I guess

So, while the NZ govt's ETS distortions and gamble creates a potentially serious liability (from the very little I can understand about it, which may not be enough of an understanding) for future NZ taxpayers that aids some sectors like forestry while hitting other important sectors, other countries with whom the likes of Fonterra trade or would like to, have domestic incumbents that may not have the same, or any, ETS compliance costs?

It just strikes me as one heck of a gamble and I'd really like to learn more about it to see where the buck stops rather than just say 'hooray lets go plant and cut trees', and not see the bigger picture, if there is one.

 

[StihlKiwi]

So, while the NZ govt's ETS distortions and gamble creates a potentially serious liability (from the very little I can understand about it, which may not be enough of an understanding) for future NZ taxpayers that aids some sectors like forestry while hitting other important sectors, other countries with whom the likes of Fonterra trade or would like to, have domestic incumbents that may not have the same, or any, ETS compliance costs?

It just strikes me as one heck of a gamble and I'd really like to learn more about it to see where the buck stops rather than just say 'hooray lets go plant and cut trees', and not see the bigger picture, if there is one.

The NZ ETS is a domestic scheme that has been developed/created/dreamed up by the government to help NZ meet its obligations under the Kyoto Protocols. There was a review of the scheme last year, by the ministry for the environment (MFE) I think. If you wan to learn more about it get a copy of that, or A Guide to Forestry in the ETS, which is more specific and can be found on the MAF website.

 

[KiwiBro]

What happens if the trees are not harvested beyond their maturity date but are abandoned? Not likely, I know, but is there a point where the NZUs captured will be considered repayable, even if the trees are left alone? I'm just wondering if there will ever come a time when the credits are worth more than the harvesting yields so plantations are just left standing. It's at the extreme end of things but asking and getting answers to such a question might help me understand the ETS a little better.

 

[KiwiBro]

The NZ ETS is a domestic scheme that has been developed/created/dreamed up by the government to help NZ meet its obligations under the Kyoto Protocols. There was a review of the scheme last year, by the ministry for the environment (MFE) I think. If you wan to learn more about it get a copy of that, or A Guide to Forestry in the ETS, which is more specific and can be found on the MAF website.

Thanks.

*edit* the MAF website has a brief explanation of the NZ ETS and how it relates to forestry:
http://www.mpi.govt.nz/forestry/forestry-in-the-ets.aspx

and the more detailed publication referred to above is available here:
http://www.mpi.govt.nz/news-resourc...e to Forestry in the Emissions Trading Scheme

 

[lmbrman]

I know nothing about the carbon trading in the US. Not even sure if they have an emissions trading scheme, lucky them if they don't I guess

Power companies are buying carbon credits here in the US from tree farmers. don't know much more than that

 

[StihlKiwi]

What happens if the trees are not harvested beyond their maturity date but are abandoned? Not likely, I know, but is there a point where the NZUs captured will be considered repayable, even if the trees are left alone? I'm just wondering if there will ever come a time when the credits are worth more than the harvesting yields so plantations are just left standing. It's at the extreme end of things but asking and getting answers to such a question might help me understand the ETS a little better.

I guess they become like a permanent carbon sink, the trees will still sequester carbon throughout their entire lifespan and as the crop dies out it will be replaced by regen and native, which will also sequester carbon.
The concept of the forest being worth more standing is interesting isnt it. Could potentially lead to a decline in jobs in the harvesting sector, but I think the demand for timber will help keep this threat to a minimum. The potential for the amount of silvicultural work around to decrease as a result of carbon is much more significant though; unpruned, unthinned stands sequester more carbon.

 

[KiwiBro]

I guess they become like a permanent carbon sink, the trees will still sequester carbon throughout their entire lifespan and as the crop dies out it will be replaced by regen and native, which will also sequester carbon.
The concept of the forest being worth more standing is interesting isnt it. Could potentially lead to a decline in jobs in the harvesting sector, but I think the demand for timber will help keep this threat to a minimum. The potential for the amount of silvicultural work around to decrease as a result of carbon is much more significant though; unpruned, unthinned stands sequester more carbon.

Yes. Interesting indeed. Which brings us full circle to the opening two words of this thread: Carbon farming. Unpruned, low establishment costs, unthinned and with carbon sequestration rates as important or potentially more so than wood properties? Could we see other species planted as a result of this carbon distortion, grown for carbon principally, pulp as a by product?

 

[StihlKiwi]

Yes. Interesting indeed. Which brings us full circle to the opening two words of this thread: Carbon farming. Unpruned, low establishment costs, unthinned and with carbon sequestration rates as important or potentially more so than wood properties? Could we see other species planted as a result of this carbon distortion, grown for carbon principally, pulp as a by product?

I'm not sure but i think the Permanent Forest Sink Initiative ( an incentice scheme in the ETS) differentiates between different species or groups of species by their carbon sequestration rates

The 'wilding' forests of lodgepole pine and douglas-fir surrounding queenstown are a perfect example of the part in bold above

 

[imagineero]

My guess is that the only people who will do well out of these schemes are the consultants and lawyers. Consultants doing all the studies before, during and after, giving advice to the government, explaining the details to potential farmers etc and lawyers chasing up the rear will suck up more money than is made by anybody. If you haven't got a law degree then buy yourself a suit, get a nice haircut and become a consultant.

Shaun

 

[madhatte]

Isn't carbon farming the same as buying a bunch of hot air?

I see it as a corporate version of the medieval Catholic Church selling "indulgences". This way a company can claim to be "green" while doing whatever the hell they want to.

 

[Gologit]

I see it as a corporate version of the medieval Catholic Church selling "indulgences". This way a company can claim to be "green" while doing whatever the hell they want to.

Exactly.