Submission on the proposed industrial allocations review in New Zealand's emissions trading scheme, 2021

Profile: Euan Mason is a Professor at the New Zealand School of Forestry, University of Canterbury, where he teaches silviculture, statistics, modelling, and research methodology.  His research interests include forest growth and yield modelling, tree physiology, and silviculture.  He has published numerous peer-reviewed articles and a chapter in a textbook relating to climate change and forestry, and has been employed by government ministries and political parties to advise them on climate change issues from time to time.  He is a New Zealand citizen, born in Invercargill.  He was educated at universities in New Zealand and the United States of America.

Overview

Industrial allocations (IAs) to prevent “leakage” are problematic. Not only do they undermine incentives to prevent pollution in Aotearoa, but they open the door to gaming our emissions trading scheme (ETS). They also rely on an argument that is barely better than the “we are too small to matter” argument.

Undermining incentives

When we allocate an IA to a greenhouse gas emitter, we are allowing pollution to occur in Aotearoa for fear that it might otherwise occur somewhere else. This runs counter to our stated goal of preventing greenhouse pollution in Aotearoa. Employing IAs means we are much less likely to meet our climate change targets, partly because a greenhouse gas polluter is allowed to add to our emissions, but also because the entire ETS is seen to be unfair and arbitrary. IAs make a mockery of the process. We can all clearly see that if we are economically important enough or can afford to make a “convincing” case to government officials then we do not have to contribute to the process. Other participants will believe that they are carrying an unfair burden in the ETS, and they will be right in that belief. The heaviest burden will fall on smaller enterprises who cannot afford to devote time to making a special case to the crown. This undermines the whole scheme.

Gaming

The most blatant example of gaming with IAs occurred when enterprises received NZUs as IAs and then purchased cheap, fraudulent credits to submit for their “allowed” pollution instead of the allocated NZUs. The difference in price between NZUs and imported credits meant that they were essentially paid millions of dollars for being polluters. While the crown may argue that imported credits are no longer acceptable in the ETS, the real lesson from this incident is that any arbitrary complication in our ETS rules opens the door for gaming that undermines the process. IAs are an unnecessary, arbitrary complication.

The argument

The “we’re too small to matter” argument says that greenhouse gas polluters should be allowed to pollute in Aotearoa because Aotearoa contributes such a tiny proportion of global GHG pollution that our stopping pollution will not solve the problem. It is a facile argument, because any group of 5 million people anywhere in the world could make the same claim, and then the climate change problem would remain unsolved. We all need to contribute.

The argument for IAs is similar. It says that we cannot stop emissions-intensive and trade-exposed industries (EITEs) from emitting greenhouse gasses for fear that they might emit somewhere else. This is a facile argument. If all countries adopt this rationale then all emissions-intensive and trade-exposed industries would be allowed to pollute everywhere, and the problem would not be solved. We all need to contribute, and we need to trust that other countries will limit pollution from EITEs along with us. If they do not, then their greenhouse gas accounts will suffer and they will deserve the criticism and ultimately sanctions that the rest of the world will inflict on them.

Some EITEs argue that if they operated elsewhere then they would pollute more in those other places, or that if they ceased operating here then this might enable dirtier operators to continue polluting elsewhere. They may support this argument with a study of greenhouse gas pollution from their operations in Aotearoa compared to those from operations overseas. However, overseas studies do not always agree with their assessments. Moreover, effectively excluding them from the ETS by using IAs provides absolutely no incentive for them to become less emissions-intensive. Furthermore, this argument is based on an assumption that other countries will not provide incentives for these industries to reduce emissions, when in fact they are very likely to do so.  Do we really wish to become a haven for emissions-intensive industries?

Recommendation

The crown should immediately cease all IAs to EITEs, and instead work towards ensuring equity for, and commitment from ETS participants. This will do far more to enable Aotearoa to meet its climate change commitments than any tinkering with a problematic, unfair, and ultimately counterproductive ETS complication.

Where to for Aotearoa’s forests? Indigenous and plantation forests will help us get to net zero and reverse climate change

Euan Mason & Tim Enright

This is an extended version of an article published by Newsroom.

In the face of undeniable, dangerous climate change we all need to take responsibility, change what we do, and play our part. Change may be hard but we are on track for 3 degrees or more of global heating this century and this must be stopped. Our nation of 5 million lives in a 27 million hectare subtropical paradise with fantastic potential for forestry - Aotearoa, land of the long white cloud. By expanding indigenous and plantation forests we can get to net zero emissions, absorbing & storing (sequestering) more greenhouse gases (GHGs) than we emit. We have committed ourselves to net (allowing for forest absorption of carbon dioxide) GHG neutrality by 2050, and we now have to figure out how to get there.

Forests provide oxygen, carbon sequestration, enhanced & improved biodiversity, economic returns, employment, taxes, well-being & support of rural communities, wood, paper, erosion control, habitat, recreation, naturally durable woods to replace treated pine, heritage and cultural values. This article focuses on carbon sequestration and we acknowledge it must be part of a wider discussion and plan for Aotearoa, with government policy and financial support, to maximise these benefits.

Aotearoa’s international commitments have changed through the years, from Kyoto targets to our latest commitments which guarantee to reduce carbon dioxide emissions to net zero by 2050, but not methane or nitrous oxide. International evaluations of our climate change mitigation efforts label them as insufficient, and report that if everyone behaved as we plan to then the Earth’s temperature would rise more than 3 degrees. The figure below shows that both our net and gross emissions continue to rise (LULUCF is sequestration by forests). It is clear that we need to get all GHGs to net-neutrality by 2050, not just carbon dioxide, and all sectors need to contribute.

Climate Action Tracker currently rates New Zealand's climate mitigation targets as "Insufficient":

 

The chart above shows that our future (blue) path is into Climate Action Tracker's "red zone" by 2050, and if all nations behaved as we plan to do then global temperature would increase by more than 3 degrees C this century. The red arrow shows what we need to do to play our part and keep temperature rise within 2 degrees; get all net GHG emissions down to zero by 2050.

In 2016 our government and opposition jointly commissioned the “Globe” study, by Vivid Economics, to explore how to get to absolute GHG neutrality. After consulting all sectors of our society the authors reported that we might reduce total GHG emissions (approximately 80 million tonnes of CO₂ equivalent annually) to zero by about 2085, but that also planting new forests would get us to net neutrality by 2050.

Euan’s colleague, Dr David Evison, produced a helpful graph with annual emissions on the y-axis, showing us what this means:

The green line shows what the Globe authors estimated we can achieve in Aotearoa if we seek to reduce gross emissions to zero, while the red line shows the path to net GHG neutrality by 2050.  Students of geometry will notice that the blue triangle has the same area as the triangle formed between the red and green lines, a triangle we can fill with carbon (C) sequestered by forests.

We need new forests because although converting low vegetation to forest stores extra C in the landscape, forests do not increase their C forever; forestry can buy us time while we figure out how to live without emitting GHGs, but it is not a long-term solution to climate change.

How many hectares of new forest we need, and costs of conversion & forest management, depend on what species we establish, where we establish them, and how we manage them. These are vitally important decisions.

Our Climate Change Commission recently released a report suggesting how we might begin reducing our gross emissions, but also that we should embark on a 17-year programme to plant areas of both exotic and native forests. Euan modelled estimates of annual C sequestration of those new forests assuming they would be planted on erosion-prone land, mostly in the North Island, and compared them to sequestration required over the next 60 years to keep us at net GHG neutrality after 2050 (assuming that we continue to reduce our gross GHG emissions to zero by the early 2080s):

The blue line shows the gap to be filled, according to Vivid Economics. The light blue line shows pine sequestration if it is unharvested and eventually converted to native forest (Dr Adam Forbes, an ecologist, demonstrated that we can plant rapidly-growing pine that is intolerant of shade and transition it to slower-growing but shade-tolerant native species). Orange shows sequestration or emission from pruned and harvested pine. Green shows domestic carbon credits (NZUs) earned by pine forest owners under our Emissions Trading Scheme if long-term storage from growth and harvesting cycles is averaged. Purple shows sequestration by native forest using the Ministry of Primary Industry’s (MPI’s) “lookup” table of native forest C storage versus time after planting.

MPI’s native forest lookup table is based on a few temporary forest plots where people measured stems and estimated C storage, while estimates of C storage in pine come from thousands of repeatedly measured plots where changes in stem dimensions have been used to create models that can be used to estimate C storage.We need more research into C sequestration in our native forests.

Several things are clear from the graph:

1.       None of the proposed forest plantings will get us to GHG neutrality by 2050;

2.       “Averaged” NZU entitlements don’t properly represent medium-term impacts of periodically harvested forest on the atmosphere; and

3.       Establishing just under 300,000 ha of native forest will do very little to get us the GHG neutrality by 2050.

Several forestry options would fill the gap in our national accounts. We are likely to choose a mixture of options, but examining them in isolation helps us gauge their efficacy.

Option 1. Plant native forest

                                                                      Image credit: Euan Mason

We could completely fill the gap with sequestration from planted native forest. Using MPI’s tables of annual C sequestration in native forest, we need 160,000 ha of new native forest each year for the next 25 years, for a total of 4 M ha of new native forest. Our native forest estate would expand from 6.5 M ha to 10.5 M ha, covering almost 39% of Aotearoa. However, we’ve only rarely approached 100,000 ha/year of new plantation forest in the past. We would need to expand our nursery facilities and conduct intensive research to improve the efficiency and scale of our seed collection, storage, nursery practice and forest establishment for a variety of species.  A conservative estimate of the cost after that research is $20 billion spread over 25 years. We have approximately 1.3 M ha of erosion prone land where it makes sense to farm carbon, and so we might also displace 2.7 million ha of hill country farmland for the new native forest.

This forest would not necessarily look like the image above, but could in many cases be restored, diverse native forest in threatened habitats where original forest types have been eradicated.

Option 2. Unharvested exotic forest ultimately converted to native forest

                                                                        Image credit: Jeff Tombleson

If we established rapidly growing exotic species (such as the large trees in the image above) to fill the gap in our accounts then we could use Dr Forbes’ research findings to eventually convert them to slower growing native forest. This conversion might take many decades, but he explored options for accelerating the process. In the absence of local, native seed sources we’d need one hectare of native planting for every ten hectares of exotic forest.

Simulations suggest that we might need as little as 700,000 ha of such forest to fill the gap in our accounts, with 32,000 ha planted/year over 22 years. This could be on erosion-prone land and is feasible with little additional research. It would cost about $1.7 billion spread over 22 years. With appropriate policy it could earn valuable NZUs on erosion-prone portions of farms while farming continued to maintain rural communities.

Option 3. Mostly harvested exotic forest

 

                                                                        Image credit: Euan Mason

Dr Evison and Euan collaborated to devise a planting programme that would fill the gap in our C accounts while allowing harvests of pine. The way to avoid periodic deficits in C accounts after harvesting is to spread the planting over the average period of a commercial crop rotation (about 27-29 years).  Gradually increasing planting from 20,000 to 90,000 ha/year over 29 years on a total of 1.6 M ha of land, with 75% of the area pruned, periodically harvested and replanted, and 25% transitioned to native forest and never harvested, would cost about $3.2 billion over 29 years. However large financial returns from NZUs and harvesting would make this the most financially valuable option so far considered. Our area of exotic plantation would almost double, becoming just over 12% of our land area, but 1.6% of the national land area occupied by exotic species would ultimately be transitioned to native forest.

The graph below shows how the options so far described each could fill the gap in Aotearoa’s carbon accounts.

As mentioned above, MPI's estimates of C sequestration from native forest are based on just a few, temporary plots. Sequestration by forests will vary with species, site quality, and how the forests are managed. We have included two management extremes for radiata pine and also modeled three different levels of site quality. The MPI table has just one, "average" estimate, and this has led to plenty of criticism, particularly from those who would prefer that native forest sequestration estimates were higher. If native forest is naturally regenerated, then MPI's table probably overestimates C sequestration rates immediately after establishment. For planted native species the early rate in the table may be roughly right on average. On the other hand, the maximum ultimate storage (known as the asymptote) estimated in the table is clearly wrong for some areas of high forest but may be a reasonable estimate for shrubs such as manuka (which is widely planted at present because seedlings are cheap). The graph below came from a study reported by Peter Beets and co-authors, showing current levels of storage in native forest. For reference, radiata pine and some eucalypts can easily reach 1000 tonnes on many sites and if left unharvested would exceed that level of storage.

Ultimately, given local seed sources natural succession would usually see manuka replaced by high forest species, but, just like relying on natural regeneration, high levels of C storage would occur much too late to fill the gap in our C accounts if we started now. 

In order to account for the higher ultimate storage of C in native high forest, Euan almost doubled  the asymptote of the MPI table (for modellers among you, the table is a simple Gompertz sigmoid equation), to see what impact, if any, this would have on the area required to fill the gap and the cost of doing so. The result was an area of 2.5 million ha and a cost after research of about $12 billion. The planting programme necessary to fill the gap with directly planted, high native forest was 165,000 ha each year for 15 years. The brown line in the graph below shows sequestration from this programme. The reason such high rates of annual planting are required is that early sequestration in native forest tends to be exceedingly slow compared to our fastest growing exotics.

Option 4. Improved pest control in our existing native forest and extended rotations in existing plantations

                                                                     Image credit: Euan Mason

Committing to net GHG neutrality by 2050 is very different from previous climate change commitments involving a reference year, such as 1990 or 2005, because C sequestration in forests existing prior to reference years did not earn NZUs. GHG neutrality involves no past reference year and so changing the way we manage our existing 6.5 M ha of native forest and 1.7 M ha of exotic plantation forest might improve our C accounts.

Increasing rotation ages by one year in our plantations, for instance, might add over 30 million tonnes of CO₂-e to their long-term average C storage. Current NZU prices would provide plenty of incentive to add years to rotations if owners of existing forests could earn NZUs.

Pest management in some types of native forest will protect them & increase C storage, and because the areas of these forests are vast, this may help fill our C account gap and could pay for more pest control. We need experiments and permanent sample plots in native forests accompanied by remote sensing, and more biomass assays of native species, to quantify this.

How does this look from an individual investor’s point of view?

An investor interested in making money from their land would have a range of species and management options to choose from. Those discussed here are very general in nature, but it is instructive to look at the land expectation value of those options, calculated for an “average” case, and assuming pruned pine is harvested at current rotation ages, hence they are rough:

There are many more options than just pruned pine, and in fact some eucalypts may be better at sequestering C because they often produce similar stem volumes to radiata pine, but their wood can be more dense and hence have greater C storage per unit volume. In addition, other silvicultural strategies for these species or for pine may offer somewhat larger returns. Nevertheless, what is clear from the graph above is that an investor interested primarily in financial returns is likely to turn to exotic species rather than indigenous ones.

Those interested in promoting indigenous biodiversity and our rich heritage of unique fauna and flora would very likely be willing to accept lower financial returns in order to immediately promote those other values.

Concluding remarks

Some urban myths about radiata pine forests need to be countered in depth in another article, such as a) they are responsible for most wilding outbreaks (they are not), b) they so acidify the soil that nothing will grow under them (untrue), and c) they are always devoid of biodiversity (they aren’t), and a fuller account of the pros and cons of exotic forestry is needed to plan for the “right trees in the right places at the right times”.

Dangerous global heating, climate change, is already deadly and causing significant damage. In 2021 the world has now warmed by 1.2 degrees above pre-industrial temperatures of 1850. It remains to be seen if we can limit global temperature increase to 1.5 or even 2 degrees; this depends on political will and the actions of corporations and citizens. Aotearoa can reach GHG neutrality by 2050 by working strategically together. Forestry has an essential role to play, and we must consider the alternatives outlined here and make the right choices. The way in which we use forests to reach our goal is up to you as a citizen, influencing government policy, along with owners of the land where forests might grow and store C.

Euan Mason is a Professor at the New Zealand School of Forestry, University of Canterbury. He has written several peer reviewed papers and a book chapter on forestry and climate change.

Tim Enright is a Procurement Manager in Local Government infrastructure. His principal interests are climate science and implementing solutions.