Simon Upton says New Zealand's biggest climate tool is largely a tree planting scheme that barely cuts emissions Photo: [https://www.flickr.com/photos/eu2017ee/35725837402flickr]
Parliament's environment watchdog has called for a seismic shake-up to the Emissions Trading Scheme.
Simon Upton says the government needs to radically change the design of New Zealand's main climate change-fighting tool or it will collapse in 10 to 15 years.
He was proposing completely removing the ability of carbon polluters to rely on planting trees to meet their climate obligations - instead of cutting their carbon emissions.
If that didn't happen, the Parliamentary Commissioner for the Environment said the government should at least discount how much forests could earn in the scheme, to recognise that trees didn't lock up carbon forever.
Upton said what New Zealand currently had was mostly a "tree planting scheme" that did little to cut planet-heating gases.
"The world actually needs real reductions in gross emissions, not an accounting triumph," he said.
"But beyond that the strategy comes with significant risks that in my view aren't worth running."
Such a move would have big implications for many forestry companies, who earn profits from carbon forests.
It would also have big implications for polluters, who can currently buy carbon credits generated from trees for less than it would cost to cut carbon emissions by switching to clean technology.
But the commissioner said without big changes the scheme would stop functioning in the 2030s because it would drive planting of so many carbon forests that the carbon price would plunge.
A low price means there would be little incentive for companies to cut their emissions. It also means there's little incentive to plant new forests.
"In the mid-2030s there will be a glut of forestry units in the ETS which will cause the price to fall," Upton said.
"This will leave us with an ETS that can deliver neither tree planting nor emissions reductions, threatening the country's ability to meet its climate targets."
Report outlines risks of unlimited forestry in ETS
According to a report Upton tabled in Parliament, the risks of allowing unlimited forestry in the scheme included permanently locking up hundreds of thousands of hectares of land in carbon forests, hurting rural communities and limiting future generations' ability to decide how to use land.
He also said the government may end up having to pay to maintain huge areas of permanent pine forests in order to meet climate targets, if companies doing the planting today collapsed after pocketing the income, or the ETS itself was wound up because it was no longer working.
Currently - with the scheme operating - companies had to repay their carbon income if a forest was felled or destroyed, giving them an incentive to maintain forests.
The report said fire, disease and the practice of harvesting or thinning pine trees (to allow land to transition to permanent native forests) would likely mean that only a fraction of the carbon stored by ETS forests in the next few decades was truly "safe".
However, it said the ETS treats trees as if they locked up carbon dioxide forever and lets them offset carbon dioxide that would be in the atmosphere for thousands of years.
Politically, phasing forests out of the scheme could be a tough sell.
When the previous government tried to tinker with forestry's role in the ETS, participants in the scheme revolted and the carbon price crashed.
National immediately reversed course after the 2023 election, scrapping plans to even consult on changes to forestry's role.
Upton acknowledged changing the scheme would be difficult.
"Changing anything you've put in place which creates all of these expectations is always going to be difficult," he said.
"Equally we can't ignore the overwhelming evidence seems to be be that in the mid 2030s the sheer volume of forest units will overwhelm the market," he said.
The report stated: "Successive governments have yielded to [ETS] participants' pressure rather than address those risks".
"But that hasn't made the risks go away.
"At some point, the risks will become so evident that the government will need to manage them."
Upton acknowledged his recommendations would be confronting for Māori landowners with marginal land that could only earn an income from carbon forestry.
In many cases low-quality land was returned in Treaty settlements because it was still in Crown hands.
"They've pointed out, quite fairly, that we've got some of the worst land in the country and this is the only thing that can earn an income," Upton said.
"And they're absolutely right. The question is whether you need to maintain a scheme that is deeply flawed just to maintain that source of income."
The report suggested forestry could still be paid for, in a more targeted way, using revenue from government quarterly auctions of carbon units under the ETS.
Currently the carbon price was so depressed that the last several auctions had failed or only partially cleared.
If forestry was phased out of the ETS, the supply of carbon for sale would shrink and the carbon price would rise meaning the government auctions would earn more for taxpayer coffers.
The government could plough that money into subsiding tree planting, Upton said.
He suggested the subsidies could focus on native forests, and Māori land could also be a target for funding.
The report said the government would need to engage with mana whenua as a priority, before proposing changes.
Phasing out forestry would 'hurt' owners
The forestry industry was likely to criticise any proposal to restrict carbon income from planting trees.
The Forest Owners' Association previously said proposed rules restricting conversion of land into carbon forestry were hurting forest owners who were making some of the biggest contributions to improving New Zealand's climate outcomes.
However, forestry and climate researchers backed the report.
Nathanael Melia, a climate scientist who has worked on forestry issues, said the report was timely after this week's revelations that the governments' plan to reach net zero plans relied on hundreds of thousands of hectares of new pine trees being planted on Crown land.
"Carbon forestry is exactly the climate target get-out-of-jail-free-card this government plans to go all in on," Melia said.
"I foresee that carbon forestry will become what mortgage-backed securities were to the global financial crisis, ie it will do no real-world good, inflate the carbon credit bubble, make very few very rich, derail climate mitigation and cause systemic turmoil."
Dr Tim Payn, a principal scientist at forestry research institute Scion, said the report was timely.
He said forests remained "a critical part of our climate change response and they are going to have to look different in the future, to continue playing a role in decarbonising a growing economy".
Payn backed a recommendation in the report for a cross-party agreement on the "broad strikes of forestry policy".
University of Canterbury forestry professor David Norton said Upton was right to question the way the ETS operated.
"Unlike native forests, permanent exotic tree plantings do nothing for native biodiversity, will become major reservoirs for exotic plant, fungal and animal pests, and can facilitate wildfire," he said.
"Mature radiata pine plantings are also more prone to damage from severe storm events than native forests, leading to downstream effects especially as climate change induced storms intensify.
But as the report noted, under current policy settings, native forests could not compete with radiata pine on cost.
"While the... report doesn't say this explicitly, carbon farming is essentially treating the climate emergency as just another opportunity to make money while ignoring future financial and environmental liabilities, which is in my view morally corrupt."
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