Unrest in the forest and trouble with the trees

Dr Eric Crampton
The Post Weekend
13 May, 2023

Federated Farmers and Beef & Lamb New Zealand have stepped-up their campaigns against carbon forestry.

Federated Farmers objected to a Dutch company’s purchase of two sheep and beef farms for tree-planting, arguing it would mean fewer jobs and people in rural towns.

Beef & Lamb New Zealand commissioned work pointing out that New Zealand’s Emissions Trading Scheme is friendlier than others to forestry, while suggesting that the difference is not to New Zealand’s benefit.

How the government responds will provide a signal about whether the country is serious about getting to Net Zero. Kicking trees out of the ETS would set a very poor precedent.

The problem with the ETS isn’t that it encourages carbon sequestration in trees. The ETS is, and should be, focused sharply on reducing the country’s net emissions. That’s what it was built to do, and that’s what the Zero Carbon Act’s Net Zero target requires. Our being out of step with other countries is not always a fault. We do get some things right occasionally.

The problem rather is that any large change in technology, or big movement in prices of different goods, brings lots of other changes – some of which require direct regulatory responses.

If the government’s response to these problems is to break the Emissions Trading Scheme, rather than deal with issues as they emerge, at the level of government most suited to each problem, our entire climate response is in jeopardy.

Let’s walk it through, by first stepping back a little.

All going as expected, carbon prices will rise substantially between now and 2050. Those price changes will encourage all of us, households and firms alike, to change what we do and how we do it. Some industries that were profitable when it was free to dump greenhouse gasses into the atmosphere will not be when carbon prices are high.

Some of those changes are likely to be tough for affected communities. And there will be plenty of cases where government will want to, and should, help those communities through the transition.

Take a simple thought experiment. Suppose some new technology in the 2030s radically reduces carbon emissions from steelmaking, but the technology only proves cost-effective for giant steel plants abroad. And suppose local steel plants could not cover carbon charges while remaining viable.

If that happened, it would make a lot of sense for the government to help towns where steelmaking is a substantial employer. There could be industrial sites in need of remediation as well.

But it wouldn’t make sense to exempt steel from the Emissions Trading Scheme to try to avoid those problems. The ETS has one big job: to reduce net emissions. Trying to make it do other jobs at the same time, like protecting employment, or avoiding local change, or dealing with an abandoned steel mill, would make it worse at its one big job.

There are a few rules in economics, and really great economists get to have rules named after them. The Tinbergen Rule says that if you’re trying to achieve more than one goal, you really need more than one policy instrument. If you try to achieve multiple goals with only one instrument, you’re going to do a bad job at all of them.

And so we come back to forestry.

Carbon forestry has had obvious effects on rural communities. Shifts in commodity prices and technologies always do. And increased forestry planting can also bring perceived risk of wildling spread, of fire, and of effects on downstream neighbours.

If you think that there are biodiversity problems from too many pine trees, you need a policy solution targeted at biodiversity – like Australia’s recent biodiversity credits.

There are obvious problems with slash and with fallen trees during extreme weather events. Breaking the ETS to reduce the number of carbon forests would reduce the number of carbon forests, but the problem could still be there for forests planted for timber. Targeting those problems directly, either through regulation, or liability rules, or bond-posting, would simply work better.

And if the government would ban forestry conversions because of effects on local jobs, think of where that leads. New Zealand would not be better off now if the country had banned new tractor models in the 1950s to avoid rural depopulation.

Kicking trees out of the ETS, because of potential problems with carbon forestry, would be a bit like setting a giant export tax on dairy products because of nitrates in Canterbury aquifers. It is a bad way of dealing with the problem.

It’s impossible to say what new problems will emerge along the path to 2050. But if the response to each of them is to break parts of how the ETS works, we are not likely to get to Net Zero.

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