How to Restore Native forests in Aotearoa at Scale: The long version

There is an increasing amount of conjecture and debate on the planting of pine trees on productive farmland for carbon credits in the emissions trading scheme.  

The carbon crediting space is complex, with many different opinions and proposals for how to accelerate climate action.

Forestry in New Zealand is by far the largest solution we have to sequester carbon. Carbon sequestration is the vitally important second half of our climate budget ledger that needs scale to complement rapid emissions reductions. 

Here is the solution in short - a mandatory carbon credit purchase is put on the largest emitters to covers at least 100% of New Zealand carbon emissions. The carbon credit price is set by the market rate for high-quality nature-based carbon sequestration. This will facilitate a net zero society with no perverse outcomes for sequestration projects. 

Why? 

The scale of funding required to restore millions of hectares of native forest is in the order of billions. There are three key ways to finance native afforestation; philanthropy, government funding and carbon credits. Philanthropy has been the largest source of funding for active native forest restoration to date and has limited scalability. Government funding for native forest restoration on the order of magnitude required will be politically unpopular, limited in scale compared to carbon crediting and less efficient than market driven restoration. 

Currently the emissions trading scheme mandates the approximately 30 largest emitters in New Zealand to do three things. 1. Pay the government for a portion of their emissions. 2. Buy NZU’s (a unit of sequestration recognised my MPI) 3. They are given a portion of emissions that they can emit for free. 

Putting a price on emissions is the best incentive for a business to reduce emissions, this ‘carbon pricing’ is globally endorsed. The NZ emissions trading scheme (ETS) takes this one step further and pairs the price of emissions to a sequestration unit (NZU). If we did this for all carbon dioxide emissions in society we would reach net zero carbon emissions. I am a strong advocate for this approach, letting the market pair each unit of emissions with a unit of sequestration to deliver the most efficient outcomes. 

In addition, this approach enables us to mandate business’s to remove more carbon than they emit eg. 150% as we must remove the carbon emissions that have already entered the atmosphere. 

If we expand option 2 to encompass all carbon emissions in New Zealand we will be net zero. However, there are two associated reforms to the ETS that are needed to ensure this outcome. 1. NZU’s currently aren’t recognised as a carbon offset that can be used to get to net zero. 2. NZU’s are being awarded for the wrong projects (Permanent pines). 

NZU’s sit in a weird limbo, on other emissions trading schemes around the world companies can buy credits to balance their business emissions and call themselves net zero, whereas in NZ companies can’t. This is because some NZU’s aren’t permanent because they come from rotation forestry. NZU’s should be recognised as a unit of sequestration that can be canceled against a unit of emissions to reach net zero.  

NZU’s should also be awarded for all recent carbon sequestration in pre-90 native forests. Restoration of pre-90 native forests is sorely needed in New Zealand to address the biodiversity crisis we are also facing and measuring additionally in these forests will be a higher cost in comparison to the cost of paying for any non-additional sequestration in the short term. Therefore paying for all ongoing sequestration in ongoing pre-90 native forests facilitates more impact than only awarding payment for measured additional sequestration that is notoriously subjective. In the future the ETS should also include, soil carbon, scrubland vegetation and Blue Carbon where the cost to measure sequestration in these projects is significantly outweighed by the project return from carbon crediting. 

Compliance buyers in the ETS are by far the biggest funder of afforestation in NZ. Currently the majority of this funding is going into pines. The compliance buyers spent around $2 billion on incentivising afforestation last year in the ETS. The ETS, which is effectively a carbon tax, is the biggest motivator for emissions reductions for these companies and is also the biggest source of funds available for restoration of natives. Imagine if we channeled this $2 billion into natives instead. This could be further increased significantly by decreasing the free allocation for the emitters, reallocating the government ETS revenue to restoration and through a higher ETS price. 

What this means for the voluntary carbon market? 

There is a significant opportunity for NZ to export high-quality voluntary carbon credits from native forest. New Zealand currently has a large balance of payment deficit for voluntary carbon credits as we import largely cook stove and renewable energy carbon credits from developing countries overseas. Exporting voluntary carbon credits will bring money into kiwi farms, is good for our balance of payments and restores NZ native forests, a triple win. Similarly NZ businesses are increasingly looking to support NZ native forests and not overseas projects. 

Currently, voluntary credits in NZ are mostly from the government PFSI initiative, while these use exactly the same methodology as NZU they are different because they have guarantee permanence. There are also voluntary carbon credit projects such as my business Carbonz and Plan Vivo projects from Ekos. 

However the PFSI initiative will end in the middle of 2023 and it seems likely current traders of voluntary carbon credits, Toitu, Forever Forests, Ekos and Permanent Forests NZ will start trading NZU’s that are in the new permanent category. This may be put under more scrutiny for the methodology to align with voluntary market standards such as the new ICVCM guidelines. There is a provision that loosely aligns these PFSI voluntary units with ICROA guidelines, however the methodology for PFSI units does not make provisions for additionality or accurate measurement, instead relying on the ETS methodology and lookup tables.  

The voluntary market is needed to recognise sequestration that the ETS is not recognising fast enough, it is also needed because companies currently can’t buy NZU to balance their emissions and get to net zero. I believe we would not need a voluntary market with a properly functioning ETS with the reforms I suggest, this is of course against my best interests as a voluntary carbon credit broker but an efficient ETS will ultimately be best for society.  

What this means for pines 

NZ has a loophole that allows the foreign ownership of farms for a forestry purpose. Pines should be banned from the permanent category which will stop foreign and domestic investors buying farmland to turn into permanent pine monocultures. 

The two positives of having pines in the permanent category are it is good for our national balance of payments and it means a lower carbon price and therefore alleviates cost of living pressure. New Zealand can make up our balance of payments deficit on this through the export of voluntary carbon credits. However New Zealand must be prepared for a higher NZU price and higher cost at the pump when we exclude pines from the permanent category. 

I and many others (Link to Anne essay) do not think carbon credits should be awarded for pines being planted for carbon. I am a supporter of the sustainable production timber industry for carbon-positive buildings but not for solely carbon. As I understand it, the Iwi forest lobby group was the main voice that lobbied the government to leave pines in the permanent category due to the large financial opportunity that could be reinvested in communities and down the line native forests. If the Carbon price was high enough for Iwi to plant or restore natives for carbon I believe this position from these lobbyists would change. 

In Summary

I reject the idea of carbon offsetting or granting a right to pollute. However carbon crediting, the process of pairing high-quality nature-based carbon removals with emissions will simultaneously enable carbon sequestration at scale in native forests and motivate emissions reductions. We should not let the fear of offsetting invoked emissions reduction complacency stop us from scaling up carbon removal.  

If we reformed the ETS in line with these suggestions, I believe we could get New Zealand to carbon emission net zero by 2040. We would channel $2.5 billion into native forest restoration per year, balancing for example all New Zealand's carbon emissions of 35 million tonnes at a current NZU price of $72. 

It should be the emitter who is paying for the restoration, not the government, the government will be needed to fund carbon removals beyond our net zero balance in the future to get rid of already emitted gasses. In addition the market will drive many more efficiencies in restoration outcomes than the government. Government funding will be needed to fund the significant carbon removals beyond net zero if we do not mandate all businesses to offset by more than 100%. This is more reason for this approach so the government does not have to fund both carbon removals to balance our current emissions and our historical emissions. 

This approach using carbon crediting to pair emission units with sequestration units does not require any government funding and ultimately aligning these market mechanisms will motivate more emissions reduction than any government programme and facilitate massive-scale native forest afforestation.