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ETS will cut Environmental Lifeline

Media Release
12 May 2008

ETS will cut Environmental Lifeline

The Government’s proposed Emissions Trading Scheme is in danger of cutting New Zealand’s environmental lifeline – its forests and wood products - according to Dave Anderson, chairman of the industry body, the Wood Processors Association, which presented to the Finance and Expenditure Select Committee today.

In a world becoming increasingly carbon constrained the last thing we would want to do is reduce our capability to grow trees and process wood. Trees, after our oceans, are the single greatest absorbers of CO2, which is then stored in wood products, sometimes for centuries.

“It would be sheer madness to have policies which reduce the incentive to grow trees and promote wood products, but there is a real danger of this happening with the proposed Emissions Trading Scheme,” says Anderson.

He reported that the industry had commissioned independent economic analysts, Castalia, to model the impact of the ETS on the wood processing sector. Castalia identified that the industry was already under pressure with the high exchange rate and additional cost imposts arising from an Emission Trading Scheme were going to make it even less viable.

“The key to the problem”, said Anderson, “is that the New Zealand industry will be forced to compete against similar industries in other countries who will not have to pay carbon taxes, making New Zealand operations less cost competitive.”

The Castalia report, he said, demonstrates variable impacts across different types of processors. Pulp operations selling directly onto the open market are tight but viable, but it is likely the ETS will tip them over the edge. Apart from the loss of this significant industry, it would also result in downstream consequences. For example, pulp mills provide a market for wood chips which improves the viability for the sawmilling sector and the loss of this market, together with direct ETS impacts, would likely cause the closure of perhaps 20% of saw mill capacity.

The most successful value-added portion of the industry - MDF and LVL producers – will maintain reasonable returns on operations in an ETS environment, but those returns will not be sufficient to support long term investment by existing operators or encourage new investment.

“The overall result will be a combination of closures and stagnation,” said Anderson, because wood processing will move offshore leaving foresters no option but to export logs. This will cause increased transport and processing emissions, as the bulk logs will be processed by countries burning fossil fuels.”

“By contrast, a vibrant and profitable wood industry in New Zealand would have the confidence to promote the use of wood both domestically and internationally resulting in greater storing of CO2 in wood products, with fewer production and transport fossil fuel emissions.”

“Job losses resulting from introduction of the ETS would also be serious for the economy and for communities and families. It would represent a significant loss of skills and capabilities at a time when we need added-value processing to raise productivity and the value of exports,” said Anderson.

“The Government has to make some tough decisions. New Zealand can’t be sacrificing its economic and ecological future in this way.”

“Wood is a key part of a sustainable future. The sector is seeking carefully thought out policies that include a higher level of free allocation of credits to the wood industry than the 90% contemplated and extending free allocation at least for the life of the trees. A ceiling on the carbon price should also be considered,” says Anderson.

Data in the Castalia report was supplied on a confidential basis by wood processing companies. The assumptions behind the modeling were clearly outlined.

ENDS

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