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A new look at balancing the forestry ledger

29 March, 2006

A new look at balancing the forestry ledger

By Dr Tim Payn – General Manager Ensis Environment

How might the business of forestry change if owners received cash for non-timber values? With low prices for commodity log prices, this is obviously a core concern for forestry owners. But the wider public should also be taking an interest, as it directly affects our water, recreational and environmental values. And, in this day of Kyoto Protocols, what happens in and around the business of forestry, directly affects each taxpayer.

The Climate Change Conference being held in Wellington this week provides the opportunity to reflect on the role of forestry in New Zealand. A cynic could argue that the current state of the industry’s balance sheet does not inspire confidence for the future, but there is no escaping the fact that forestry must continue to play a major role in New Zealand’s future. Aside from the ability of forests to produce wood and fibre in a sustainable manner, plantation forests bring many other benefits that we cannot afford to lose, regardless of log prices.

There is increasing global awareness of the vital role that forests play in sustainable development. Forests provide long-term benefits, such as clean water, soil conservation, wildlife habitats, and carbon sequestration. As a nation, we are accruing an environmental liability through the intensification of agriculture and unchecked urbanisation. Forests have the ability to mitigate against many of these environmental impacts, but their potential contribution to a sustainable future remains largely unrecognised. In order to achieve these benefits, the total value of forestry to society needs to be recognised and understood in dollar terms.

A challenge for the industry is that environmental and social values are difficult to realise at the best of times, and almost impossible for forest growers to cash in on under our current economic model. So how might we do things differently?

As environmental resources have become depleted in other parts of the world, governments have found ways of accounting for forestry values. These systems quantify factors such as clean water and nutrient cycling into standard economic equations. In Costa Rica, for example, concerns over deforestation forced the Government to introduce incentives for landowners to provide clean water. This scheme encouraged people to plant trees, thereby reversing the deforestation trends that were beginning to cripple both the local environment, and the economy.

A similar incentive scheme exists in the hinterlands of New York City, where landowners are encouraged to maintain forests in areas affecting its water supply. Without these forests, the quality of this water supply could not be maintained.

Although the native and commercial forests of New Zealand accrue similar benefits to the public, forest owners receive few incentives to keep the land in trees. Recent trends have seen an increase in conversion from forestry to dairy farming, which invariably yields an environmental cost to the public that is seldom taken into account. As poor water quality due to high nitrogen levels becomes an issue of serious concern in lakes of the Taupo and Rotorua districts, the question of “who pays?” is frequently being asked.

New Zealand is getting closer all the time to implementing new systems of trading that place economic values on environmental benefits accruing from forestry. The most tangible example, and by far the most controversial, is the carbon credit system that recognises the value of forests in mitigating greenhouse gas emissions. Carbon trading systems, which are already functioning in New South Wales and in Europe, are one means of realising the non-timber values of forests.

Forest owners in New Zealand currently cannot realise the cash benefits of carbon trading, since the government assumed possession of the carbon credits. Notwithstanding the rights or wrongs of this decision, the potential of carbon trading does point towards a different model for forestry that could change the economics of the industry.

A revised economic model could equally accommodate nitrogen trading in a way that would balance the need for agricultural production with environmental considerations. In the Lake Taupo catchment, for example, forestry is seen as a vital player in the landscape mix, being a much lower producer of nitrogen than other productive land uses.

One solution might be for farmers with high nitrogen emissions to “purchase” nitrogen credits from forest owners as a way of contributing to the environmental balance, which must be achieved if the lake is to be retained as a sustainable resource and a national treasure.

In many parts of Europe, Governments have recognised the multiple values of forests and subsidised large-scale tree planting for many years. If incentives are not to come from the public purse, how might the business of forestry change if owners received cash for non-timber values? Such schemes would potentially open the door to a more diverse forest estate and a different approach to the forestry business. The resulting plantation industry could see longer rotations of higher value crops, including indigenous species. Radiata pine will always have its place, but greater diversification could bring more stability to a sector currently at the mercy of radiata log prices.

Forestry offers more flexibility and a broader range of benefits than any other land use. As a nation, we must find a way to make it pay.

Ensis is the unincorporated joint venture between Crown Research Institute Scion and Australia’s CSIRO.

ENDS

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