Climate Change, Kyoto and Carbon etc
This is back on track and current forecasts are that an international convention including our country will go ahead, despite the USA, Australia, China and India etc not fully joining in. There may be enough countries to get it off the ground without them.
Although they admit there will be no measurable global warming change from it, the idea of those going ahead is to start a process, then some time in the future we will have a useful global agreement. So it is a political reality, whether or not it deals with environmental reality. Hence we need to be aware of it, and part of it.
I have been to a government forum on the subject with the interests of plantation forest owners like you in mind and I have put in a submission. Despite personal feelings that the whole Kyoto Protocol idea is misguided I do accept that we should join in. The reason is purely economic rather than 'eco-political'. New Zealand stands to gain from the convention because it will be in credit when our emissions and sinks of CO2 are compared between 2008 and 2012. Afforestation, which is what you have invested in earns NZ credits and the fact that our plantations are expanding, both in volume and area means this enviable position should last for many decades yet. The credit balance can be sold to countries in deficit. The reason NZ will be in credit will be entirely due to its plantation forests.
However, although plantation owners are clearly 'on the side of the angels' as one speaker told me at the recent forum, it may not translate into hard cash in our bank accounts. And indeed, the more I study the details the more I have to agree with many other forest owners that we might be better off declining direct ownership of carbon credits. Much as it pains me to say so, it may be better if the government deals with the whole country's ledger, which ultimately it is required to do under the Kyoto Protocol. After all 'carbon credits' are an inter-governmental creation so it is a mistake to see them as belonging to anyone in particular. We deserve credit for them but maybe not credits.
The main problem with owning them individually could be the distortions and complications they could cause us. The transaction and accounting costs alone could consume most of the receipts in any case. For example, you might have to pay a tax to thin your forest, land prices would certainly increase, harvesting would incur a tax which if linked to the market might exceed the credits received earlier. Replanting could avoid the tax but what if there is a better land use? In a joint venture you as the investor have no obligation to replant after harvest. That is a matter for the landowner. He or she may well replant but will not want to be obliged to do so, as on a farm there may be the option of a better alternative use for that site.
Accordingly carbon credits have the potential to interfere with what are the clear, rational and environmentally sound objectives of forest owners. Obviously we would like to benefit from them if possible, indeed we deserve to. That may still be possible under an arrangement where they are accounted for nationally rather than individually but the benefits to forest owners may be less direct. For example, with money received from deficit countries further income tax credits could be provided, forest industries and wood use in general could be actively promoted by the government, roading and other infrastructure for forestry could be improved etc etc. The Resource Management Act could be altered to recognise plantation forestry as an environmental good unless proved otherwise. These and many other measures, could result in plantations, forest industries and forest products being valued more highly, both financially and environmentally.
I will keep you posted.
Your Forest and the all new Mt Whitnow Forest Partnership
With drought truly over where we grow trees it has been an excellent spring. All in all the short and long term outlook for our Kyoto forest owners is positive. We will be in touch again quite soon with forest and partnership management reports etc concerning your particular partnership and its forest stands.
Meanwhile we are getting on with looking after your carbon sinks and creating new ones. Mt Whitnow FP is 85% Douglas-fir and two of the five sites have already been planted. It will be $4,000 per unit over the first year with a minimum investment of two, and then a flat annual maintenance cost of around $230 per unit. We will send you a complimentary copy of the Investment Statement next month and the prospectus will be on our website.
Charles Etherington, Manager