Cashing in on carbon

Environment Waikato is considering using its $60 millon investment fund for a massive tree planting scheme to cash in on the Government's Emissions Trading Scheme.

John Simmons, a senior council manager and forestry company director who authored the proposal, says "carbon farming" under the ETS could be a "perfect storm" investment opportunity if the region acts promptly and in concert.

The proposal suggests almost $40m – some diverted from offshore investments held by the council – be poured into joint ventures with landowners and investors to turn 20,000 hectares of the region's riparian and marginal pastoral hill country into plantation forest, and allow another 15,000ha to revert to native bush.

Under the Emissions Trading Scheme, industries are required to offset their greenhouse gas emissions by buying theoretical "carbon credits".

Carbon credits can also be traded for cash. Since July the energy and industry sectors have been in the market for credits and agriculture is due to fully enter the ETS in 2015.

Preliminary estimates show the first decade of the ambitious EW scheme would cost $39m for forestry and native bush restoration, but generate carbon credit revenue of $10m and bring significant environmental benefits.

Mighty River Power recently issued the first tender seeking long term carbon credits and said tendering for carbon credit supply was a step towards meeting the electricity generation company's ETS obligations.

The EW report says major Waikato carbon emitters such as Mighty River Power and Fonterra dairy factories have limited ability to gain credits and a regional carbon credit scheme would have a ready market.

A private $650m trans-Tasman forestry fund plans to invest 40 per cent in New Zealand.

But the EW scheme would prevent productive land being converted to forestry by targeting marginal farming and riparian land for planting – about 11 per cent of the region or 144,000 hectares is erosion-prone.

Recent analysis of a sheep and beef monitor farm near Lake Taupo showed the poorest class six and seven land – steep and erosion-prone – was returning a gross margin of just $264/ha to the farmer. Analysis of cash and carbon credit flows from planting marginal land shows by comparison radiata pine could return $330/ha.

Conversion could improve returns from farmers' best land as it was more intensively managed.  

The Government's Afforestation Grant Scheme, which gives cash grants for tree planting or reversion of grazing land in exchange for the carbon credits, has been oversubscribed for the past two years.

Mr Simmons, who is EW's group manager biodiversity, said the region could harvest substantial benefits.

Regional pooling meant smaller parcels of carbon credits could be marketed successfully, and council endorsement of the allied biodiversity and environmental benefits create a premium price for the credits.

"It's a mechanism for land use change. It changes the economics of marginal farmland, hooked into environmental benefits ... it's like a perfect storm in some respects," he said.

Council's policy and strategy committee has recommended that staff prepare a business case, costings and investment options. The full council will consider the scheme next week.