Eric Crampton: Government contributes to emissions trading scheme

Sustainable future

If a tree is planted in the forest, should it be taxed or subsidized?

Opinion: Wellington is a confusing place.

In 2017, the government wanted to plant a billion trees and implemented many costly policies to achieve this. He believed tree planting was an essential part of the country’s climate response.

Now the government is fed up with trees. He consults to find out if he should break part of the emissions trading system to discourage planting.

The government got it wrong in 2017, and it gets it wrong again today.

But back to 2017.

The government has established the Billion Tree Fund to subsidize tree planting. By mid-2018, almost half a billion dollars had been targeted to plant trees.

This too ordered the Overseas Investment Office to make it very difficult to invest in rural land unless the land is turned into forest. For forests, New Zealand was open for business. For anything else involving rural land of more than five hectaresthe doors of foreign investment were rusty.

Thus, foreign investors who wanted rural land had only one simple option: to cultivate a forest.

The times have changed.

Carbon prices have risen since 2017 and so more forests have been planted, even though the Billion Trees Fund has since closed.

Last Friday, submissions closed diskworking document co-authored by the Ministry of Primary Industries and the Ministry of the Environment.

Did the discussion paper celebrate tree planting successes? More carbon sequestered in trees could give the government the chance to lower the ETS cap faster, bringing us to Net Zero sooner.

Unfortunately no.

Instead, he proposed that the government not provide ETS credits for carbon sequestered in permanent exotic forests.

The weather in Wellington has changed, but the underlying irrationality has not. The Billion Trees program never made sense, but so does breaking important parts of the ETS when trees fall out of political favor.

Land use change

The discussion paper fears that forests are displacing other productive land uses.

If a high carbon price turns a sheep pen into a pine forest, that tells us something important. The value of this land in sequestering carbon must be greater than the value of this land in producing wool and lamb. Wellington officials are not well placed to question the landowner’s decision.

But it is likely that in some parts of the country, rapid reforestation would lead to rapid economic change and intense political pressure.

The norm and the best government response to structural change is to ease the transition: for example, by ensuring that unemployed workers in a declining sector have access to training.

Just think about the implications of a broader application of document logic. Automated apple picking machines could be banned because of their potential effects on rural employment. And logging companies could be required to use axes rather than chainsaws.

The effects of afforestation on local communities are real but are, by definition, local. Councils would be the appropriate place for any policy aimed at mitigating local effects. In places under severe pressure, councils could decide to make permanent forestry a consented activity – and hopefully compensate affected landowners for the loss.

So if there is a political problem here that needs to be solved, local land use planning would be the place to look – not the emissions trading system.

Net and gross emissions

The discussion paper then argues that an overreliance on planted forests could make it more difficult to achieve climate goals. But he does it in a rather shady way. Trees obviously help reduce net emissions by sequestering carbon. New Zealand’s Net Zero legislation sets a net emissions target, recognizing the role sequestration plays in reducing atmospheric carbon dioxide.

The paper argues that emission credits generated by planting trees discourage reductions in gross emissions. The paper argues that there should be a strong preference for gross emission reductions over carbon sequestration or removal.

There are substantial problems with the approach.

First, prohibiting the currently most cost-effective means of reducing net emissions necessarily forces emission reductions to be made through more costly routes.

The government has already demonstrated that it is extremely sensitive to rising energy prices. He even raided the Covid fund to cover the cost of a petrol excise holiday.

The ETS price hike should not be a political issue for the government. It could decide to return the revenue from the government’s ETS auctions to households through a carbon dividend. But unless a carbon dividend is put in place before any substantial increase in carbon prices, the government could find itself looking for new knee-jerk responses to rising energy costs.

Second, the proposal breaks an important part of the ETS. As carbon prices rise over time, new ways to sequester carbon or remove it directly from the air are becoming viable. Expectations of rising carbon prices encourage this type of research.

Currently, researchers at the University of Canterbury are exploring ways to use olivine to cost-effectively remove large amounts of carbon dioxide directly from the atmosphere. If their research proves successful, their technology could generate a lot of carbon credits, making it easier for New Zealand to reach net zero – or go beyond net zero by sequestering more carbon than the country does not issue any.

But if the government can decide, on shaky ground, simply not to award ETS credits for real, verifiable carbon removals, we can expect less progress in developing ways to extract greenhouse gases. greenhouse from the atmosphere.

An arbitrary policy like this increases the risk of investing in New Zealand.

Finally, and this is the really frustrating part, even if you prefer gross emission reductions to net emission reductions, that’s still no reason to put a thumbs up on the ETS carbon scales. If forestry is expected to generate a lot of carbon credits, the government could simply decide to issue fewer carbon credits by 2050. Or it could decide to reach net zero sooner.

The Ministry of the Environment should know that.

In recent years, the ministry and the government have proposed many regulatory policies targeting areas already covered by the ETS, even though these policies are offset by the ETS. Electric vehicle subsidies cannot reduce net emissions because an ETS credit not purchased by one fuel company can be purchased by someone else instead.

Faced with this challenge, the ministry and the government like to claim that regulatory policies would allow the ETS cap to be reduced more quickly – unaware that they could reduce the cap faster and more cost-effectively if they simply reduced the cap without the Politics.

But while forestry offers a very real opportunity to cut the cap faster, the ministry prefers to ban forests instead.

The opportunity to cut the ceiling more quickly, for the Ministry and for the Government, appears above all as a convenient rationalization for regulations that they prefer for other reasons.

Environmental impacts

The discussion paper warns that poorly managed exotic forests lead to environmental risks, including fires, disease, the spread of wild conifers and instability on certain slopes.

The problem is real, but it is not unique to permanent forests. Production forests present similar risks, as well as the risk of mismanaged logging. And farmers regularly complain that serious mismanagement of Crown land is leading to pest infestation.

The solution to the problem obviously does not lie in ignoring the carbon sequestered in permanent forests. Environmental risks from other exotic forests, or from poor land management more generally, would remain.

The solution is rather with advice. In places where the risk of slope is high and where increased supervision is needed, councils could make forestry a permitted activity. Ensuring that councils are doing their job by monitoring the kinds of issues raised in the paper would have benefits beyond permanent forests.

And, finally, there are real biodiversity benefits of native planting over exotic species. But the planting of native forests should be encouraged directly, through a biodiversity grant, rather than putting a thumbs up on ETS calculations. The ETS has an important and important task in dealing with greenhouse gas emissions. It should not be used to attempt to achieve additional goals, lest it end up doing a poor job either way.

As carbon prices rise by 2050, new, unpredictable challenges will emerge.

Today, it’s reforestation, and a volte-face from direct subsidies to forests to the prohibition of carbon credits generated by them.

If the government’s response to every new challenge is to break some part of the emissions trading system, rather than leaving the solution to the party or level of government best placed to deal with it, achieve Net Zero will be much more expensive than that. must be.

Garland K. Long