Down side to carbon credits, farmer warns

Alan and Ross Garden from Auchterless Station, Millers Flat, are wary about selling carbon...
Alan and Ross Garden from Auchterless Station, Millers Flat, are wary about selling carbon credits from their farm forestry blocks. Photo by Paul Mooney.
Auchterless could be carbon-neutral under the proposed emissions trading scheme (ETS), but station owner Alan Garden warns selling carbon credits from trees is not the financial windfall it seems at first.

With 84ha, or 4.2%, of the Garden family property under trees, their carbon sequestering should easily compensate for carbon emissions generated by the Millers Flat farm, but Mr Garden said the politicised nature of the issue and the requirement to pay back the credits after tree-harvesting or when plantations were destroyed by a storm of fire, made him nervous.

"It converts directly into a liability," he said of carbon credits following a recent field day.

On the surface, the financial figures looked impressive, but dig a bit deeper and he said there were a host of expensive obligations and some uncertainty.

"That is where the hesitation comes from. It's not a gold mine. It's a potential liability for the property, and that's the way you have got to look at it."

Forest owners can earn carbon credits, or New Zealand Units (NZU), based on the carbon-sequestering role of their forestry.

Dunedin accountant Richard Farquhar provided figures using the Carbon Farming Group calculator based on a carbon equivalent price of $20 a tonne for a farm which each year killed 4480 lambs at 18.5kg, 790 ewes at 26kg, 80 steers at 150kg and 30 heifers at 135kg, and applying 40 tonnes of nitrogen.

Mr Farquhar said the ETS charge would be $5419 a ha a year in 2015, rising to $8507 in 2020, $11,401 in 2025 and $14,110 in 2030.

For the same farm without applying any nitrogen but with 84ha of radiata trees at an average age of 14 years, the equation changed markedly.

In 2015, the ETS will earn $48,799 a ha a year, falling to $45,971 a year in 2020, $38,282 in 2025 and $32,441 in 2030.

A smaller area of 27ha of eucalyptus trees aged seven years, but with the farm applying 50 tonnes of nitrogen, would come close to breaking even, earning $4727 a year in 2015 rising to $6433 in 2020, an annual liability of $302 in 2025 and returns of $172 a year in 2030.

Those figures did not include the ETS cost of electricity and fuel already being charged.

But, while these figures made those attending a recent field day on Auchterless prick up their ears, Mr Farquhar agreed with Mr Garden it was not that simple.

"If you sign up to the ETS, it means you sign up to a lot of obligations," he said.

Mr Garden said the politicisation of the policy made him uneasy about selling credits for all his trees.

"You have got to remember the carbon credits scenario is being decided by politicians, but what is going to happen in 20 years' time?"

Mr Garden said trees grew well on his farm and he could treble the area under forestry, but given the uncertainty he questioned the viability of doing so, as he believed he had to have the financial resources to buy back NZUs he has sold.

But it could be a source of short-term, interest-free loans to fund a project. He and wife Hilary are building a retirement home and Mr Garden intended selling some credits to fund the project, but would buy them back.

Mr Farquhar said there were also issues such as choosing tree varieties with a long life, thereby reducing the frequency of paying back units when the forest was logged.

Owners can provide annual returns but are obligated to file five-yearly returns on their area of forestry and there were many grey areas, such as obligations for new owners of land where trees were part of the ETS.

A further unknown was how the property market would price tree plantations part of the ETS.

"There are implications we have not encountered before," Mr Farquhar said.

He advised forest owners to seek professional advice before committing to the ETS.

Mr Farquhar said the ETS charge would be deducted from farmers on behalf of the Government by meat and dairy processors based on product supplied and this was in addition to charges built into energy and fertiliser.

Any credits earned from carbon-sequestering trees would be paid annually as taxable income.

• Alan and Hilary Garden, Ross and Sandy Garden.
• Millers Flat.
• 2000ha, of which 580ha cultivated paddocks.
• 3976 ewes, 1443 hoggets, 200 cows, 49 two-year heifers, 50 heifer calves.
• 92ha winter feed, turnips, fodder beet, oats and rape.
• 100 bales baleage and 300 tonnes of silage.
• 28ha radiata and eucalyptus planted pre-1990. Harvesting of radiata to start soon.
• 56ha eucalyptus, radiata, douglas fir and macrocarpa planted post 1990.

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