Forestry and environment winners with incoming Government

Friday 27 Oct 2017

The last two trading sessions have seen good volume move through Carbon Match. NZUs have firmed some 50 cents since the new Government in New Zealand was announced - last trade $18.90. We have momentarily been at this level before - we nudged the $18.90 mark last October. But $19 would be a level not seen since 2011.

Certainly, the gain appears modest when one takes stock of the whole new world into which have entered. But further clarity over policy direction - and over the future of the ETS - only really emerged towards the end of trading yesterday (Tuesday), and at a fairly high level.

In two separate press conferences incoming PM Jacinda Ardern unveiled first Labour's coalition agreement with NZ First, and subsequently the confidence and supply agreement between Labour and the Green Party.

The key elements of immediate climate change interest:

1. A "zero carbon" Act (net carbon emissions of 0 by 2050) is to be introduced;
2. an independent Climate Commission is to be established to ensure the country actually achieves this goal; and
3. there seems to be a plan to bring agricultural emissions into the ETS if the new Climate Commission recommends it, but with a free allocation of 95% and with all revenues from this source recycled back into agriculture in order to encourage agricultural innovation, mitigation and additional planting of forestry.

But wait there's more. Reading both documents consecutively reveals a really very green agenda, with a strong focus not only on the issue of a framework to address climate change but also on the investment in transport and in forestry that might get us there.

The Government will lead by example and that begins at the top - by 2025/26 the government's vehicle fleet, where practicable, is to be "emissions free".

The Climate Change Commission is to work on transitioning the electricity sector to become 100% renewable (and that includes geothermal) in a normal hydro year by 2035.

Perhaps the most ambitious environmental goal is one set out in the agreement with NZ First, which includes the establishment of a $1b per annum Regional Development (Provincial Growth) Fund, including significant investment in regional rail and the planting of 100 million trees per year in a Billion Trees Planting Programme.

At an average stocking rate of perhaps 1000 stems per hectare, this amounts to 100,000 Ha per annum of land to be sourced, secured and planted out, each and every year for 10 years (Ed note: The 100,000ha figure includes both new planting and replanting. Replanting of felled forests has typically been around 50,000ha per annum).

This is a staggering level of ambition but possible - an NZIER report released earlier this year showed that new plantings peaked in the mid-1990s at nearly 100,000 Ha. But last year's comparative was a mere 3000 Ha.

With almost 90% of private forest-owners owning less than 500ha, the challenge is significant. It will be even more significant once new thresholds for overseas investment office approval - reported to be as low as 5 Ha - are introduced.

Still, we must not overlook the Government's own self-determining role in this ambitious programme. Mr Peters has secured a commitment to re-establish a New Zealand Forestry Service.

And as Stuff's Charlie Mitchell highlighted, with expected portfolio allocations the Greens look set to "lead departments that together manage 38 per cent of New Zealand's land, an area larger than Portugal – not a bad result for a party on 6.3 per cent support."

So, clearly there are more deals to be done and with no time to waste we can expect the dialogue between the Greens and Mr Peters to begin in earnest... maybe we will see joint press conferences before we know it.

Source: Carbon Match

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