Carbon cash could save marginal farms

16 June 2011

Cash from carbon makes forestry a much more attractive proposition than livestock farming on poorer hill country according to a collaborative study led by Crown Research Institute Scion for Waikato Regional Council.

The study examined three aspects: the opportunity to the land owner, the opportunity to Waikato Regional Council, and investment structures for carbon forestry.

Generally it showed that by planting fast growing exotic trees now, landowners could expect positive cash flows from carbon within 5 years, depending on individual circumstances.

Study leader Graham West from Scion says that by providing an early cash flow from the sale of carbon credits, carbon forestry overcomes the typical 30-year delay in getting a return from forest planting.

The study shows that for pruned radiata pine, timber returns are around $90/ha/yr on today’s prices. By combining timber returns with revenue from carbon, returns can increase more than five-fold to between $160-$520/ha/yr for carbon prices of $7.50/t CO2-e to $30/t CO2-e.

“The economic benefits of carbon forestry are generally very positive as long as the appropriate sites are targeted,” says Mr West.

For poorer classes of land, particularly eroding hill country, carbon forestry offers a number of financial and environmental advantages.

The relative returns with livestock farming depend on livestock carrying capacity, the importance of current cash flow, tree species and management.

Long term modelling of whole farm case studies included likely variation of product returns, such as meat and wool prices, and the scenario with carbon forestry had consistently higher and more resilient cash flows.

“Forests can save farms because they provide income in bad years and protect from down slope impacts such as erosion, fence damage and sedimentation,” Mr West says.

“While meat and wool prices are high at the moment, every farmer remembers poorer returns or drought years. Ironically it’s during the good years that consideration should be given to diversifying and investing alternative sources of revenue.”

Waikato Regional Council senior manager John Simmons says the outcome of better land use offers great opportunities for the Waikato region.

“Council sees opportunities for regional landowners to benefit from aggregation of credits, and is proposing a regional scheme whereby Council acts as facilitator between landowners and investors,” says Mr Simmons.

“Carbon forestry has for the first time made the cash flow possible to build resilience into farm incomes and help with succession. By aiding land use change, the typical challenges each generation of hill country farmers face of debt, erosion, and scrub reversion can be substantially mitigated.”

Generally carbon prices need to exceed $20/t for carbon forestry to be more profitable than livestock production, but for poorer classes of land (particularly eroding or reverting hill country) carbon forestry offers much better financial returns.

Mr West adds a cautionary note that people need to be aware that results will vary from site to site, and the economic benefits can become confusing with so much information available.

While returns were calculated based on radiata pine, fast growing eucalypts are also a good option for carbon forestry, depending on the site and the circumstances of the land owner.

Higher volume tree species such as Douglas-fir and redwoods are ideal for longer term carbon sequestration.

These findings arise from a report written for Waikato Regional Council by Scion in collaboration with AgResearch and Hardwood Management Ltd. A copy of the report is also available online.

The purpose of the Waikato Regional Council study was to provide economic information for landowners as part of their regional carbon strategy to support positive land use change.