Perverse consequences of forestry subsidies

Keith Woodford writes about the unexpected consequences of the government’s forestry subsidies:

Most of New Zealand’s forests have foreign owners. With current policy settings for ownership of forestry land, this foreign ownership will increase further. Here is the reason why.

For big foreign entities, the notion of having within their portfolios some New Zealand forests for carbon farming looks very attractive.  As part of a balanced portfolio, any risks can be managed. In relation to the low returns on equities that can be earned elsewhere in the global economy, the returns look truly stunning.

An overseas entity can buy the land, plant it in trees, receive some Government subsidies, and then sit back and take the stream of income from carbon credits over the next 28 years. And then write off the original investment in the same way that a spent mine is written off.

If I were advising any such foreign entities, then that is exactly what I would be saying to them. Governments have set the rules, and now here is the opportunity to play the game.

They play, we pay and we lose.

Of course, it does not require me to tell them that. Their own advisers are telling them, and the game is now on.

At the end of the 28 years, the land can simply sit there, with its unharvested forest, with large carbon liabilities attached to it, and providing no further income to either New Zealand or anyone else. From the investors perspective that is fine – it has served its purpose and been a great investment.

The option of harvesting the forest might still be considered, but in the context of a bonus. In any case, given that many new carbon forests, as a cost saving measure, will not be thinned or pruned, the harvest value may well be limited.

From New Zealand’s perspective, this does not seem quite so flash. In effect, New Zealand has had an initial benefit from the inward flow of funds to purchase the land, and then has spent the next 28 years paying the foreign owners for the forestry carbon credits to balance off its own emissions elsewhere in the economy.

As for future generations of New Zealanders, they will have some green trees to look at, but the land itself can no longer be used for anything because of the crippling carbon liabilities attached to the land title.

In debates about foreign ownership of farmland, it is sometimes claimed that the foreign owner cannot export the land. It is still here earning an export income for New Zealand. But in the case of carbon forestry, the foreign owner can effectively capture in one rotation the economic benefits in perpetuity. . . 

Professor Woodford calls this unexpected consequences, I call them perverse, just as consequences for subsidies almost always are.

People learn the rules and play the game at the cost of those paying the subsidy.

These ones are based on politics, not science. They will destroy farmland, and rural communities, have a devastating impact on the economy and have no environmental benefit.

50 Shades of Green has a petition asking that legislation which incentivises the blanket afforestation of farmland be rejected

If you want New Zealand to have an economically, environmentally and socially sustainable future, sign it.

This madness must stop.