Impact of carbon price on the relative profitability of production forestry and permanent forestry for New Zealand plantations

Abstract

New Zealand has an Emissions Trading Scheme (ETS) under which forest growers can earn carbon units for increases in carbon stock. Between March 2020 and March 2022 carbon price increased from $24/NZU to $74/NZU. Carbon price increased to the extent that the Land Expectation Value (LEV) of permanent forestry (without clearfelling) exceeds the LEV of production forestry (with clearfelling) on many sites. This paper reports on an analysis comparing the LEV of permanent forestry with the LEV of production forestry for land of different site productivity, harvest difficulty (i.e. slope) and location (i.e. distance to market). Breakeven carbon price (when LEV for permanent forestry equals LEV for production forestry) is calculated for each combination to reveal overall trends. The effect of carbon price on the proportion of national afforestation for which permanent forestry gives a higher LEV is estimated. Results indicate that, at a carbon price of $50/NZU, permanent forestry is more profitable than production forestry on 71% of area with measured carbon and 26% of area with look-up table carbon. When carbon price reaches $100/NZU, permanent forestry is more profitable for all area.