Undercover success story
A little-known company is now one of New Zealand’s biggest landowners, paying farmers to plant forests. reports.
Twelve years ago, New Zealand Carbon Farming was just a concept. Now, it is one of the country’s biggest landowners, and its business model – planting permanent forest – is looking more prescient by the day.
The company was founded in 2010. By late 2019, a Radio NZ investigation looking for the biggest landowners concluded it was New Zealand’s ninth largest landholder, with 28,365 hectares.
If the same survey was taken today, the company would have vaulted up the ranks.
It now owns close to 46,000ha, and manages another 44,000ha on behalf of farmers and other landowners. If nothing else had changed since 2019, its land holdings would place it fifth on RNZ’s list, excluding land it manages for others.
Yet few people have heard of the company, which has deliberately flown under the radar until recently.
Its business model is intriguing. First, it finds marginal or unprofitable farmland, then buys it or partners with the landowner. Second, it plants a cover crop – usually pine.
The pine trees aren’t for harvest. They’re to supply a carbon-rich nurse crop, allowing native forest to regenerate underneath them.
While slow-growing native seedlings take root, the fastergrowing pine supplies a speedier – and increasingly profitable – source of cash from carbon credits.
A cover of pine trees ‘‘creates the right environment for indigenous trees to flourish beneath that umbrella and regenerate over time’’, says NZCF co-founder and director Matt Walsh.
Why pine? ‘‘There’s a lot of it around, so it’s relatively easy to do research on pine trees,’’ he says. ‘‘New Zealand has 100 years of history of growing pine trees so we know exactly how to grow them and how fast they’ll grow and so that helps reduce the risk. Along the way, they store a lot of carbon . . . [particularly] over the next 70 years [when] the planet needs the most help’’.
The sale of farmland into forestry is deeply unpopular in some rural communities, where people fear loss of farming jobs.
Slash from floods hitting plantation pine is also getting a bad reputation for its environmental impact on East Coast beaches.
Yet Walsh says his company isn’t buying fertile, flat land – it wants the steep or erosion-prone plots, which aren’t producing employment anyway. The trees won’t be clear-felled and, he says, each forest plan is tailored to conditions.
About 80 per cent of the company’s land is in the North Island, mainly in the East Cape and central and southern North Island, Walsh says. There’s some at the top of the South Island and ‘‘a couple’’ of plots in Canterbury.
As for the staff, about half of NZCF’s 28 full-timers work in the field and the other half in its Parnell, Auckland, headquarters. Walsh says the company is in the process of hiring another 15 people, and contracts another 300 temporary workers during planting season.
Over the past decade, NZCF estimates forests under its management have sucked in more than 20 million tonnes of carbon dioxide – the equivalent of almost a quarter of the country’s annual emissions, or taking every car off roads for a year.
It estimates it has more than 66 million trees to its name, about half of them aged 15 years or older. Among those are established forests the company has bought (typically ones planted after 1989, meaning they’re eligible for carbon credits in the Emissions Trading Scheme).
But that’s only the start of what Walsh wants to achieve. With the carbon-sucking powers of trees featuring heavily in plans for meeting New Zealand’s draft carbon budgets, this line of business looks certain to grow. Virtually every plausible path to net zero carbon emissions requires a huge uptick in planting.
Pine as a nurse crop
The company’s methods draw on the work of researchers including forestry scientist Adam Forbes, who has studied using pinus radiata to mimic the environment of a sheltering native forest.
An ideal plot, according to Walsh, has native trees already growing nearby – the more, the better. The indigenous trees provide seed stock and avoid the need for costly manual planting of native species. ‘‘If there’s a lot of indigenous [forest] and it’s scattered throughout the block of land, that’s the perfect scenario, because that will naturally seed the whole of the block regenerating into indigenous, with very little management intervention.’’
The second-best scenario is finding a block with indigenous trees around the outside.
After planting pine, the foresters thin it to give young native trees a chance. ‘‘We look to thin and create light holes in the [pine] forest so the indigenous [trees] can come through more easily underneath,’’ says Walsh. The company ‘‘aggressively’’ controls predators, such as deer and possums.
Who’s buying?
All the company’s forests are registered under the ETS, which requires assessors from the company to go out and physically measure how much carbon has been stored each year.
When companies emit planetheating gases by burning coal or using fossil fuels, the ETS requires them to surrender carbon credits (although the obligation doesn’t fully cover every emitting company).
NZCF’s trees produce carbon credits that count towards meeting other companies’ legal obligations under the ETS. Companies can also voluntarily buy more credits or offsets than they legally have to, so as to market their products as ‘‘carbon neutral’’.
As for who buys NZCF’s credits, the company is coy. It says its commercial agreements with customers don’t let it share details.
Until late 2019, the company’s website said its core business was the supply of bulk carbon credits ‘‘direct to large energy and oil companies’’. That description has since been removed from the ‘‘about’’ section in a website revamp, but still appears on the company’s page on the website of the Carbon Market Institute.
Asked if that description was still accurate, and what proportion of credits were sold to oil companies, a spokesman for the company replied that credits were sold to businesses in the power generation, fuel supply, manufacturing, transport and air travel sectors, but did not elaborate.
Gen-tailer Mercury Energy has been a large customer, according to NBR reports of a 2014 court dispute with NZCF over a contract.
On the supply side, NZCF and its landowner partners get income for putting trees on what might otherwise be unprofitable land.
In the last decade, the company says it has paid $73 million in rent to farmers and other landowners. While that income was split among
Eloise Gibson
thousands of landowners, Walsh points out the land was earning little or nothing beforehand. ‘‘It was either marginal, in the sense that it was making some money, but not much, or, in many cases, it was negative, so it was just burning rates cost.’’
Now, the carbon price is rising, after some dark years in the doldrums. The path to zero carbon will almost certainly see it rise more.
Surviving the ‘valley of death’
In 2013, New Zealand’s emissions price plummeted to $1.50 a tonne, after the government opened the market to cheap overseas credits. Forestry planting also plunged, in response to ongoing political flipflopping over the shape of the ETS.
‘‘It’s been a long journey over 10 years,’’ Walsh says. ‘‘We were there at the beginning when [the emissions price] was $20. We survived through the valley of death when it reduced to below $2. The way we organised our business allowed us to survive that period when most other people couldn’t.’’
Until recently, few landowners wanted to sign up for a share of the company’s carbon credits, he says.
‘‘When we first started partnering with landowners, most people didn’t really believe in the ETS, so they would rather take a fixed return on their land. We initially offered the products with two options – a fixed return on the land, or a share of the carbon credits. We got almost no uptake of the carbon credits.
‘‘But now, it’s almost the opposite. We have several partners who are partnering with us to get a return of carbon credits, in order to become carbon-neutral themselves – they are not looking for a financial return on the land.’’
Making forests permanent buy unlimited units of carbon at $25, which kept the cost of emitting greenhouse gas low. Now the price is allowed to reach $50, and the quantity is capped. At the country’s first auction, the emissions price was nearly $39 – the equivalent of 9 cents on a litre of petrol.
The Climate Change Commission envisages a shrinking supply of units, and prices between $30 and $70 per tonne, with price rises each year.
‘‘Certainly at $2 there’s no way this business is viable at all, but at current levels it’s certainly viable,’’ says Walsh. ‘‘We’re unashamedly successful from a commercial point of view. And that’s a positive because we reinvest most of our money into growing more trees.’’
The Climate Change Commission’s draft path to carbon zero requires at least 16,000ha of new native forests to be planted a year by 2025, and 25,000ha a year by 2030. On top, over the next nine years, the path requires another 25,000ha a year of new exotic forest, such as pine.
Long-term, the commission’s blueprint favours planting more native forests and winding down the planting of pine. But NZCF’s hybrid planting model is mentioned in the draft advice, which notes unharvested pine can give way to native forest, if managed correctly.
The commission notes the process of regenerating native forest under pine can take centuries, and, along the way, unharvested forests can cause problems with wilding pines or trees falling over.
One of the commission’s urgent suggestions is requiring a forest management plan for all permanent forests over 50ha, to ensure they’re managed well and truly permanent.
Asked how he’ll make sure his forests last to become permanent native forests, centuries from now, Walsh says his company plans to use a new category in the ETS. When a law change takes effect in 2023, NZCF intends to register all its forests in the permanent forest category, he says, which includes safeguards to protect the forests in perpetuity.
73m trees ‘not nearly enough’
Walsh’s plans are far from finished. A former big-firm lawyer who worked for Telstra, as well as several start-ups, he’s says he’s embraced ideas like using pine to nurse native trees because he didn’t come from a forestry background.
Meeting the commission’s forestry targets is a big job for the industry, he says. ‘‘Planting a tree requires a long run-up. You’ve got to harvest the seeds, you’ve got to grow the seedlings, you’ve got to transport them. There’s a lot of supply chain investment that has to go on before New Zealand can get to those sorts of levels.’’
NZCF has plans to grow. ‘‘We’re not making a big enough impact on this problem on a global scale. We opened in Australia last year, we’ll be doing our first project in North America later this year. We’re also seeing . . . international interest in our local programme here.’’
As for how much land is left that’s suitable to plant, the commission estimated there were 1.15m-1.4m hectares of erosion-prone land, much of it unsuitable for production forestry, that could be suitable for converting to permanent forest.
No-one knows how many of those landowners are willing to sell or partner with a carbon farmer, but a number of iwi groups and others have marginal land that would benefit from earning an income, Walsh reckons.
‘‘At the end of this year, our estate will be 73 million trees,’’ he says. ‘‘But for us that’s not nearly enough.’’