The importance of renewable energy to the forestry and wood products industries

Friday 20 July 2007, 8:52AM
By Hon David Parker, Speech


It's good to be in front of an audience of people in the forestry industry. It is a chance for me to talk about the many opportunities that climate change has for your sector, not least in making money out of new products, including the use of forest products for fuel.


Address to the Forestry Industry Engineers' Association8.30am, 19 July 2007, The Grand Tiara Hotel, Rotorua

Good morning

It's good to be in front of an audience of people in the forestry industry. It is a chance for me to talk about the many opportunities that climate change has for your sector, not least in making money out of new products, including the use of forest products for fuel.

But before I get on to that, I'd like to take the opportunity to update you on policy development.

Thank you to those of you that came to MAF's consultation meetings earlier in the year and to those that made submissions on the five climate change and energy consultation documents. The debate within the industry around climate change policy has been a lively one for many years and over that time a number of strong positions have emerged.

One of those positions concerns carbon credits - carbon credits that only exist under the Kyoto Protocol to which the Crown is a party.

There has been much talk, and frankly grandstanding, over carbon credits. I don't want to cover all that ground again, except to comment on three of pieces of 'spin' often put forward by some in the forestry sector.

The first is that forest owners, have a property right in credits. Not true - the Kyoto protocol creates Kyoto credits and these arise to the Crown. In the first instance it is the people of New Zealand who receive these credits. They come with all the other liabilities and obligations that are also created by the Kyoto agreement. Governments may choose to devolve these credits and liabilities, but they are not automatic property rights.
This is as true of emission reductions via carbon stored in trees as it is of emissions from cars or cows. No property right or property liability has been confiscated.

Second is that forest owners were promised the credits. Not true. There has never been a government policy to devolve credits - never.

Third is that the credits are worth tens of thousands of dollars per hectare. Again this is nonsense; these numbers almost always ignore the liabilities that go with getting credits, and that arise when trees are cut down.

So, we don't accept the false logic used to assert that the government has stolen carbon credits. But we have said that for reasons of economic efficiency and fairness, the New Zealand economy should transition to devolution of those benefits and costs into the economy.

Already this government is the first in the world to devolve Kyoto carbon credits to foresters. Under the Permanent Forest Sinks Initiative, land owners get both the credits and liabilities for forestry within the rules of the initiative which do allow for some commercial forestry.

On top of this, we put three options on the table in the Sustainable land Management and Climate Change document for recognising the value of the establishment of forest sinks. They are a cash grant; or devolving the credits and liabilities related to plantings from now on; or giving landowners the choice between the two. We'll be announcing schemes as part of the wider climate change policy in due course.

One of the biggest opportunities for forestry comes through emissions trading, and Cabinet will be making decisions in coming months on core design features of an emissions trading scheme. We have already announced the principle of including all gases and all sectors. This means people will be in the market for cost effective emissions reductions. In addition to energy efficiency, forestry is an obvious place to start.

While no decisions have yet been made, one model is to allow emitters to purchase credits from those that have them, to sell in order to meet their obligations to take responsibilities for their emissions. One obvious source of credits are those allocated under PFSI. Once a credit has been sold, the obligation to maintain the sink to which it is attached remains.

Under such a scenario I can envisage a new generation of carbon foresters emerging in New Zealand. These guys would plant trees with the intention of maintaining them. This is a particularly attractive proposition for the owners of marginal land that might otherwise be uneconomic.

Some landowners may also derive significant co-benefits from planting such as improving soil retention and increase the resilience of the land to floods and slips.

This is a different business model to most plantation foresters who grow trees with the express intention of cutting them down. In this case, a plantation forester only has credits while the trees are in the ground. When they are harvested, a liability arises. If the credits are sold prior to harvesting, the forester will have to find another lot of credits to cover harvesting, or replant and wait 27 years for the carbon value of the sold credits for a mature forest to be once again sequestered on that land. So for plantation foresters, carbon credits and liabilities will require particularly careful management.

Other possible sources of emission reductions under an emissions trading scheme lie in avoided deforestation - or the sale of deforestation emissions rights that may be allocated to forest owners. Most forest owners don't want to deforest. For them, tradeable deforestation emission rights will be new and additional sources or revenue.

And that talk of revenue brings me back to new sources of value from products, including residues.

Under the Forest Industry Development Agenda, government has dedicated $2.5 million to bioenergy projects over five years.

EECA is coordinating this initiative to support forestry bioenergy projects during the next three years and working with an Advisory Group of forest industry representatives to do this.

The Programme aims to increase the use of wood as a renewable fuel as a means of boosting both the share of renewables in New Zealand's energy system, and to open up another income stream for foresters. The Programme has three key elements:

1. Promoting the economic recovery of forest waste. Work is underway investigating the efficient recovery methods of hoggers in the central North Island - hoggers that convert waste from forests into fuel.
Studies into the use of residues as fuel. Work is ongoing around using woody biomass to co-fire or replace coal and gas to provide on-site heat and power.
Two studies are nearing completion in this area. The first is the co-firing of a gas-fired boiler with wood in a dairy factory. The objective is to find the optimum scale for a wood fired boiler.
2. The second is a scheme to evaluate technologies to provide heat and power from woody biomass at a sawmill. The technologies involve wood gasification and onsite electricity generation.
3. And finally the Programme provides information so that those with an interest in either the supply or demand side of energy from wood waste can find out more about it. It is web based with a panel of experts available at the end of the phone. It is hoped that this knowledge centre will act as a conduit for market development.

Government is also currently working on the New Zealand Energy Strategy and the New Zealand Energy Efficiency and Conservation Strategy (NZEECS). Both will stress the need to develop renewable energy in New Zealand, and I am confident that extending the use of woody biomass will be a focus of the NZEECS.

Another particularly exciting development is that around turning woody biomass into cellulose ethanol or butanol. Crack this in a cost effective manner relative to the price of oil and we're into the multi-trillion dollar liquid fuels market. I'll admit that we are still in the early stages of this and there are no guarantees of success, but given the size of the prize it is worth pursuing.

Internationally, hundreds of millions of dollars are being spent on research. Here, we're developing a low carbon energy technology fund, which will focus on second generation biofuels such as cellulose ethanol.

In January, two Crown Research Institutes, Scion and AgResearch formed a research programme with US-based Diversa Corporation, which, they claim, could ultimately see New Zealand's entire vehicle fleet running on New Zealand-grown and manufactured biofuels.

The research is into the feasibility and technical development of a domestic biofuels industry using trees and grasses as feedstocks. It follows a successful study carried out in Rotorua and San Diego to investigate the potential of using enzymes to convert tree stock into sugars that can then be fermented and refined into ethanol.

The consortia will also look at how such technology could be commercialised.
Again, the government is doing its bit. A biofuels sales obligation will require 3.4 per cent of all transport fuels to be biofuels by 2012. Work is also underway to increase the number of vehicles entering the New Zealand vehicle fleet that can run on higher biofuel blends.
I applaud such initiatives and admire the optimism and audacity of the consortia's goals to replace the majority of New Zealand's demand for oil with a locally produced, climate-friendly alternative. I will leave them to their work to determine just how feasible their plan is, and I wish them well.
There are also opportunities for wood-based products to substitute for energy-intensive products like concrete, steel and aluminum. The government has just announced an initiative that will require new government-funded building projects for buildings up to four floors (including the ground floor) to commission designs that at least consider options for using wood or wood-based products as the main structural materials.
International efforts to curb greenhouse gas emissions are increasing in pace, breadth and stringency. Reducing deforestation, which is responsible for approximately 20 percent of the world's carbon dioxide emissions, is seen as increasingly important. It is expected to be a focus at this year's UN climate change negotiations in Bali. Reducing deforestation could dramatically alter the supply / demand balance for wood products. This can only be good for your industry.
To sum up, climate change gives rise to real opportunities for the forestry sector. You need to think carefully about carbon credits and liabilities and your business model in relation to them but there is a future in carbon farming.
Climate change and energy security are also factors driving the uptake of renewable energy. You have a great opportunity here and it is one where the government is backing you. I hope you make the most of the opportunities.

Thank you.