Carbon sequestration: a narrative of simplification – levelling the playing field

Commitments made at the 26th Conference of the Parties to the UN Framework Convention on Climate Change (COP26) by governments and corporations recently projected global warming of 2.4°C. However even if all carbon emissions ceased today, we would still exceed the COP’s target increase of 1.5°C by 2050 due to legacy carbon held in the atmosphere. Humanity must therefore go beyond carbon net zero to reach this target. An accelerated carbon sequestration program is beyond an offset requirement: it is a planetary imperative. Carbon forestry offers an incredible opportunity to address these issues simultaneously, with demand for carbon credits projected to increase fifteen-fold to around USD50 billion by 2030.

However, not all forests are created equal. Carbon sequestration capacity and storage varies greatly, and current carbon offset accounting fails to fully reflect this. Today’s compliance carbon market (which is created and regulated by mandatory carbon reduction regimes) is dominated by exotic monoculture plantations. With the three top species traded globally in order of volume being 1) pine, 2) palm, and 3) hardwood (i.e. eucalyptus). While they are fastest and least complicated to grow, these forests are a singular narrative in a far more complex carbon equation – and overlook the accompanying crisis of biodiversity loss.

Such mono plantations are not native to many of the environments in which they are planted, and extensive planting of singular species above indigenous plants limits the total amount of carbon that can be sequestered and has a detrimental effect on local biodiversity.

Pine, palm and hardwood are disproportionately incentivized because the vast majority of today’s natural capitol carbon credits do not consider externalities like degraded environments, significant biodiversity loss, and the impacts on community livelihood. This exposes countries to significant risk from these issues, combined with proposed changes to carbon credit legislation to be more inclusive of both climate change and biodiversity loss.

Including biodiversity in carbon credit calculations will mitigate these risks. If carbon markets adopt a tiered system that takes biodiversity into account, finance will be directed towards new and existing regenerative projects that serve multiple values for the ecosphere. At present, demand for high-quality credits (which address key requirements such as additionality, permanence, and whole system accountability) outstrips available supply by a three-to-one ratio. Following the agreements made around the implementation of Article Six of the Paris Agreement at COP26 there is also increased certainty about how carbon markets will operate – for both market and non-market approaches. As such, now is the time for a paradigm shift: humanity has a genuine opportunity to address the issues of low liquidity, highly fragmented, long lead times, and scarce financing for carbon, with integrity.

Here, we explore how such a tiered system could play out in practice, using the Aotearoa New Zealand context as a case study.

Aotearoa, New Zealand: a case study

The potential benefits of including biodiversity in carbon crediting for New Zealand are particularly clear. Eighty percent of its species are endemic, and it has the highest proportion of threatened indigenous species in the world. Therefore, the ability for New Zealand to offer high quality credits is unparalleled.

Yet the country’s climate change mitigation plans do not capitalise on this opportunity, ignoring the potential for a myriad of environmental, economic, and social gains and instead prioritising the short-term rewards of planting non-native exotic forests.

At COP26 late last year, New Zealand pledged to reduce greenhouse gas (GHG) emissions by 50% by 2030. Although the commitment is commendable, the planned means of achieving it fall short in addressing the root causes of climate change. The government intends to account for two thirds of that emission reduction through local monoculture forestry, and to purchase the remaining climate offsets abroad (at an estimated minimum cost of NZD13 billion). This decision represents an intergenerational commitment that financially exposes the country to risks from changing global climate legislation and carbon prices. A lost opportunity to reinvest in New Zealand’s own biodiverse native forests, which could then directly stream into New Zealand units (NZUs) within the emissions trading scheme, thereby reinvesting into both the domestic economy and natural capital.

At present, over 90% of New Zealand’s carbon credits are generated by exotic, monocrop species – predominantly pine trees (Pinus radiata). And these plantations are set to expand. A record number of monthly sales of foreign- purchased land are currently being approved for the sole purpose of pine cultivation; by 2035, an additional 380,000 hectares of pine forestry is set to be included in the emissions trading program. The Climate Change Commission has also recommended extensive annual expansion of pine coverage until at least 2050. Recent proposed rule changes preventing permanent exotic forests within the NZ Emissions Trading Scheme (NZETS) are a start; though significantly more needs to be done at both the policy and operational level to encourage native species reforestation - and stop the extensive incentives targeting pine plantations to the detriment of New Zealand’s unique natural capital.

Currently, carbon credits created from the sequestration within exotic forests are relatively easily quantifiable and traceable. However, their quality is constrained by the limited amount of carbon such non-native ecosystems can capture – and the unaccounted-for loss of biodiversity they cause. These ‘ecological deserts’ of monoculture are eerily silent: predominantly bereft of undergrowth and lacking the habitat and food sources that most local bird and insect species rely upon. They are more vulnerable to disease and fire than native forests; and they seriously impact local biodiversity, cultural and indigenous heritage.

Conversely biodiverse ecosystems, particularly native forests, hold the greatest carbon sequestration potential. Many of the trees that sequester high amounts of carbon need time to grow. In forest ecology, these cornerstone trees, or architects of change are the apex of the forest, with vegetation spreading out from their focal points. Their cumulative leaf and soil carbon stores almost half as much carbon as they hold above ground - something that is not yet accounted for in today’s market, yet critically important in the reduction and storage of carbon and in the overall health of an ecosystem.

Because each native species utilises their environment in a slightly different way, their combination enables a higher carbon uptake. For instance, in Northland’s warm climate (latitude 34o-36oS), there is a substantial number, of carbon-dense hardwood species such as puriri (Vitex lucens) or Pohutukawa (Meterosideros excelsum) as well as a range of podocarps. Those conditions mean native forests can achieve similar carbon sequestration levels to exotic pine species within 25 years, especially in the warmer climate zones. As such, basing the key component of New Zealand’s climate strategy almost solely on pine forestry expansion leaves numerous opportunities unseized and fails to recognise the benefit of a mosaic of complex ecosystems, or the invaluable role they play in optimising the carbon equation.

Compliance and Voluntary Carbon Markets: bridging the divide

To reflect the value of native forests more accurately, and incentivise native reforestation, it will be critical to bring these ecosystems into the compliance carbon market arena.

The compliance market is regulated by mandatory national, regional, or international carbon reduction regimes, and tends to drive large-scale mono plantations. However, most indigenous biodiversity plantings sit in the voluntary market, which consists of predominantly small-scale and privately funded ventures. Voluntary credits in New Zealand must be sold on the international market, which is characterised by low liquidity, scarce financing, inadequate risk-management, and limited transparency.

As a result, carbon forestry for the voluntary market is far less profitable. The compliance market has traded up to NZD$82 per metric ton of CO₂ emissions, whilst the voluntary market yields just NZD$7-10 per metric ton. As such, with indigenous forest planting confined to the voluntary market, it will always be side-lined to marginal land, and lack the funding or legislative advantages of participating in the compliance market. Moreover, the cost and difficulty in getting certified as an accredited carbon project – due to the added complexities of planting a biodiverse forest over several stages with a range of growth rates – is also prohibitive for many would-be native reforestation regimes.

This imbalance represents an important prompt to redesign the carbon credit system. As a leading player in the global carbon market, New Zealand has an opportunity to introduce a carbon credit grading system that takes biodiversity into account and accurately reflects its critical value in contributing to total carbon storage capacity. A policy shift to encourage native tree species is both timely and sensible to preserve the status of New Zealand’s ETS as a “Gold standard” scheme - which is the envy of many countries.

New and rapidly evolving methods and technologies are a game changer in this effort; offering more comprehensive and science-driven parameters to measure and accredit carbon in transparent and increasingly accurate ways. Here, satellite and drone imagery play a key role – by helping to measure carbon in standing forests, wetlands, native grasslands, and leaf litter - historically largely invisible to us. This technology alongside on-the- ground research is capable of measuring with progressive accuracy the biodiverse carbon sequestration from an indigenous forest.

To bring about a more balanced assessment of the relative benefits of native and pine forestry in New Zealand, the following actions are recommended:

1. Transform the averaging methodology for carbon crediting to appropriately value both natives and pines. At present, there is one look-up table1 and one carbon sequestration rate applied to all native species in all regions, while there are nine regions, each with their own tables and rates, for pine. The rate for natives is currently based on only two species, mānuka (Leptospermum scoparium) and kānuka (Kunzea ericoides) from which carbon values for all native species are extrapolated, not considering the full range of carbon-rich species in native New Zealand forests. The tables also fail to recognise regional differences – for example, the fact that the growing period in the North of the country is considerably longer than that in the South, and supports more carbon-dense hardwood species. By ensuring additional granularity in methods used to assess carbon values, native plantings will be incentivised.
2. Pay it forward. Carbon sequestration measures for pines are currently projected forward, leveraging key indicators to forecast volume based on government look-up tables. This approach allows landowners to access finance in the critical early years – before the trees reach their sequestration capacity – with an upfront recognised price for their sequestration profile. By ‘paying it forward’ for native forests as well as for pine, would-be native growers could gain critical funding in the early years of the venture and optimise their long-term sequestration rates.
3. Extend the carbon horizon. Forest harvest regimes for pine currently sit around a 28-year average. If the carbon averaging regime was amended to allow for longer rotations, for instance by extending the investment time horizon to 90 years (allowing for three rotations of pine), the financial and environmental implications of planting pine versus natives would be more accurately comparable. This would help to level out the higher upfront costs of planting natives; it would also allow for the slower initial growth rates of natives.
4. Incentivise and prioritise. Utilising public funds via tax breaks and blended finance would help mitigate higher start-up costs for indigenous forests. Government authorised incentives, for example one in which every initial dollar invested in biodiverse native plantings is allocated a percentage of NZUs upfront, would help to offset the initial higher investment cost for natives without requiring direct government funding. This inventory could then be sold directly back into the NZUs; further boosting the economy.

Looking Ahead: Strategic Restoration - right tree, right place, right time

The market for renewables, carbon, and biodiversity is set to rise considerably in the coming decades. This, coupled with increasing interest in socially responsible investing (SRI) and environmental, social, and governance criteria (ESG) for companies and initiatives, speaks to a likely shift towards a carbon market that is more inclusive of whole natural systems. In that context, New Zealand’s current gamble on monocultural pine plantations may not yield the long-term projected performance advantages that are currently expected – and could rather result in unaccounted-for risks and exposure to future litigation.

Instead, a strategic ecosystem-based approach to planting for carbon forestry, which incorporates a range of factors such as tree longevity and the value of the species to birds and invertebrates, should be embraced. Many New Zealand trees live for more than 500 years, and some for as many as 1500 – if New Zealand is serious about removing carbon from the atmosphere, it is these trees that should be planted, not short-lived pines.

Further elements factor into an ecosystem’s ability to sequester carbon well. Birds serve as the architects of native ecosystems by moving seeds around the landscape, while insects play critical pollination roles. Plants that feed these species should be prioritised as part of an integrated system. Equally a distinction between above-ground and soil carbon will need to be included, as well as elements such as pest control. For example, brushtail possums (Trichosurus vulpecula) have a significant impact on New Zealand forests’ ability to sequester carbon by eating large amounts of vegetation (on average, a possum eats 1% of the vegetation per hectare) – an element not yet considered in the carbon market.

Strategic planting that will best enable the recovery of ecosystems and ecosystem process will be required – with the resulting ability to capture carbon and restore biodiversity as key objectives.

Essential performance measures of strategic planting:

1. Ecosystem diversity
2. Native biodiversity
3. Landscape hydrologic cycles health
4. Carbon storage ability and capacity
5. Potential for commercial use

To incentivise a shift towards a strategic ecosystem approach at broader scales, it will need to be valued appropriately - through an updated accounting and reward framework that has a high level of whole-system, long- term accountability – with positive outcomes for biodiversity, carbon sequestration, and communities at its core.

Such a framework will help countries and stakeholders address two of the most critical global issues simultaneously; by layering these concerns on top of current measures to help bring about a more comprehensive, biodiversity- inclusive carbon credit compliance market.

Aotearoa has the potential to become a global leader in adopting a carbon system that is climate resilient, inclusive of both tangible and intangible assets. Such a system would protect, enhance, and rejuvenate our native forests, while providing a genuine alternative to the monocultures that are a devastating and rapidly growing part of our ecological landscape.

--- 1 Carbon look-up tables are a series of pre-calculated values of forest carbon stocks, by age, for a given forest type. The carbon stock values are expressed in units of tonnes of CO₂ per hectare. (MPI website).