Carbon farming analysis

Analysis of Carbon Farming - based on a single 30 year (definable) rotation.

Below is a simplified model illustrating the economics of carbon farming.

The analysis shows that in a constant price and cost environment, the overall cash loss is equal the establishment plus the annual costs. This is because the present Kyoto rules deem a harvest to be 100% emissions. Looking at increasing prices and costs, it can be seen that the overall cash loss becomes significant (inevitable in a rising price environment with higher "replacement" costs).

For the sake of simplicity, Taxation has been ignored but it can be significant. The sales proceeds are taxable at the time of sale (further increasing the cash deficit). While the re-purchase of harvest emissions credits is a deductible expense, there is benefit only if there is income against which they can be offset. The longer it takes to offset the, the less valuable the deductibility becomes further eroding any returns.

"Play" with the model, you can't damage it! Draw your own conclusions as to the attractiveness of carbon farming. [Because of future uncertainty about the market for commercial trees (China, NZ's largest market by far, planted 20.4 million hectares of exotic forests between 2005 and 2008 - they are still planting.), we have ignored that side of the equation. To get this into perspective, a good return in today's market for a forest owner would be no more than $10,000 per hectare. There are forests worth nothing to the owner.]

Assumptions: (all are user-definable)

When this is ticked, the analysis shows the constant prices and costs business case for Carbon Farming. Rising price assumptions make the exercise a market-play rather than a business.

Constant price/cost

Land use costs/lease $

Annual holdings costs/ha $

------ Range pa --------

Use

Initial CO2 price $

Alternatively, random price movements

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PV of estab'ment cost incl*

Total sequestered CO2

Carbon not sold (that year)

Sales @ yrs

User-defined price

Proceeds/ Emissions costs

Nett proceeds

Cum-ulative

PV @

Costs

Retained:

Note:

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Harvest year

100% cover

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Note:

Hardwoods & Indigenous have been excluded from this analysis because the Hardwood Tables only go to year 25 and the Indigenous Tables are under review.

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