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Māori Impacts from the Emissions Trading Scheme: Detailed Analysis and Conclusions

Acknowledgements

Foreword

1 Introduction

2 Māori Contribution to New Zealand Greenhouse Gas Emissions

3 Māori Economic and Socioeconomic Position

4 Likely High-Level Generic Impacts of the ETS

5 Likely ETS Impacts on Māori – Absolute

6 Likely ETS Impacts on Māori – Relative to Non-Māori

7 Summary of Findings

5 Likely ETS Impacts on Māori – Absolute

5.1 Electricity and motor fuel prices

Based on 2004 household expenditure data from Statistics New Zealand, electricity accounts for 3.6 per cent of Māori household expenditures, while motor fuels account for 4.7 per cent. At the indicative levels of carbon prices used in official publications (ie, $15/tonne and $25/tonne), electricity and liquid fuel prices are predicted to increase by 1–2 cents per kWh (or 5–10 per cent) for electricity, and 3.7–6.1 cents per litre (or 4–7 per cent) for petrol.³² Even if it is assumed that Māori households do not reduce their energy usage to reduce their exposure to ETS-related price increases, changes of the above magnitude would be small in the context of overall household expenditures.

Additionally, changes of the predicted order of magnitude are small when compared with average annual energy price increases. Data published by the Ministry of Economic Development shows that average consumer energy prices have risen significantly since 1974.³³ Over this period consumer electricity and liquid fuel prices rose by 9–10 per cent per annum on average, although the average annual increases in electricity prices have been lower in more recent years (eg, over 2000–2006, electricity prices rose 6 per cent per annum on average). Any ETS-related rises in the price of electricity and liquid fuels will reflect a one-off impact from the ETS’s introduction (similar to the introduction of GST in October 1986), as well as any subsequent rises if the price of carbon should rise over time. The magnitude of such impacts may or may not be as significant as usual volatility in fuel prices in particular, which are tied to the international price of oil.

The ETS can be argued to exacerbate this trend of rising energy prices, and certainly for those on relatively fixed incomes any additional expenditures may give rise to worsened living standards. However, most social distributions in New Zealand are inflation-indexed, although with a lag, so those households dependant on such distributions should not experience any significant decline in household purchasing power from these likely electricity and fuel price increases. Other households – by implication those with labour- or asset-based incomes – should similarly anticipate some ability to increase incomes to keep track with rising electricity and fuel costs, particularly since the absolute increases are likely to be small.

It should be noted, however, that relatively low Māori home ownership rates suggest a relatively high Māori renting rate. Renting households have a lower ability and incentive to make investments in energy efficiency so as to reduce their exposure to increased electricity prices. Renting also reduces households’ ability to take advantage of any government support to make such investments. Together these suggest a relatively high number of Māori will be less able to undertake energy efficiency investments to reduce their electricity consumption. While possible changes in regulation to require landlords to insulate rental properties may over time improve the energy efficiency of rental properties, this will likely involve some increase in the cost of renting, although the net impact is unclear. Also unclear is whether Māori would tend to bear any such net impact, or substitute towards possibly cheaper rental accommodation not covered by the regulation.

The Government has signalled an intention to offer assistance to low- and middle-income households to mitigate the impact of higher electricity costs (but not liquid fuel costs) due to the ETS. This support is likely to include not just subsidies to improve home energy efficiency, but also taxpayer-funded, power bill rebates. Where households receive inflation-indexed social distributions the latter would amount to double-compensation for rising electricity costs.

Finally, aside from direct increases in household electricity and fuel costs, ETS-related rises in these prices should be expected to filter into the prices of goods and services for which electricity and liquid fuels are input costs. No data is available indicating the likely magnitude of such downstream cost increases, so it is not possible to gain a sense of their likely importance for Māori households. However, once again, inflation indexation of social distributions, and earnings inflation, should dampen any such impacts on household disposable incomes.

5.2 Fishing

Fishing is a sector that involves negligible land use and involves little greenhouse gas emissions beyond fuel and energy consumption. Its exposure to the ETS lies mainly in increased liquid fuel costs, and to a far lesser degree, increased electricity costs (for land-based refrigeration and processing). Fuel costs are estimated to account for up to 60 per cent of fishing operating costs.³⁴

ETS-related increases in fuel costs are likely to impact inshore fishers more so than deep-sea fishers, given the latter are able to refuel outside of New Zealand’s territorial waters and so may avoid having to pay such increased costs. Additionally, fish processing can be done aboard fishing vessels in some instances, reducing any impacts of higher electricity costs, or can be shipped frozen for further processing in countries with lower processing costs. Accordingly the impacts of the ETS on fishing costs may be mitigated, even if this comes at the cost of domestic processing employment. Given the importance of the fishing sector for Māori employment, any such loss in processing could prove significant for Māori employment. Section 5.8 discusses research published on the impacts of emissions charges on Māori employment in the fishing sector.

The fishing industry is not currently to be offered free NZUs under the ETS, except perhaps via industrial production allocations in respect of increased electricity costs, subject to proposed eligibility criteria including a 50,000-tonne minimum emissions threshold. This threshold is likely to preclude free allocations to fishing, and in any case no allocation is proposed in relation to ETS-related, transport-fuel price increases. With Māori owning a large share of this sector this implies a greater per capita ETS burden than for non-Māori. Conversely, in principle, this greater burden should be commensurate with the greater Māori share of fishing sector emissions, all other things being equal. In either case, to the extent that fishing operators cannot avoid additional ETS-related costs, this will reduce the value of individual transferable quota to some degree.

5.3 Agriculture

Based on land areas (rather than values), Māori agricultural interests at a national level relate mainly to mixed sheep and beef farming (33 per cent of Māori land), as well as beef cattle farming (17 per cent), and to a lesser extent, dairy farming (9 per cent). The common perception of more marginal farming and less less-intensive agriculture land use by Māori farmers is likely based in a range of factors, including more conservative stocking policies, poor land-use capability, limited access to capital, deficits in information and managerial expertise, and often small landholdings with multiple owners.

The Government has signalled its initial preference that agricultural processors/companies (enteric fermentation) and importers/producers (fertiliser) be the relevant points of obligation under the ETS, with farmers and sector bodies being alternatives. In respect of free NZU allocations, three possibilities are farmers, processors and sector bodies. Farmer-level obligations would be relatively costly, while obligations at sector body or processor/company level may give rise to inequities in those bodies’ subsequent allocations to farmers, particularly where different farm types are involved. For example, if subsequent allocations of emission costs are not targeted according to emissions, then farmers involved in relatively low-intensity farming would bear disproportionate costs. This could be the case for Māori sheep and beef farmers, for example, relative to both non-Māori sheep and beef farmers with higher sticking rates, as well as more intensive land uses such as dairying. Methods for determining the emission liability will be the subject of consultation between the Government and points of obligation. Allocations to sector bodies or processors/companies may therefore give rise to governance issues for Māori, particularly if Māori are unable to exert influence on those bodies’ decision-making processes (eg, due to capital constraints limiting participation in co-operative processors).

On the other hand, provided Māori are free to form qualifying sector bodies, and/or provided points of obligation and free allocation recipients are not cast in stone, there should be capacity for Māori to opt for alternative models if existing ones do not meet their needs. A challenge for Māori will be to ensure they fully engage in the associated governance processes in the early stages of the ETS development for agriculture to ensure Māori interests are served and flexibility is retained to amend any unsuitable arrangements. In terms of free NZUs, Māori are likely to benefit from direct farm-level allocations, especially if they are allocated on an averaged rather than emissions-related basis given the relatively low intensity of Māori farming. If NZU allocations are tied to historic emissions, however, low intensity farmers would face new costs in developing their land into higher-intensity land uses.³⁵ Once again, the importance of Māori being fully engaged in the process for determining such important details is highlighted.

If points of obligation are not the same as the parties receiving free allocations, potential exists for mismatches between devolved ETS liabilities and free NZUs. This would tend to benefit Māori if free allocations were based on some basis other than strict emissions intensity, and if devolved emissions costs reflected emissions intensity, given the common perception of a relatively high Māori interest in less-intensive farming, under-developed land, and marginal farming.

One possibility raised in the ETS consultation documents is for agriculture to face a progressive obligation for emissions rather than a full obligation offset by declining allocations of free NZUs. Such a progressive obligation would make the sector liable for increasing amounts of its emissions over time, and would not involve free NZU allocations. To the extent that Māori lacked confidence in the governance processes determining how agricultural emission liabilities and free NZU allocations are devolved to farmers, there is possibly some merit in a progressive obligation scheme. That way Māori would need to only be concerned with how the progressive emissions liabilities are devolved to farmers, and would face less risk of a mismatch between devolved ETS liabilities and free NZUs. However, debate about progressive allocations should be at least as intense as the debate that is likely regarding the devolution of emissions liabilities and free NZUs to farmers, since it combines elements of each into a single debate. Furthermore, having separate debates about emissions liabilities and NZUs offer opportunities for off-setting gains and losses for Māori. Hence it is unclear whether Māori would be better or worse off under progressive obligations than with a full obligation offset by declining allocations of free NZUs.

Where the ETS imposes costs but offers no new opportunities for value creation it will negatively affect farm land values, all other things being equal. It will do so by limiting land development potential, or simply by increasing farming costs and/or forcing lower agricultural productivity (eg, through lower stocking levels). These effects will be mutually reinforcing, with lower farm land values affecting the level of capital farmers can raise, and hence the level of farm development in which they can engage. Given the already low level of capital access and development of Māori farms, this additional impact may be greater for Māori farmers than others not sharing similar institutional constraints. Conversely, where the ETS also offers new value-creation opportunities, such as in wind-farming (alongside existing farming operations or otherwise), then farm values might in fact improve, all other things being equal. These too would be mutually reinforcing, but in a positive direction.

Themes that recur across the sectors in which Māori have significant ownership interests, and which are relevant in the case of Māori agriculture, include the following:

1. Deficits in information and managerial expertise – on Māori farms the related deficits in “absorptive capacity” may hamper the uptake of new technologies and farming practises that reduce farm-level emissions and hence exposure to emissions charges: Māori farmers may need extra help in order to overcome these deficits and impacts.
2. Participation in emissions-reducing R&D – for similar reasons Māori farmers may require extra help to ensure they participate in such programmes.
3. The ETS will give rise to extra compliance costs, and also new penalties for non-compliance – these may increase the risk of bankruptcy on Māori farms, and hence the risk of ancestral lands being lost (depending on how aggressive the ETS’s penalties regime turns out to be, with analogies to rates arrears of possible relevance).

While the ETS may ultimately reduce agricultural output relative to the alternative of no emission costs and sink credits, the greater drivers of agricultural growth are likely to remain unrelated to emissions. Accordingly, the impact of the ETS on agriculture sector employment, and Māori employment in the sector, is likely to be driven by wider economic influences. Section 5.8 discusses research published on the impacts of emissions charges on Māori employment in the agricultural processing sector.

5.4 Pre-1990 forestry

As mentioned earlier, the forestry figures available from the Māori Land Information Base significantly understate the Māori interest in forestry. Not reflected in the Māori Land Information Base figures is the fact that Māori own almost 97,000 hectares of former Crown Forestry Licensed lands which almost certainly involve pre-1990 exotic forests. Additionally, Māori own a further 26,447 hectares of land subject to forestry leases to the Crown (managed by Ministry of Agriculture and Forestry’s Crown Forestry Group, and dominated by the Lake Taupo and Lake Rotoaira forest leases) which involve pre-1990 exotic forests. For these facts alone it can be predicted that Māori have a significant share of exotic forest land in the pre-1990 category. Given future Treaty settlements will almost certainly involve further pre-1990 Crown Forestry Licensed lands, with Land Information New Zealand managing 494,000 hectares of possible such lands, the scale of the Māori interest in pre-1990 forest lands may well rise very quickly.

Furthermore, Crown Forestry Licensed lands are commonly large – the average licence area managed by Land Information New Zealand is almost 22,000 hectares. Similarly, all but one of the leases managed by the Crown Forestry Group exceeds 50 hectares. Where Māori landowners lease their lands to foresters, commonly such leases will also be of sufficient scale to warrant the transaction costs of entering into a lease. Additionally, the Māori land statistics summarised earlier suggest that blocks of Māori land are on average 57 hectares, with 68 per cent less than 10 hectares in size – raising the prospect that many Māori forest landowners may qualify for an exemption to deforestation liabilities. However, given multiple cross-interests across Māori landowning bodies, proposed ETS grouping rules may preclude this possibility in many cases. For these reasons, Māori pre-1990 exotic forest lands are more than likely caught under the ETS’s deforestation rules.

A further possible issue for Māori landowners arises where land has been allowed to revert to scrub or native bush, whether due to lack of capital for alternative land uses or otherwise. Some species (eg, kanuka) have the potential to grow to a height and density sufficient to qualify as a forest under the Kyoto Protocol and proposed ETS rules. Where such reversion arose pre-1990, this raises the prospect of such lands being treated as pre-1990 forests, and thus attracting deforestation liabilities if the land is put into non-forestry uses in the future. Accordingly, the extent to which Māori land is caught under the deforestation rules, with the associated obstacles this places on such land being put to higher-valued non-forestry uses, may be greater than expected.

The owners of pre-1990 forest land do not accrue carbon credits as their associated forests grow, but nor do they face liabilities upon harvest of such forests (or from natural carbon losses, such as wind damage or fire). So long as such lands are retained in forestry or actively regenerated no deforestation liability arises. However, should such lands be put into alternative land uses – eg, converted into dairying – a deforestation charge will arise under the ETS, based on the carbon deemed released.³⁶ Figures produced by the Ministry of Agriculture and Forestry suggest the level of deforestation charge envisaged in the December 2006 Sustainable Land Management consultation paper would have precluded conversion into low-intensity farming such as sheep and beef farming, although higher-valued conversions such as dairying may remain viable (at the then dairy payout prices, which were lower than present prices).³⁷

Consequently, the value of pre-1990 forest land should not be expected to increase due to the ETS, but is likely to instead decrease relative to its value without deforestation charges. The extent of any decrease will depend on the conversion potential of the land, and the existence of any other obstacles to conversion (eg, RMA replanting requirements, nitrate rules, etc) – if deforestation is not feasible in the foreseeable future, then the value impact may be negligible. Conversely, any capital constraints faced by Māori landowners may preclude replanting of pre-1990 forests, so if deforestation liabilities preclude otherwise feasible alternative land uses then those landowners may find themselves forced into allowing low-valued reversion on their land.

One potential complication for Māori owners of pre-1990 forest lands is the inability to make rapid or radical changes to land use. Whether due to governance issues under Te Ture Whenua Māori, capital constraints, lack of information and managerial expertise, or having granted long-term forestry leases/rights to third parties, it is possible that Māori owners of pre-1990 forest lands have been slow to take advantage of the opportunity to deforest their lands before any deforestation liability arises from 2008. Certainly some non-Māori parties have been actively deforesting large areas before 2008. A consequence of this is that Māori may be relatively poorly positioned to avoid deforestation liabilities under the ETS, and may therefore face relatively higher value impacts as a consequence.

Māori owners of pre-1990 forest lands may enjoy windfall gains, however, under the proposed ETS. Free allocations of NZUs are to be made to such landowners on a pro rata (ie, area-based) rather than targeted (ie, value-based) basis. Where land values and/or deforestation potential are low, the value per hectare received under such free allocations may disproportionately compensate for lost conversion potential. This may particularly be the case if pre-1990 indigenous forests are to be included in the ETS (which is a matter subject to consultation and further policy development), given existing restrictions on the commercial use of indigenous forests.

As for agriculture, Māori face issues regarding pre-1990 forest lands in relation to ETS compliance costs, the risk of penalties for non-compliance, and heightened bankruptcy risk (which may or may not put the ownership of ancestral lands at risk). Since details of the compliance regime are yet to be finalised, it is not possible to gauge the extent of these risks, and Māori will have an interest in shaping the development of such rules. Additionally, Inland Revenue and the Treasury have suggested for consultation purposes that both deforestation liabilities and associated free NZU allocations should be treated as capital for tax purposes (ie, giving rise to neither taxable receipts nor deductible expenditures).³⁸ Clearly Māori land-owning organisations would face cash-flow difficulties if the finalised tax rules instead treated free NZU allocations as taxable receipts.

Finally, Māori will be interested in whether or not ETS exemptions are granted for papakainga purposes. If not, then developing housing on Māori-owned land under this scheme may become less feasible. This too is subject to consultation and subsequent policy development, in which affected Māori will have an interest.

5.5 Post-1989 forestry

Unlike for pre-1990 forest lands, owners of lands suitable for post-1989 forestry face potential value opportunities under the ETS that may increase their asset values. These opportunities are only available, however, if landowners apply to have their lands covered by the ETS and can satisfy the associated conditions of entry. Naturally landowners should only do so if they expect the resulting benefits to sufficiently compensate them for the risks and costs they assume. By earning tradable carbon credits for the carbon stored in post-1989 forests such landowners may be able to generate additional value from forestry, even after accounting for harvest liabilities and liabilities for any natural carbon losses (eg, due to wind damage or fire). By generating this value on some parts of their land, this may in fact relieve the capital constraint faced by Māori on other parts of their land, and hence facilitate greater development of Māori land. It also provides a financial incentive for Māori to consider rationalising otherwise uneconomic land blocks to enable this opportunity to be exploited (although transaction costs arising under Te Ture Whenua Māori may still prove prohibitive, unless support is made available to facilitate this).

Based on the data presented earlier, Māori may be well-placed to take advantage of this opportunity, particularly in the Gisborne/East Coast and Northland regions, with potentially large areas of suitable land. Part of this opportunity relates to the use of marginal land that is not suitable for alternative uses, or which might only just be viable in alternative uses (eg, marginal sheep and beef farming). Where land is currently not being used and is not covered in pre-1990 reversion of sufficient scale to fall under the pre-1990 deforestation rules, it could be planted in forest in order to generate carbon credit value. Conversely, where the land is used for marginal farming, it could either be planted in forest instead, or allowed to revert if the species involved have the potential to grow to a sufficient height and density to constitute a forest under the Kyoto Protocol and ETS rules. Indeed, where post-1989 reversion in suitable species has occurred, such reversion could already qualify for the generation of carbon credits. Furthermore, there is scope under the ETS for land deforested after 1990 to be entered back into the ETS as post-1989 forestry in order to earn carbon value, but if such deforestation occurs after 31 December 2007 then all associated deforestation charges would first have to be met.

By reducing the viability of pre-1990 deforestation, and increasing the viability of post-1989 forestry, the ETS is likely to stimulate forestry-related employment. This would arise in both the forestry and wood processing sectors, which are significant employers of Māori. Conversely, ETS-related increases in energy prices will increase transportation and processing costs, with offsetting effects. Also, to the extent the ETS encourages the retirement of marginal farmland into forestry, this may have a small offsetting effect on Māori farming and agricultural processing employment. In all cases, however, more fundamental economic drivers (ie, than the ETS) are likely to dictate changing employment levels in these sectors. Section 5.8 discusses research published on the impacts of emissions charges on Māori employment in the forestry, wood processing, and pulp and paper sectors.

Possible constraints Māori might face in taking advantage of such opportunities include a lack of capital for forest establishment, a likely lack of land-use data as of 1990 and land description details required to validate an application for entry into the ETS (given widespread lack of survey and title on Māori land blocks), and possible deficits in information and managerial expertise. As for agriculture, the latter may be addressed through additional support to enable Māori landowners to take advantage of the scheme. Additionally, governance issues associated with land-owning bodies created under Te Ture Whenua Māori 1993 may hinder such bodies from entering their lands into the ETS within the required 18 months of ETS legislation being passed. This could result in Māori being slow to take advantage of ETS opportunities, with the next proposed opportunity to enter lands into the ETS as post-1989 forestry being after 2012. Finally, there is some question over how the receipt of NZUs for carbon sequestration, and the cost of emission units to cover harvest liabilities, should be treated for tax purposes.³⁹ Inland Revenue and the Treasury suggest that NZU receipts should be treated as revenue and hence taxable, and also that the cost of emissions units required to meet harvest liabilities should be deductible. However, the timing of tax liabilities and deductions will be important, as they could give rise to cash flow difficulties that potentially affect Māori land-owning bodies more than others.

Where full entry into the ETS is not feasible, alternatives such as the Permanent Forest Sinks Initiative and Afforestation Grant Scheme may be suitable. The Permanent Forest Sinks Initiative requirement that covenants be registered against titles may deter some Māori landowners, but the greater international tradability of credits generated under the initiative could provide offsetting benefits.⁴⁰ While the ETS reduces the scope for landowners to generate carbon value through voluntary carbon offsetting, some limited opportunities remain.⁴¹ Moreover, Māori entrepreneurs may be able to play a leading role in marketing carbon sequestration opportunities to Māori landowners, simplifying the process, reducing transaction costs, and overcoming any information and managerial deficits in the process.

Finally, Māori may also have an opportunity to leverage their indigenous identity, and cultural attributes such as kaitiakitanga to differentiate any carbon credits generated by post-1989 forestry on Māori land for additional carbon credit value. Since NZUs generated under the ETS will be traceable, it should be feasible to “brand” those units generated by Māori. To the extent international demand materialises or can be stimulated for such attributes – as well as other attributes such as enhancing water quality, etc – this may enhance the value Māori can generate from post-1989 forestry. It may be efficient for Māori to take a coordinated approach to such differentiation, and for such differentiation to be facilitated (as opposed to simply possible) under the design of registry and trading rules for NZUs under the ETS. Important in this regard will be the certification of such indigenous attributes in some internationally-recognised manner. This might require an extension or replication of the Toi Iho model for Māori branding, and/or liaison with appropriate international carbon certification agencies.

5.6 Regional considerations

Table 5.1 illustrates where the strongest divergences between Māori foresters and farmers, and among dairy and other farmers, might arise within and across the six most significant regions in terms of Māori land area.⁴²

Table 5.1: Possible divergences of Māori interests within and between six main regions

* Māori forestry interest understated as a proportion of Māori land, biasing figures in first ratio column upwards.

Assuming forestry and farming activities are separately owned, the greatest intra-regional divergence in interests between Māori foresters and farmers is likely to arise where the ratio of farming to forestry is high, ie, in Gisborne, Manawatu-Wanganui and Bay of Plenty. Conversely, the greatest divergence in interests between Māori dairy farmers and other Māori farmers is likely to arise where there is a high ratio of non-dairy to dairy farming types, ie, in Hawke’s Bay, Gisborne, and Manawatu-Wanganui.⁴³ Where multiple farm types are owned by the same Māori owners, however, these divergences in interest will be less pronounced, and possibly vanish depending on the balance of those owners’ respective farm type interests.

Alternatively, the greatest inter-regional differences in Māori interests are likely to arise between those regions with markedly different ratios of farming to forestry, and of non-dairy to dairy farming. While regions with a high ratio of farming to forestry should favour a more generous ETS treatment of agriculture relative to forestry, regions with low such ratios will be concerned with the ETS’s treatment of forestry to a greater degree. Similarly, regions with predominantly low-intensity (ie, non-dairy) farming should prefer intensity-based ETS cost allocations but free NZU allocations being made on a more averaged basis.

It is more reasonable to assume little cross-ownership of different farm types by Māori across regions than it is to assume no cross-ownership of different farm types within a region. Based on such considerations, Table 5.1 suggests that the greatest divergences in Māori interests regarding the relative treatment of forestry and farming should arise between Gisborne and Manawatu-Wanganui on the one hand, and Waikato on the other. It also suggest that the greatest divergences in Māori interests regarding the relative treatment of low- and high-intensity farming should arise between Hawke’s Bay and Gisborne on the one hand, and Bay of Plenty, Northland and Waikato on the other.

5.7 Geothermal energy

Placing emissions charges on users of geothermal energy for electricity generation and industrial processes should reduce the profitability of such activities, all other things being equal. In the case of geothermal electricity generation, however, the affected generators can generate at less cost than thermal generators which also face emissions charges, so predicted wholesale electricity price rises due to the ETS will provide them with higher generation profits. Industrial users of geothermal energy, however, will likely just face higher energy costs, absent any relief measures.

This aspect of the ETS will have an impact on relatively few Māori. A notable instance of Māori interests in geothermal activities includes the Mokai geothermal system, with Tuaropaki Trust owning 75 per cent of a geothermal electricity generator, as well as geothermal hot-houses for horticulture. Similarly, Ngati Tuwharetoa (Bay of Plenty) own geothermal assets in Kawerau having acquired them under the iwi’s Treaty settlement. Also, the pending Te Arawa (KEC) Treaty settlement includes purchase rights over Crown geothermal assets in the Ngatamariki field.

5.8 Employment

Analysis published by Waikato University researchers examines the impact of emissions charges on Māori employment across different economic sectors.⁴⁴ Based on previous research finding that the probability of Māori and Pacific Islanders losing work was more than twice the probability for other ethnic groups, they assume the Māori probability to be twice the probability for all New Zealanders. Assuming emissions charges of $13/tonne and $32.50/tonne, the effect of this assumption and sector-specific employment impacts from emissions charges combine to suggest a 2.6–3 per cent decline in overall Māori employment, as compares with a 0.5–0.7 per cent fall for non-Māori (ie, roughly a quarter of the Māori employment fall).

This research makes no allowance for free NZU allocations to affected sectors, and hence may overstate the employment impacts for the primary and primary processing sectors (although deforestation rates and hence shifts from forest product processing towards other sectors such as agricultural processing will be overstated without free NZU allocations being assumed). While this assumption will bias the absolute and inter-sectoral employment effects of emissions pricing, there is less reason to believe it will bias the relative Māori and non-Māori impacts within sectors. The more significant predicted sector impacts are summarised in Table 5.2.

Table 5.2: Predicted emissions charge impacts on Māori and non-Māori employment by sector (assuming no free allocation of NZUs)

The sector predicted to experience both the highest fall in Māori employment, and the highest fall relative to non-Māori in the sector, is meat manufacturing. Conversely, Māori employment in the wood and wood products, and pulp and paper sectors, is predicted to rise at twice the rate for non-Māori, with even higher gains predicted for the logging and forestry sectors.

Table 5.3: Regional employment impacts of emissions pricing

Research by Motu adapts 2001 modelling work by ABARE to measure regional employment impacts from various climate change policy scenarios.⁴⁵ Based on the scenario most representative of the ETS (Scenario 4 per their Table 1) the greatest falls and rises in employment by region are as shown in Table 5.3 above. Note that the ABARE general equilibrium model predicts carbon prices of $49–$73, which are at the higher end of the range for similar such models, possibly therefore overstating emissions costs and sink credit returns.

5.9 Treaty settlement assets

The impact of the ETS on fisheries Treaty settlement assets has already been mentioned. In respect of settlement land assets, different ETS issues arise for past and future settlements.

Very clear issues arise in relation to Crown Forestry Licensed land, farm land and geothermal assets acquired under the settlements, whose value may be reduced under the ETS. This issue is of particular note for Ngai Tahu, given the iwi currently holds 84,000 hectares of Crown Forestry Licensed lands purchased under its 1998 settlement, 38,000 hectares of which it intends for conversion.⁴⁶ Similarly, Te Uri o Hau and Ngati Tuwharetoa (Bay of Plenty) paid highest and best-use values for the Crown Forestry Licensed lands they acquired under their respective settlements.⁴⁷ In Te Uri o Hau’s case, this value included a premium for residential subdivision for its Mangawhai land block, and it has announced its intention to pursue such development on that block (but not yet undertaken it). In Ngati Tuwharetoa’s case no conversion has occurred, but the Crown Forestry Licensed land is suitable for farming use, and the iwi has not ruled out wishing to pursue such an opportunity. Clearly any deforestation charges under the ETS could affect the value of these settlement lands by diminishing their conversion potential.

In respect of future settlements, there is greater capacity for claimants to factor into their transfer valuations for settlement assets any anticipated impacts of climate change policy. However, this ability is constrained by two factors. First is the inability of conventional valuation approaches to assess the value impact of deforestation charges contingent on uncertain future land-use decisions.⁴⁸ Second is the fact that considerable uncertainties about the shape of the ETS as it applies from 2008 remain, exposing claimants to considerable valuation risk.

The pending Te Arawa (KEC) settlement involves a formula that potentially sidesteps some of these issues. By covenanting to keep Crown Forestry Licensed lands in forestry for 28 years from their reversion to Te Arawa, the iwi was effectively able to conduct valuations on a “forestry only” basis which avoids consideration of highest and best-use valuations, and hence any impacts of deforestation liabilities. However, questions remain as to when and to what extent Te Arawa qualifies for any free allocation of NZUs as proposed in the ETS, given the 28-year covenants.

Other claimants will have the option of receiving a free allocation of NZUs in respect of Crown Forestry Licensed lands taken as part of their settlement, or foregoing such an allocation and paying correspondingly lower transfer values for the lands (with associated advantages under current government policy in terms of access to accumulated licence fees on such lands).⁴⁹ The ETS proposes no corresponding free allocation of NZUs in respect of any farm land or geothermal assets purchased by iwi under Treaty settlements.

The extent of these possible issues in respect of pending Treaty settlements is illustrated in Figure 5.1, which describes the Crown Forestry Licensed lands administered by Land Information New Zealand that may ultimately be included in Treaty settlements (most of which are pre-1990 forest lands).⁵⁰ While this map also shows forest lands returned in respect of settled claims, it does not show the full extent of lower South Island Crown Forestry Licensed lands purchased by Ngai Tahu.

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