Carbon Farming vs Traditional Forestry
Carbon farming and traditional timber production are related but distinct land uses. Understanding the differences helps you choose the right approach for your land and goals.
The Fundamental Difference
Traditional forestry: Grow trees to harvest and sell timber.
Carbon farming: Register forest in the ETS to earn credits for carbon stored.
You can do both — many forests earn carbon credits while growing for eventual timber harvest. But the emphasis and economics differ.
Economic Comparison
Traditional Timber Forestry
Revenue model:
- Major income at harvest (20-30 years)
- Minimal interim income
- Return depends on log prices and quality
- One-time (per rotation) cash flow
Typical returns (indicative):
- Harvest income: $20,000-40,000/ha (gross, varies hugely)
- Less establishment: ~$1,500-2,500/ha
- Less management costs over rotation
- Net returns highly variable
Risk factors:
- Log price volatility
- Distance to market
- Forest quality
- Harvest costs
Carbon-Only Approach
Revenue model:
- Income throughout growing period (to averaging age)
- Annual or periodic carbon credits
- No timber harvest income (if permanent)
- Ongoing cash flow
Typical returns (indicative, averaging accounting):
- ~5,000-6,000 NZUs/ha over rotation (radiata)
- At $60/NZU: ~$300,000-360,000/10ha
- Costs: Establishment, compliance, management
- Spread over 16+ years
Risk factors:
- Carbon price volatility
- Policy changes
- Compliance requirements
- No timber safety net (if permanent)
Combined Approach
Revenue model:
- Carbon income to averaging age
- Timber income at harvest
- Averaging accounting means no unit surrender if replanting
- Best of both worlds?
Typical returns (indicative):
- Carbon: ~5,000-6,000 NZUs per rotation
- Plus timber: $20,000-40,000/ha at harvest
- Higher total potential return
- More complex management
When Carbon Dominates
Carbon farming makes more economic sense when:
1. Location is Remote
Timber needs to reach mills and ports. If your land is:
- Far from processing
- Difficult access
- High transport costs
…the relative value of timber falls, making carbon more attractive.
2. Carbon Prices Are High
When NZU prices are elevated relative to log prices, carbon value dominates the calculation.
At $80/NZU: Carbon clearly wins for many scenarios At $40/NZU: Timber more competitive At $60/NZU: Case-by-case depending on other factors
3. Land is Marginal
On steep, erodible, or otherwise marginal land:
- Timber harvest may be impractical
- Establishment may be costly
- Permanent carbon forest fits better
4. Native Species Preferred
For native forests:
- Timber harvest is restricted
- Growth is slow (poor timber economics)
- Carbon permanent category suits
- Co-benefits add value
When Timber Dominates
Traditional forestry makes more sense when:
1. Location is Favourable
Near mills, ports, and infrastructure:
- Transport costs low
- Log markets accessible
- Timber realises good prices
2. Land is Productive
High-quality, accessible land:
- Better tree growth
- Lower harvest costs
- Good timber economics
3. You Want Options
Timber forests provide:
- Ability to harvest if needed
- Asset you can sell
- Flexibility for future
4. Carbon Policy Concerns
If you’re uncertain about:
- Future carbon rules
- Price stability
- Political direction
…having timber value provides a fallback.
Hybrid Strategies
Most commercial operations blend approaches:
Carbon Plus Timber
Under averaging accounting:
- Earn carbon credits to averaging age (~16 years)
- Continue growing to optimal timber age (~28 years)
- Harvest timber
- Replant and repeat
No carbon surrender at harvest (if replanting). You get both revenue streams.
Core and Buffer
Main area in timber production with:
- Margins and waterways in permanent native
- Steep or erosion-prone in permanent carbon
- Productive areas in harvested forestry
Optimises each area for its strengths.
Staged Approach
Start with carbon focus (easier revenue):
- Register and earn credits
- Develop infrastructure over time
- Harvest later if economics improve
- Or remain in carbon if policy supports
Land Value Impacts
Carbon potential has affected land values:
Post-1989 Premium
Land eligible for carbon registration (post-1989) commands premiums:
- $5,000-10,000/ha above similar pre-1990 land
- More in high-carbon-price environments
LUC Class Impact
LUC restrictions mean:
- LUC 7-8 land (unrestricted) more valuable for exotics
- High-LUC land value reduced for carbon purposes
- Native always an option (no restrictions)
Strategic Considerations
When buying land:
- Check ETS eligibility
- Understand LUC restrictions
- Factor carbon potential into price
- Consider long-term land-use options
Community and Social Factors
The carbon vs timber debate has social dimensions:
Traditional Forestry
- Supports local mills and processing
- Creates harvest and transport jobs
- Familiar to communities
- Renewable resource
Carbon Forestry
- Perceived as “locking up” land
- Fewer ongoing jobs
- May be owned by distant investors
- Climate benefits valued by some, questioned by others
Making Your Decision
Questions to consider:
- Location: How accessible for harvest?
- Land quality: Productive or marginal?
- Price outlook: View on carbon vs timber prices?
- Risk tolerance: Want diversification?
- Time horizon: How long can you wait?
- Values: What outcomes matter beyond money?
- Flexibility: How important is optionality?
There’s no universally “right” answer. The best approach depends on your specific situation.
Key Takeaways
- Carbon and timber aren’t mutually exclusive — you can do both
- Carbon wins for remote/marginal land
- Timber wins for productive/accessible land
- Price relativities matter — changes over time
- Averaging accounting enables combined approach
- Land values affected by carbon potential