Land use change between forestry and agriculture under

Land use change between forestry and agriculture under

Land use change between forestry and agriculture under the NZ ETS Author: Yue Wang Co-authors: Stephen Poletti, Golbon Zakeri, Joon Hwan(John) Kim, Basil Sharp Motivation How does the NZ ETS effect land use change between forestry and agricultural sectors? ETS is a key pillar approach to NZ climate change Largest emissions come from agriculture, forestry sequestrate carbon and was first enter into the ETS(MPI, 2012) Model Base year: 2007 Steady-state forestry model links to the CGE NZsmall open economy 12 sectors, 5 types of land, factors (labor, capital) are mobile among sectors, land is mobile among 5 landused sectors, joint production one household, government, enterprise, investmentsavings, rest of world Four carbon tax scenarios ($0, $25, $50, $100) Sectors Land-used sectors Forestry Model is based on Sands & Kim (2009), Van Kooten et al. (1995) Select the NZ pruned without thinning radiate pine Biomass timber yield function:

: shape parameter a: rotation age Derive the optimal rotation age by maximizing foresters profit () [Steady-state: equalized annual profit] CGE production Three-level nesting, Leontief function at the top level and between domestic and imported Sector Leontief Intermediate Value-added CES Leontief Domestic Import Capital Allow substitution between value-added input Labor Land allocation Five types of land; assuming a composite land used in the sector production. The Armington substitution (CET) is allowed for land allocation Rest of world

Domestic consumption: domestic output and imported goods (CET) The exchange rate is endogenous, world price is exogenous Foreign savings are exogenous Export consumption: exported output and domestic commodities (CET) Agents Representative household: maximize utility, using the Linear expenditure system (LES) to seek the optimal level of commodity demand Government: Supply capital, collect tax from production, income, carbon emission, Leontief consumption Investment-Savings: Johanson macro-closure; exogenous investment and endogenous savings Enterprise: capital supplier Market clearing: both factor and commodity markets clear Data The National Exotic Forest Description (NEFD) (MPI, 2011) is used for estimating the shape parameters in biomass timber yield c1: 0.075316; c2: 3.227245; c3: 0.06344, convert factor 0.86 metric tons CO2-e per cubic meter of wood, pickling factor is 0 Interest rate is constant of 0.08, the initial timber price is set as the average export price of log per JAS m3 f.o.b. $187

March 2007 Supply-use table, Agribase and LCDB v2 for land hectares MPSGE language (mathematical programming system for general equilibrium) Results - Forestry Rotation Age 22.5 22 21.5 21 20.5 20 19.5 19 18.5 18 pc=0 Timber Yield tonne/ha 400 rotation age 200 100 0 pc=0 pc=25 pc=50 200 15000 10000 195 5000

190 1 2 3 4 -10000 185 180 CO2-e price pc=0 pc=100 pc=25 timber price pc=50 $/tonne/ha timber 205 20000 -5000 pc=50 pc=100 CO2-e price 25000 0 pc=25 pc=100 NPV and Timber Price

$/ha NPV 300 Forestry Pc=0 Pc=25 Pc=50 Pc=100 rotation year 19.631 20.227 20.815 22.046 yield 322.612 342.103 361.516 402.479 timber price 186.983 190.7 196.009 200.558 NPV1 12521.38 12912.65 13381.43 13814.62 NPV2

0 2065.423 4224.047 8790.557 NPV3 0 -1458.28 -2940.39 -5933.08 NPV4 15808.61 16863.16 18086.09 20121.07 Results - Land price change level change million $ /ha Land Price Change 25 20 LForest LOther LGrass LScrub LCrop 15 10 5 0 pc=0 pc=25 pc=50 pc=0 pc=25 pc=100 pc=50

pc=100 LForest 0.997 4.021 9.925 19.629 LOther 1.033 1.319 2.391 4.25 LGrass 1 1.121 1.742 2.635 LScrub 1.001 1.943 4.372 8.682 1 1.051 1.433

1.678 LCrop Land price is increasing due to the strong demand. Forestry land increases the most. Results - Forestland change Forest Land Use Change (value) 300 million $/ha 250 200 pc=0 150 pc=25 100 pc=50 50 pc=100 0 Horticulture and fruit growing Sheep-beef Dairy Other agriculture Forestry Industry demand Forest land demand by ind (hectares) Forestland use by ind/total Forestland hectares

pc=0 Horticulture and fruit growing pc=25 pc=50 pc=100 0% 0% 0% 0% 42% 3% 1% 0% Dairy 6% 0% 0% 0% Other agriculture 2% 0% 0% 0% 50%

96% 99% 100% Sheep-beef Forestry Results-Other land change Other Land Use Change (value) 70 million $/ha 60 50 pc=0 40 pc=25 30 pc=50 20 pc=100 10 0 Horticulture and fruit growing Sheep-beef Dairy Other agriculture Forestry Industry demand

Otherland demand by ind (hectares) Horticulture and fruit growing Otherland use by ind/total otherland hectares 1% 0% 0% 0% 91% 62% 30% 9% Dairy 4% 2% 1% 0% Other agriculture 3% 1% 0% 0% Forestry 2%

34% 69% 91% Sheep-beef Results-grassland change million $/ha Grassland Use Change (value) 800 700 600 500 400 300 200 100 0 Horticulture and fruit growing pc=0 pc=25 pc=50 pc=100 Sheep-beef Dairy Other agriculture Forestry Industry demand Grassland demand by ind (hectares) Horticulture and fruit growing Grassland use by ind/total grassland hectares 0%

0% 0% 0% Sheep-beef 81% 70% 46% 18% Dairy 14% 11% 5% 0% Other agriculture 3% 2% 1% 0% Forestry 1% 17% 47% 82% Results-scrubland change

Scrubland Use Change (value) 160 140 million $/ha 120 100 pc=0 pc=25 pc=50 pc=100 80 60 40 20 0 Horticulture and fruit growing Sheep-beef Dairy Other agriculture Forestry Industry demand Scrubland demand by ind (hectares) Scrubland use by ind/total scrubland hectares Horticulture and fruit growing Sheep-beef Dairy Other agriculture Forestry 0% 84% 4% 3% 9% 0% 26%

1% 1% 73% 0% 8% 0% 0% 92% 0% 2% 0% 0% 98% Results-cropland Cropland Use Change (value) 90 80 million $/ha 70 60 pc=0 pc=25 pc=50 pc=100 50 40 30 20 10 0 Horticulture and fruit growing Sheep-beef Dairy Other agriculture Forestry

Industry demand Cropland demand by ind (hectares) pc=0 pc=25 pc=50 pc=100 Cropland use by ind/total cropland hectares Horticulture and fruit growing 17% 15% 12% 3% Sheep-beef 73% 71% 61% 36% Dairy 7% 6% 4% 0% Other agriculture 3%

2% 1% 1% Forestry 0% 6% 22% 60% Export pc=0 pc=25 pc=50 pc=100 com1 1438.628 1182.89 958.124 604.26 com2 219.697 211.87 202.267 166.689 com4

664.532 251.248 110.801 20.632 com5 632.193 784.715 1005.004 1968.002 com6 1091.807 1166.001 1229.559 1322.974 com7 13934.14 12725.44 11312.49 7586.737 com8 2469.506 2851.126 3329.527

4987.275 com9 15140.86 15576.44 15882.29 16117.75 com10 17.982 18.299 18.482 18.607 com11 31.983 33.277 34.368 36.202 com12 12013.29 12573.65 13052.85 13793.2 GDP Change Exchange rate Change 156000 155500

1.08 155000 million $ 1.06 1.04 154500 154000 153500 153000 1.02 152500 pc=0 1 pc=25 pc=50 pc=100 CO2-e price 0.98 GDP0 0.96 pc=0 pc=25 Pc=0 Pfx Pc=25 1 1.02 pc=50

Pc=50 1.048 Pc=100 1.073 GDPEX pc=100 Pc=0 Pc=25 Pc=50 Pc=100 GDP0 155419.1 155419.1 155419.1 155419.1 GDP EX 155419.1 154961 154221.3 153479.8 Commodity price commodity price pc=0 pc=25 pc=50 pc=100 com1

1 1.054, 1.111 1.263 com2 1 1.131, 1.414 1.764 com3 1 1.049, 1.104 1.215 Commodity Price Change (level change, million $) 4.5 4 com4 1 1.425, 1.98 4.008 3.5 com5 1 1.02 1.048 1.072 3

com6 1 0.999, 0.995 0.996 2.5 2 com7 1 1.060, 1.159 1.314 1.5 com8 1 0.998, 0.996 0.995 1 com9 1 1.007, 1.017 1.036 com10 1 1.007 1.031

1.013 0.5 0 com1 com2 com3 com4 com5 com6 com7 com8 com9 com10 com11 com12 pc=0 com11 1 1.000, 1.001 1.004 com12 1 0.996 0.988 0.991 pc=25 pc=50 pc=100 Import Values million $ 160000 120000 80000 40000 0 Industry pc=0 Import value

Horticulture and fruit growing Sheep, beef cattle Other Agriculture Natural Forestry Minerals, oil and coal Processed Agricultural products Processed forestry products Other Manufactured products Utility Construction Services pc=25 pc=50 pc=100 pc=0 pc=25 pc=50 pc=100 357.714 320.603 294.665 260.957 139.609 101.126 73.355 48.965 381.248 271.696 201.283 132.225 5 5.181 5.447 5.75 3120.162 3199.391 3298.78 3392.634 799.979 676.405 570.1 459.121 725.921 733.563 749.185

772.826 35393.46 35086.39 35012.41 35365.46 6.999 6.889 6.853 6.787 178.018 179.53 179.968 185.91 9532.22 9611.594 9633.297 9627.454 Future work Contribution: First linking the steady state forestry model to the CGE for analyzing the land use change in NZ study. Results are more comprehensive. Future work: Estimation of the market clear domestic carbon credit (NZU) price Appendix I (Forestry carbon payment) Forester pays liability for harvested trees but receive the return for carbon sequestration from growing trees Annual carbon sequestration payment: Carbon emission amount: Where is pickling factor, implies how much carbon would be sunk into the wood permanently; is amount of the harvested tree each year from the beginning to rotation age a. Appendix II (Timber

production) Due to the biomass timber yield function, we assume a Leontief function for timber production (). Harvested timber production is used as the intermediate for other industries (), determined by the Leontief coefficient (, , ) Appendix -equations Market clearing Commodity market: Market clearing Factor market

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