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JOINT COMMITTEE ON CLIMATE CHANGE AND ENERGY SECURITY debate -
Wednesday, 10 Nov 2010

Sustainable Forestry and Forest Carbon Sequestration: Discussion with Coillte

I welcome representatives from Coillte, Mr. Ciaran Black, enterprise development director, and Mr. Gerry Egan, group director for strategy and corporate affairs. Members are reminded of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the Houses or an official by name or in such a way as to make him or her identifiable. By virtue of section 17(2)(i) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of the evidence they give to the committee. If they are directed by it to cease giving evidence in regard to a particular matter and continue to do so, they are entitled thereafter only to qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given and asked to respect the long-standing parliamentary practice to the effect that, where possible, they do not comment on, criticise or make charges against a person or an entity by name or in such a way as to make him, her or it identifiable. I invite Mr. Black to make the presentation.

Mr. Ciaran Black

My colleague, Mr. Egan, wishes to say a few words first.

Mr. Gerry Egan

We are delighted to have the opportunity to meet the joint committee to make a brief presentation on the role sustainable forestry can play in mitigating the effects of climate change, although the committee does not need to be persuaded of the important role afforestation can play in achieving the aims of the national climate change strategy. Mr. Black will make a presentation on Coillte's proposal to introduce a carbon-based afforestation scheme as an innovative way of funding the afforestation programme. Before he does so, I will say a few words about Coillte and its relevance in this regard.

People will be aware of Coillte as the State forestry company which has a responsibility to manage State forests on a commercial basis. However, what perhaps is less obvious is that it has three other businesses, two of which are highly relevant to the climate change agenda. The company has two panel product businesses located in Clonmel and Waterford which produce highly energy efficient wood panels for export to the United Kingdom market. The point is these products use material from certified, sustainable and renewable sources and are sent to export markets, thereby creating jobs. Critically, they are vital components of the buildings we will see in the future. A new code of sustainable building practice has been put in place in the United Kingdom which means all new homes built there after 2016 will be obliged to have a zero carbon impact. Products such as wood panels will play a critical role in the achievement of these targets simply because they have much lower levels of embedded energy than competing products such as concrete and steel.

In addition, Coillte has an emerging renewable energy business and in that space we are considering two things. First, we have very significant land assets that offer the potential for the development of wind farm sites. We do not aspire to being an electricity supply company. Our core competence lies in land development and leveraging that land asset for the development or sale of these sites to the private sector. We have had good success in this regard and envisage that in the future Coillte's land assets will be highly significant in the attainment of the renewable energy targets and, by definition, being a key part of the climate change strategy.

It is about bringing these two businesses together with our forestry business. Everything Coillte does is geared towards its purpose, which is to be an innovative and sustainable manager of natural resources. That is what we are focused on.

We wish to talk to members about how we use our natural resources and how we innovate in their use to try to find different ways of tackling challenges in the funding of afforestation, particularly given the position on the public finances. Having consulted widely with all stakeholders in this area, including Departments, State agencies and so on, we wish to share some of the work we have been doing to develop a new, innovative approach to funding afforestation and, by expanding our afforestation programme, continuing to reduce carbon emissions. Mr. Black will go through the scheme we have in mind. While one should bear in mind that this is still a work in progress and Coillte has not entirely cracked it yet, this is an appropriate time to share with the committee the progress made in this regard.

Mr. Ciaran Black

I wish to discuss briefly the importance of forestry to Ireland in meeting the challenges presented by climate change. A specific feature is that forestry is probably more important to Ireland than some other member states. I then intend to introduce a potential solution, based on carbon values, to increase the current level of afforestation.

The slide being displayed to members focuses on projected emissions and projected distance to target in the period to 2020. The projections are based on the latest figures from the EPA. The chart shows the two scenarios being forecast. It shows potential emissions from all of Ireland's activities and the allowances to which we will be entitled in that period. The difference between the two is the so-called distance to target. The graph focuses on the distance to target figure. Members will note that in the projected two scenarios by 2020 it will be either 12.4 million tonnes or 7.6 million tonnes per year. Irish forests will sequester about 4.8 million tonnes by then, which will amount to between 40% and 60% of the distance to target in that period. Consequently, forestry sequestration is highly important in the Irish context and this figure is much higher than in the case of many other member states. In addition, in the second compliance period which will extend from 2013 to 2020, the carbon value amounts to approximately 35 million tonnes, obviously a highly significant value to Ireland.

The current trend is not particularly good. The graph now on display to members shows the total amount of afforestation, that is, new planting, since 1990 and Coillte's involvement in afforestation. Members will note that the general trend is that the level of afforestation has fallen dramatically in recent years to approximately 6,000 hectares to 7,000 hectares per year. Coillte is no longer actively involved in afforestation, although it meets all of its replanting obligations, because it is no longer entitled to the premium payments and, consequently, economically it is not viable for the company to engage in that activity. The bottom line is that Ireland is planting at a rate of approximately half of our target level of 15,000 hectares per year, the figure assumed in the existing national climate change strategy. This will have highly significant long-term implications.

The graph now being shown to members indicates what will happen to the carbon sequestration value over time. It will continue to grow in the short term up to 2020 because of the age structure of our forests. However, because our planting levels are beginning to drop, the graph also shows that between 2035 and 2055, because of age structure, it will be time to harvest these forests. Consequently, the carbon value will begin to diminish because we will be harvesting the trees but will not have planted a sufficient number in the intervening period to compensate for this. The impact is that, if we assume we will have a contribution from our forests of at least 4 million tonnes per year once we reach 2020, it will start to dip below the figures shown on the graph in 2035 or thereabouts. The graph shows an area which accounts for a figure of approximately 45 million tonnes during that period. This was at a time when we were supposed to be at approximately minus 80% reference levels. When Ireland needs it most, the age structure of our forests means we will not have the contribution. However, if we increase our level of planting to approximately 15,000 or 16,000 hectares per year, there is nothing we will be able to do about the drop off, but at least we will be able to drop from a much higher level and continue to make a contribution of approximately 4 million tonnes per year. Given the timeframe we are discussing, a missing 45 million tonnes-----

A vote is under way.

It is in another committee.

The Select Committee on Justice, Defence and Women's Rights. I apologise. We do not like to miss votes.

Mr. Ciaran Black

That 45 million tonnes would be missing at a time when all countries would need to be making significant reductions in their overall emission levels, reaching to approximately minus 80%. It is expected that carbon prices would be high by that stage, so the cost and value would be significant.

The bottom line is that Ireland needs to increase its level of afforestation. We are planting approximately half of what we need, that is, at least 15,000 hectares per year, if we are to ensure a sustainable positive level of carbon sequestration. We have a great opportunity, as our forest cover is low by international standards. We are at 10% whereas the EU average is 36%. Carbon could be the catalyst to increase the level of afforestation. Since carbon now has a value, it could change the economics of forestry. Rather than planting now to get a timber value at the end of the rotation in 40 years time, carbon is being sequestered right from the start. If carbon has a value, it represents an early cash flow, one that could change the economics. If this cash flow is freed up, it could increase afforestation without increasing the level of public funding to the forestry sector. It would also address some of the market inhibitors, as farmers must achieve the targets. Companies like Coillte and other participants do not have access to the premium payments, so a small group of people must meet a 15,000 hectare target. If structured correctly, this type of scheme could open up an opportunity for broader participation in forestry.

How can we open up a market opportunity? The next graph describes nationally how the carbon accounting works. On the top right-hand corner can be seen how all sectors of the economy have emissions. When they are calculated together, we can see our total national emissions picture. Against this we have eligible forests, those that are post-1990. Under the Kyoto Protocol, these are eligible as carbon sinks and can be netted off our total emissions. The resultant figure is our net greenhouse balance. We also have our allowance for emissions, the balance of which is the shortfall, that is, our distance to target. We meet the target by purchasing carbon credits internationally.

The objective is to reduce emissions through more carbon efficient technologies, energy efficiency, etc., increase our number of sinks - our low forest cover presents a considerable opportunity in this regard - and purchase carbon credits in the most financially efficient way possible. These are the three levers we can use.

Currently, forests are planted primarily for timber value. Due to the long lead-in time in terms of trying to get cash flowing, the Government must step in and provide grants and premiums to support this activity. Almost as a by-product of this work, forest sinks generate Kyoto units, which the Government uses to set against its national targets. There is no direct link between the grant and the premium on the one side and the production of carbon units on the other.

We are trying to change the system to allow Ireland to become more closely aligned with carbon productivity and to have a different way to fund afforestation. In addition to current schemes, a new scheme will be based around carbon units. Forest would continue to be planted for timber, but it would then generate a carbon unit. Under the new scheme, the unit would have Government backing and, as such, could be translated into an internationally tradeable unit, which would provide certainty. The unit could be bought by the Government or national or international buyers. The forest owner would trade in units and get paid for the carbon values associated with the forest. To the extent that the carbon price supported the activity, the amount of direct Government support required would decrease. We are examining how the activity can be funded by the market as opposed to relying solely on the Government.

Under the new scheme, new investors could be attracted to the activity because of the lack of eligibility issues associated with premium payments, etc. Since one is trading a financial unit, different investors may have different appetites for risks and returns. As such, one might be able to tailor different types of product to those appetites. Equity-based investors might foresee a high carbon price in the long term and invest on that basis. More conservative investors might look to have carbon units based around a Government purchase of same at a hedged price, which would provide certainty. The scheme gives a great degree of flexibility in what one can offer the market rather than a flat premium payment-type incentive.

One of the scheme's key attributes is that it is market based rather than Government supported. It would run alongside the afforestation schemes currently available to farmers. We are not suggesting the scheme would be exclusive to Coillte. Instead, it would attract a new and broader range of participants into the market. It also presents a significant benefit, in that the forest activity will manage the forest on the basis of the carbon benefits as opposed to a system in which there would be no direct linkage. One would manage one's forest to maximise its carbon efficiency. We are discussing the scheme in the context of new planting, not the current schemes and forestry.

Underpinning all of this is the necessity of building confidence in the landowner and the investor about this carbon-based scheme working. We can generate the level of returns that an investor could derive from carbon. Notwithstanding the current uncertainty regarding the market, the price should rise in the long term. It is essential that, however we structure the scheme, we get landowners to see it as a viable alternative. It is crucial that the scheme give confidence to both of these key constituencies.

I will touch on a number of policy initiatives. We have a national forestry cover target of 17% by 2030 based on the planting of 10,000 hectares per year. The graph on the right shows where that level will be hit. Planting at 10,000 hectares per year is the red line, which would hit the target at 2050. Planting at what we suggest is a reasonable level, namely, 15,000 hectares per year, we would reach the target at 2040 or so. Planting 20,000 hectares per year, we would reach the target at 2030. Planting at the current level of 7,000 or 7,500 hectares per year, we will not reach the target until 2070. The target is 17% coverage whereas the current EU average is 36%. This shows the opportunity that forestry can play within the climate change context.

In terms of Government policy, the revised programme for Government states we should review forestry policy in respect of its contribution to tackling climate change and consider developing schemes in respect of the purchase of carbon credits abroad to see if funds can be diverted towards investment in Ireland. This proposal is our response, to come up with an innovative solution that would work in the current economic climate and allow us to increase the level of afforestation. What we are proposing would resonate in a number of policy areas. Forestry plays an important part in climate change effect mitigation and, in the Irish case, presents an opportunity in terms of scale and value. We have an opportunity to reduce the carbon credits purchased on international markets and divert funds flowing out of the country towards investment in Ireland. There is the potential for the Government to hedge against long-term carbon prices by investing in forest units. There are funding opportunities available. Under the regime in place, in 2013, 50% of the EU emissions trading scheme auction revenue will be directed towards climate change activities. This represents a substantial pool of cash. Carbon taxes and a number of other funding opportunities are available.

The proposal supports a target figure of 17% forest cover to create jobs and profits in three distinct areas of the economy. It would do so in Ireland's forestry sector through increased nursery, planting and forest management services. It would be a shot in the arm for the renewable energy sector by allowing confidence in the biomass market in respect of the increased deployment of biomass solutions. An increased amount of timber would be available to the processing sector which would increase the output and range of timber products. The proposal would increase the supply of indigenous biomass to support the achievement of the renewable energy target, particularly in the heating sector, which is particularly difficult to achieve. It would also address the issue of security of supply. Because forestry is such a significant part of the climate change agenda in Ireland, trading is important to demonstrate how it might work. It could be used as part of other climate change initiatives, including a green IFSC.

Overall, forestry produces low carbon, environmentally-friendly building materials and other products that will support us in the transition to a low carbon economy. There are also non-carbon and non-timber benefits in terms of recreation and biodiversity which planting more forests would support. Our proposal is grounded in the current economic climate and would be achieved by opening a new market mechanism rather than seeking increased Government funding. In terms of the benefits to key stakeholders, the Government could increase the level of afforestation without increasing Exchequer funding. The extent to which one can do this depends on longer term projections for carbon prices. It would give the Government the option to buy carbon credits based on domestic activity rather than having to purchase abroad. This would lead to the multiplier effect and the other policy benefits mentioned. Such credits could be sold to interested buyers from overseas, which would become a source of foreign direct investment in the Irish forestry sector. This has never been done before. From the perspective of investors, this would open up greater scope to invest in forestry. Pension funds have an appetite for such investments but have a difficulty in entering because they would have to undertake a large number of small transactions. This would represent a more interesting proposition for them.

The proposal would generate access to the carbon revenue stream for the first time, with real long-term potential. We could also have tailored products to attract investors into the market. For landowners, given the direction in which premiums are moving, it would be a viable alternative to schemes and present an attractive proposition. We have the potential to tailor the product offering to landowners in moving from a stable, fixed annual payment that mimics a premium payment structure to potentially giving them a share in terms of long-term carbon value.

There are two key enablers on the domestic scene that are essential to support the proposal. The first is to establish a distinct carbon property right associated with carbon sequestration. For investors to invest in this, they want to be sure they own the carbon and that it can be traded. This is a grey area and not explicit in law. As part of our overall work, we have received legal advice on how it can be structured. It is essential to give a certain level of confidence to investors that it would be supported by carbon trading. We also need to establish a Government-backed system to allow the conversion of the forestry carbon unit into an internationally tradeable commodity. This would not be exercised in all cases but is required to ensure the investor would know that if it was not purchased by the Government or domestically, there would be an international market. It may be that the Government would decide to purchase all of the credits, in which case Ireland would get the full benefit of new afforestation.

I acknowledge that the committee is supportive of the role forestry plays in tackling climate change. I am grateful that it responded to the EU Green Paper on forestry. It would support activity if it endorsed the concept behind the scheme to gather momentum and generate support among key stakeholders. It is important to recommend the establishment of key building blocks, the establishment of a carbon property right and a Government-backed scheme for the conversion of units. Will the committee ask the Government to formally and actively consider all aspects of the scheme next year? In order to support this, we have done much work this year to put flesh on the concepts and we will finalise a document by the end of the year. Based on the work we will have done at that stage, we will be able to move it forward and get into the detail of how it would be established. We hope the Governments can lend its support in doing this.

Ireland has a major opportunity to use forestry to its maximum potential in addressing climate change. We need to plant at least 15,000 per hectare a year. Increased afforestation would be a shot in the arm from a domestic economic perspective in terms of increased activity. It would allow us to keep funds in Ireland and there would be potential to attract foreign investment. It would also address a number of policy issues in a positive way. This would be an innovative way to unlock the potential without putting a drain on the Exchequer. There are opportunities available and we are keen to make progress.

Mr. Gerry Egan

We are delighted to have an opportunity to attend the meeting and more than happy to take on board suggestions from the committee or address any questions raised.

I welcome Mr. Black and Mr. Egan. This is an interesting topic. Climate change remains one of the challenges facing Ireland and other countries. I have watched developments in Coillte quite closely of late and I welcome the innovative way it approaches business. Essentially, timber is a natural but finite resource. Medite and SmartPly appeared on television last week in a good programme which showed in a very good light how they utilise our timber product in a very high-efficiency model to produce a very high-grade export product. I want to acknowledge this publicly because perhaps many people do not realise that Medite, SmartPly and other companies operating under the umbrella of Coillte are very highly efficient, create employment and create a very good product for this country.

I am also aware that under our EU carbon emissions targets, the area of biomass heat to energy has been a cause of concern for Coillte and perhaps the delegation will comment on this because it relates to this matter. There seem to be conflicting policies in semi-State companies; Bord na Móna wants to develop high heat to energy biomass systems but these would draw on the national resource on which Coillte already draws through companies such as SmartPly and Medite. The committee has previously discussed this matter. I would like to hear the views of the delegation on this. Concerns were raised about this and from the presentation I understand that a new afforestation scheme and more investment in this area might ease those concerns and provide a more natural product which would facilitate Bord na Móna in what it is trying to do and secure the future of companies such as SmartPly and Medite and the product they produce.

With regard to the new afforestation scheme, at what levels of investment does it become viable? What levels of inward investment will be required to make this work? Will the delegation give us an idea with regards to its argument? I presume Coillte utilises all of the land available to it. We require 15,000 hectares per annum of planting. Has new land been identified or is more land required to achieve these targets? Will this be on existing Coillte lands or will it be on private lands to be set aside for new afforestation schemes?

With regard to the impact on existing afforestation schemes, I have met a number of landowners already involved in existing schemes who have entered into long-term contracts with the Department and receive the forestry premium. There is much concern about the viability of this because the premia are reducing. Farmers and landowners entered into these contracts not realising that the premia would be cut. They have decreased by 10% and it is hoped there will not be more cuts. This is not an incentive for these people to stay engaged. Coillte would welcome as many people as possible being involved in afforestation schemes. What consequences would a major scheme such as this have on the people in existing schemes? They already receive forestry premia but there is no carbon credit element in them. Would they need to be renegotiated? What benefits would be there for the pioneers, those people confident and willing enough to invest in forestry when others were not? Those people should not be forgotten. If they cannot be included in any future benefits from such a scheme then compensation measures or otherwise should be examined. We need to reward those pioneers who invested in forestry in the past.

Coillte seeks endorsement. It is very worthwhile that we hear more about this scheme as the details are further thrashed out. The committee should welcome any further details and we need to further widen the debate on it.

I thank the delegation for its presentation. It is a very interesting idea which requires a little more thought on our part and perhaps more numbers. It was a very elegant attempt to create a market-driven solution albeit in a market that exists only because the Government has created it, that is the market in carbon credits. I would be concerned that it might turn out to be a little speculative over time if people find cheaper ways to develop carbon sinks or to reduce emissions in other ways.

The witnesses will have to forgive my ignorance on this. It was stated that Coillte no longer receives premium payments for afforestation. I imagine that it is for state aid reasons or is there another reason for this? As the witnesses probably know, my party and the Labour Parity have proposed that some of the moneys in the National Pension Reserve Fund be invested domestically. This has to be in commercial and equity investments that will deliver a commercial return over time. Otherwise it is not an investment; it is merely raiding the pension fund for capital or current spending. If that option were available and if there was a change of policy in this regard under a new Government, would the witnesses see a role for the national pension fund investing money in forestry either through this scheme or another?

I thank the delegation for a very interesting presentation. It was certainly timely in terms of the new approaches we have to adopt in developing our own resources and also to meet the targets being set on climate change. I seek clarity because on many occasions, we have debated the difficulties we have at EU level with afforestation being credited. I take it that what the delegation is proposing is predicated on a position being adopted by the EU to allow afforestation to be included.

I am sure the witnesses are aware there is much concern about the premia, the budget and what will happen. An obvious concern is that if this is presented as an alternative it offers the opportunity for the Government to simply cut back on premia and this would not be welcome to the private sector. Will the witnesses speak about how they see these two knitting together?

I am curious as to how the witnesses see the role of Coillte with regard to the private sector because the private sector has a considerable role to play; it is almost half and half at present. Was it not considered advisable to have a joint proposal with the private landowners to deal with the forestry sector per se across the board? I would have thought this would have been a helpful approach and would add a certain weight to what is clearly a well-thought out proposal. I am not criticising it; I am concerned that this should be forestry wide. The sector has developed; it has not developed far enough but it certainly has developed in a particular form. Having a joint approach would be helpful in terms of making the case.

The delegation referred to 15,000 hectares per year. What capacity is there? How do the witnesses see the breakdown of this? Let us say we get to do it. How would it work out in terms of what Coillte and the private sector can do to reach that target? How do the witnesses see the two contributions being made?

To address one of the concerns raised with me about this idea, Coillte speaks about each part of the sector being able to gain from this and that it is not that Coillte wants to take over the carbon value in the private sector, it is simply that it is a mechanism to further develop forestry and to give added value. This seems clear to me from the presentation.

Mr. Gerry Egan

I will deal with a number of the questions and some of the detailed questions on the level of investment required in afforestation and how much might be planted will be dealt with by Mr. Black. The first issue raised by Senator Coffey was about renewable energy, heat-to-energy and the impact of some of the apparent policy contradictions that exist. Forestry is very important in terms of climate change. Forest products and output from the forest is important in terms of meeting some of our renewable energy targets. Those products in particular are very important in terms of meeting our renewable heat targets. We have a serious problem in that an industry supporting 370 jobs based on products that are currently bought on the open market which are used to manufacture panel products that are exported to the United Kingdom could be undermined were there to be subsidies available for burning sawmill residues in peat-fired power stations to generate electricity and to do that inefficiently. That is not an opinion. It is a fact that using wood residues in a peat-fired power station gives one approximately 30% efficiency in the conversion process.

It is important with biomass that scarce resources, which is what they are, are diverted to the most high value end use both in terms of economic value and employment. We are doing much work on renewable heat. We are talking to the big milk processors, for example, with a view to offering them a biomass heat solution for milk drying. At the moment that is difficult for the simple reason that gas prices are so low that changing over to a biomass solution is not cost effective or is of marginal benefit to the industry. To be crystal clear; we are very much in favour of biomass for energy, especially for heat. What we are concerned about is that a competitive industry would be undermined by the availability of an incentive to use that material for an inefficient end use.

I will make a limited comment on the impact on existing schemes, premia and the pioneer farmers who got involved in that area because it is getting into the political and policy sphere. It is really a matter for the Minister rather than for Coillte. This also addresses a question raised by Deputy McManus. We do not see this as being an alternative to the existing premium scheme. At the moment the grants and premia are delivering about-----

I thought that Mr. Egan used the word "alternative" which is why I picked him up on it.

Mr. Gerry Egan

If I did, what I should have said was supplemental rather than alternative because at the moment the existing grants and premium schemes deliver approximately 7,500 hectares. That needs to be supplemented. What we are looking at is an alternative source of revenue but to supplement the current level of afforestation.

To address Senator Coffey's question, at the moment when a farmer enters a contract he receives a grant to do the initial work and then he will continue to receive premia. What we are talking about is new afforestation. We do not foresee a situation where there would be some additional benefit coming through this scheme which needs to divert the money toward afforestation. It is not necessarily going to result in a benefit to someone who has already planted a forest and is receiving grants and premia for that.

On the specific issue of Coillte's eligibility for premiums, a European court judgment in 1999 concluded that because Coillte was deemed to be a public authority it was not eligible for premia at the time. We had received the premia from 1992 until 1996. During that time we acquired and planted 52,000 hectares of land. The chart in Mr. Black's presentation showed a fall-off in the level of afforestation. That was entirely a result of Coillte moving out of the market because without the benefit of the premia to support it, the cost of land in the Celtic tiger years meant that one could not possibly get a positive return on any investment by buying land and planting it with trees.

Does Mr. Egan mean a State enterprise rather than a public authority?

Mr. Gerry Egan

The situation relates to conflicts between Irish law and European Union law. In a previous European court case on procurement, Coillte was designated as a contracting authority for the purpose of the procurement directives. In the premia case we were identified as being a public authority. More recently, in the case of the Natura 2000 directive and the regulations flowing from that, virtually all of the commercial State companies are listed in appendices where they are designated as public authorities for the purpose of European Union directives. It is slightly schizophrenic in that in Irish law, Coillte is a private limited company but for European Union law purposes it is deemed to be a public authority. The day is not long enough to discuss the ins and outs of the issue.

On the National Pensions Reserve Fund and the potential for investment in forestry, there is much potential for investment. Last year AIB established a unit trust specifically for forestry called the Allied Irish pension unit trust. That vehicle was subsequently used by the National Pensions Reserve Fund to invest in forestry. The way it worked is that we sold a certain amount of immature forest to the unit trust. There is a pre-existing trust. This unit trust converted that into units that could be sold. Those units were bought by the National Pensions Reserve Fund. The difference in that case from what we are potentially talking about now is that it was buying existing forests and the future revenue streams from them.

Is it the forest they bought rather than the land?

Mr. Gerry Egan

Correct. They bought the forest and the land was leased to the unit trust. The difference in this case is that they are monetising the future timber value. What we are saying is that there is another potential revenue stream that has not been monetised. We are trying to find a way in which the carbon value might potentially be monetised. There is interest among pension funds in forestry investment. There is a flight towards safe, secure, stable albeit low return asset classes in light of the recent turmoil in global markets.

I will deal with the question on the private sector involvement and why we are not all coming together on this, then I will ask my colleague, Mr. Black, to deal with the extent of afforestation and the level of investment that might be brought in. We are anxious that this scheme would have broad support. We have carried out much consultation. We kicked off the process more than a year ago. On 1 March this year we had a forum in Trinity College where we invited all and sundry to come along and get involved in the discussion. In the meantime we had discussions with everyone from the relevant Departments such as the Department of the Environment, Heritage and Local Government, the Department of Communications, Energy and Natural Resources, the Department of Agriculture, Fisheries and Food, the IFA, the Sustainable Energy Authority of Ireland and various Opposition spokespersons.

We have taken a lead on this because we felt that someone needed to step into the gap and do something. That is what we have been doing. We do not have claims on this in terms of exclusivity. Coillte is a business. We would love to benefit from this if we can make it happen. Mr. Black was at pains to point out in the course of the presentation that there is no exclusivity around this. The people who will potentially benefit are those who own the land, which comes back to the question of whose land it will be. Farmers are the people who own the land. Mr. Black made the point that what we need to do is ensure that at the end of the deal involving farmers, there is confidence that the carbon has value and will be capable of being marketed. On the other hand, there are potential investors who, if they put their money in, need to have some certainty that this is Government-backed, that the units are worth something, that the value is realisable and so on. We see ourselves at the moment, if it is not too grandiose, as being in the area of thought leadership. Our role is to get the participants together and try to make this into a viable product which can be accessed by a whole range of people who could participate. We have no desire to corner the market. We are trying to mobilise a whole class of investors who currently have no vehicle to invest in. When I say "we", I refer to lots of forestry companies that are doing the same thing. We expect to purchase about 60,000 tonnes of timber from private forests this year, which will be processed in factories such as Medite in Clonmel, Smartply in Belview Port and so on. In the same way that a market opportunity is created by the fact that these industries exist - which entails taking the material from the forests - there is also an opportunity in this other new product category to create a dynamic. We are more than happy to facilitate this if we can get past some of the issues.

I appreciate it would have to be Government-backed, but it would also have to be EU-backed. Is that not the case?

Mr. Gerry Egan

I will ask Mr. Black to deal with the question of where it fits into the overall scheme of things. There were a number of questions in this regard, covering the level of investment, how much land would be required, the breakdown between Coillte and private companies, and the role of the EU.

Mr. Ciaran Black

With regard to the amount of land required, we are talking about a 15,000 ha. target. Currently, around 7,000 or 7,500 ha. of land is under forest, and we hope a scheme such as this would bring us up to the 15,000 ha. target. Thus, we would need about another 7,500 ha. to be planted under such a scheme. Other forestry companies along with Coillte are involved in that sector. It is open to any other company to get involved; we are not trying to be exclusive. The trading of units and so on is quite a complex area. We can help unlock some of the issues in this regard and explain how it might work in practice, and we are trying to push it along on that basis. With a blend of the current structure, which is based on grants and premiums, and a carbon-based structure, we might reach our target of 15,000 ha. Our role is in the latter half of that.

We were asked whether this was dependent on how forestry credits are treated within the EU. Currently, the EU emissions trading scheme - that is, the traded sector - does not allow forestry credits to be used. However, in the non-traded sector, forestry credits may be used by member states to meet their targets. We currently count the forest sink values towards meeting our first-period Kyoto targets up to 2012. After 2012, the position has not yet been agreed, but we are seeking to ensure this continues. If it does, forestry will have a value for Ireland in meeting its targets. We are seeking to do something similar to what New Zealand has done. It has a forestry credit which is traded domestically. It is allowed within the traded ETS sector, but it can also be translated into a different, internationally traded unit under the Kyoto Protocol. This means that if the local market - that is, companies that have a commitment within the domestic scheme - or the New Zealand Government itself does not purchase a unit locally, it can be traded internationally. This engenders confidence among investors that, whatever the market dynamic, they can realise the value of the units.

The building blocks are there, but if the EU, for whatever reason, decides not to include forestry credits and they are already included, we will be exposed. We would be in a difficult position nationally if this happens, because forestry sinks will be taken out of the contribution to our target and we will have to buy an extra 5 million tons of carbon credits in the international markets, which would be between 40% and 60% of our target. Thus, it is important that we make sure the current system remains in place. If it is business as usual, however, then a scheme such as this could work. Although we would need to have the backing of the EU, I do not think it would run contrary to the current schemes.

There was a question about the role of Coillte and the possibility of a joint proposal, which Mr. Egan has covered. We have consulted everyone involved, and most of the concerns expressed by Deputies and Senators about the private sector have been mentioned. One of the key things we are always hearing is that this cannot be seen as a scheme that would wipe out the current scheme. We are clear on that. The current scheme is not delivering the target. If we have more than one scheme and more than one way of attracting different participants into the sector, we may have a better chance of meeting that target. That is what we are trying to do.

It was mentioned that Ireland signed up to the Kyoto Protocol and therefore created a value for carbon credits. We are not trying to do anything different in this regard. Carbon now has a value, and the question is whether we can use that value to increase the level of afforestation without expecting the Government to fund it directly. What we are trying to do is to open up a market mechanism that allows this to happen. Under the current regime, we give money in the form of grants and premiums and use the units against our Kyoto targets, but there is no direct link. If we do it through a carbon scheme, an investor goes in with the expectation that he or she will sell carbon units at some stage. The Government may decide to buy those units, so it is buying the carbon it wants. In this way it is, in effect, investing in domestic activity, but it is delaying this until it wants to buy the credits. If, God forbid, we have a further downturn and a reduction in economic activity and our distance to the target is less, we may not have to buy those units. If we have a Government-backed scheme, those units can be traded internationally when we do not need them, and the investors realise their value. If the units are traded internationally, in effect, foreign companies or Governments are buying those units, which represents a direct investment in Irish forestry. It is a subtle change in how we actually use the value, but it allows us to open up broader participation in the sector.

I am sorry I had to leave for a minute, but I appreciate all the information the delegates have given us about the role of Coillte. The project is an exciting one, if it can be got up and running. We do not have the funding to provide the acreage needed at present. According to the graph, back in 1995 we had 22,500 ha., whereas now we have 7,000 ha. or less. When I asked the Minister for Agriculture, Fisheries and Food a parliamentary question on this subject recently, the reply was vague on the subject of how much would be done next year, because funds are limited. In that context, it is exciting. Has the Minister given commitments in this regard, or has he given any indication of his intentions? Are the other Ministers prepared to take this to Brussels for consideration?

The question of whose land would be used was asked earlier. Obviously, it must be new land which is not currently under forest; otherwise, it would not represent an increase. Do the delegates have any idea of what price could be offered for land on which forests could be planted? In recent years, with the Celtic tiger, all sorts of people were getting excited about land, and it became too expensive to use for planting. However, we can now see farms that are not being bought, and there is an opportunity in this regard. Would the delegates consider the option of leasing land? I enjoyed the comments on biomass. I tried to become involved in that area 17 years ago and ran into all kinds of problems regarding planning permission, etc. There is a role for biomass in this country because we burn money instead of product when we are obliged to export meat and bonemeal, chicken litter and all such materials that should be used for biomass purposes. It would not affect forestry in any way.

Does Deputy Aylward wish to contribute first?

No, I came too late to ask questions.

We will give the Deputy a chance later.

I am no longer a member of this committee so I yield to the current members. I was a member until recently and was actively interested in this matter, coming as I do from Wicklow which has approximately 17% of its land, the national target, covered by forest. Coillte has performed a very useful exercise on behalf of the industry in putting forward this type of structure and proposal but a few matters should be addressed. Deputy McManus pointed out that the plan is predicated on our being allowed to calculate forestry as a carbon sequester, which has enormous implications. We produced a paper on this for which I was rapporteur. Ireland is in a unique position. Our land cover is the lowest in the EU, yet we have the highest output of emissions per head in agriculture. If land use is to be considered in its totality, we should not be asked simply to mitigate our agricultural output by reducing the cow herd. On the other side, the Government commissioned reports such as Agri-Vision 2020 which envisaged considerable economic potential in growing rather than decreasing output. If we were able to use the rest of the land in mitigation, that would make common sense. There is nothing in this proposal that does not make sense.

The New Zealand model interested me because it works although there are some concerns about it. Mr Black touched on this. The ultimate aim is to have a standing commercial timber product. Everything else would make for new and potential streams of revenue, whether as biomass or for carbon credits. Deputy Varadkar touched on another issue. I do not believe it will happen but in the event of the floor falling out of the carbon market, we should not do what some have done. Some farmers in New Zealand were in a quandary about this. Should they thin their forestry and lose some of the carbon canopy and content at the cost of having a commercial product at the end of the life cycle? We must be careful.

In general land use management we should have a slash and burn policy but should carefully manage the land we put into forestry production. There is plenty of it for that usage but it should not be at the cost of food production. This is a complementary business and we need to have joined-up thinking regarding land use in its totality. The policy of land use, land use change and forestry, LULUCF, is the way we need to think about that in regard to climate change. If the two essential requirements were established, would Coillte see itself as being actively involved in the land purchase market for joint ventures in the way private forestry companies are, or does it see itself working solely in the area of land acquisition to grow its own land base?

I know the Commissioner is not of that mind but there is a provision that even if the EU does not negotiate beyond the 2020 targets, Ireland may consider continuing to use forestry as a sequester. That said, we do not necessarily have to reach the 30% target but can go to 21% which would get us off the hook in so far as we could continue to use the sequester option. We must bear in mind that the biggest benefactor from this is Ireland on its own. We are more or less ploughing a lonely furrow because no other country is in the same position with low forestry cover and high agricultural output. We must bear in mind to be strong on this nationally as a way of keeping our economy growing. This helps our balance sheet. It is as simple as that but it also allows us to grow other land use activities such as agriculture.

I welcome the delegates from Coillte and thank them for their presentation. I apologise for being late but was otherwise occupied. I have heard them make these points at meetings of the Joint Committee on Agriculture, Fisheries and Food, of which I am a member, as is Deputy Doyle. What has been set out in front of us is very credible, namely, to go from 7,000 to 15,000 hectares, from 10% to 17%, in forestry planting. I note in the presentation the average in the rest of Europe is 30%.

What type of timber will Coillte promote for farmers or other individuals, private or public? Would it be the quickest growing or for long-term use? Would it be native timber? We have carbon credits now but when we reach 15,000 hectares cover, who will get the money from the credits? Does it come to the Government or to those who plant the trees on those hectares, whether farmers or public or private enterprises?

Coillte's ambition is good and we should do everything we can to support it. There is a great deal of land available and although we are more oriented towards growing grass, corn or tillage, I am sure there is plenty of scope for planting trees. I would like to see that outcome and to have the carbon credits included. It will be a win-win situation, having the growing timber and, ultimately, our CO2 emission credits as well as reaching the targets set.

I meant to ask a question about people who are in the system and in receipt of reduced premia payments. If this proposal is accepted and carbon credits accrue, is there any reason these people whose forestry is a carbon sequester should not be part of the package although perhaps not in the same way? There are those with pre-1990 arrangements although that situation might be more difficult. Could they not be included in some form in the scheme?

Mr. Gerry Egan

I will ask Mr. Black to respond on some of the technical aspects regarding species, inclusion of existing crops and so on and I shall deal with some other questions. We were asked about the role of Coillte and consulting the Minister. We see today as an important day, as being part of the process of consulting all the relevant people as we try to finalise a product. Our current position is that we have spoken to the Ministers concerned and their officials but we do not yet know whether our proposal is fully blessed in the sense of being told it is the way they will go. We have received widespread support across the board in that everyone can see merit in the idea. Naturally, there are many questions about how it would work. There is also the political angle of dealing with the EU. From our point of view, as a company, we must work within a certain political and policy framework.

The kinds of supports we are looking for are, first, resolving some of those policy issues at EU level and ensuring they are non-negotiable as far as government in Brussels is concerned. Second, there are the specific enablers around the creation of the carbon right and backing whatever units might be created in that regard. We have brought this to a certain point but to get it over the line, other things need to happen. We are engaging with the system to address these issues.

Deputy Crawford made a point about partnerships, land prices and so on. Although we have been out of the land purchase market for several years because of the unavailability of the premiums and high land prices we have continued to operate a farm partnership scheme. Under the scheme, we go into partnership with the farmer. The farmer retains ownership of the land. We do the work. The farmer receives the premium for 15 or 20 years or whatever he is entitled to. Then, to compensate us for the cost of the work we have done, the revenue from the sale of timber is divided between the farmer and Coillte. I have no wish to give the committee an incorrect number but we have upwards of 12,000 hectares in farm partnerships, which we have developed during the past 15 years. What we are discussing today is a good example of what we are trying to do, that is, if it is not possible to do it by route A, then find an innovative way of doing it by route B. This is why we are here today. From a Coillte perspective, as a rule of thumb and without the benefit of the premiums, land prices would have to be approximately €4,000 per hectare before it would make sense for us to buy. I will call on my colleague, Mr. Black to address some of the technical questions on species and so on. To address the point raised by Deputy Doyle on species, at the end of a rotation it is essential to have timber that one can market as well as the carbon benefit. There is a trade off between selecting species that give a high carbon uptake and, at the same time, ensuring it is good quality timber capable of being marketed.

Mr. Ciaran Black

We have modelled the proposal on the basis of the current grant premium categories for species and the same mix applies in this case. We are not trying to exclusively manage new forests for carbon. As before, this would be a commercial forestry operation with timber as the main focus of output. There would be biomass availability and timber products coming out and that would be the main focus of the activity. However, we can use the carbon as a way of funding the overall operation because there could be crystallisation of some cash-flows at an early stage. It is modelled on the basis of the current afforestation schemes in place and it would match those.

Regarding how we would decide on land, where it would come from and how it would be brought in, we would consider either purchase or lease. My understanding from discussing the matter with the Department of Agriculture, Fisheries and Food is that it is more likely that a lease arrangement would be the way to proceed. We are keen to ensure a proposal that at least matches the current premium schemes and it would be based around those. A farmer could elect either to take the premium scheme or a carbon-based scheme and have comparable returns on that basis.

What is the best species for carbon credits. Is it spruce?

Mr. Ciaran Black

It is a matter of timing. The most significant determinant is the quality of land. If one plants a faster growing species, one will sequester more carbon and do so more quickly than otherwise. If one plants a slower growing species, one will probably sequester much the same amount but over a longer period. The most efficient way would involve a similar mix between Sitka spruce and the other blends but it could be open to any of those. There is a slightly different curve with regard to where the carbon begins to be sequestered and one can get the value in different ways. It could be open to all types of species. This is relevant to the point that, primarily, one should plant a forest for the timber output. It is also relevant to the concerns raised about the New Zealand model. One of the questions that arose with regard to the New Zealand model was whether it led to planting a forest purely for carbon and never touching it. This should not be the overall objective of any scheme.

We have not directly addressed how the proposal would be introduced for people already in afforestation. There is an issue about who owns the carbon. The only way that issue could be worked around is if one could crystalise the carbon value associated with it and determine what impact it would have for the premiums in future. In other words, is one entitled to both? One could convert a premium payment into a carbon payment if it were an attractive thing to do but I am unsure how it would work.

Premiums are not taxable but it is unlikely that carbon will not be.

Mr. Gerry Egan

As the committee will have gleaned, much work remains to be done on this proposal. We were delighted to have the opportunity to come in today and share our thinking and where we stand and, specifically, to outline several ways in which the support of the committee would be very valuable. We would be pleased to come back and give the committee a progress report at some stage in future as we continue to develop the proposal. We hope, before too long we will be in a position to launch the proposal with the benefit of making a significant further contribution towards alleviating the impact of climate change.

I welcome this approach. It is important to engage all stakeholders at every opportunity. The delegation remarked that it has consulted stakeholders, including the Irish Farmers Association, IFA, and the Sustainable Energy Authority of Ireland. What levels of enthusiasm has Coillte detected from them? Has there been any feedback? Are they engaged with Coillte on this proposal?

Mr. Gerry Egan

Mr. Black has discussed the issue with most of them.

Mr. Ciaran Black

There is much interest in the scheme and there are many positives to it. The main concern from the IFA perspective was the long-term impact on the current scheme. I tried to explain that our proposal is an additional scheme and it took the view that it was good and that at least there could be an alternative. Overall, some concerns remain about how the proposal may roll forward over time. Certainly, the IFA was interested in the possibility of a mechanism to try to get some value attributed to the carbon. It supports that and is interested to see how it will roll forward.

The delegation members have appeared before the Joint Committee on Agriculture, Fisheries and Food. Will they come back again because this is very interesting, especially from a farming point of view? Would the delegation be prepared to make this presentation again before the Joint Committee on Agriculture, Fisheries and Food if we raise it at the next meeting?

Mr. Gerry Egan

We would be happy to do so although we have no wish to over-stay our welcome. We are conscious that the response to the Green Paper was, as I understand it, historic in so far as it was the first time a report was sponsored by two Oireachtas committees. We would be more than happy to discuss the matter with the Joint Committee on Agriculture, Fisheries and Food and to discuss this or anything else the committee wishes.

At one of the previous meetings, Coillte expressed concern about issues relating to mature trees, standing trees and biomass. There was a suggesting that it was more interested in getting into the finished product where there could be more jobs rather than the product simply being burned by the ESB and Bord Gáis. Is there any progress on that? What is the position? I apologise for crossing over into agriculture matters.

Mr. Gerry Egan

No. That is fine. Senator Coffey raised the matter earlier. Sometimes this can be simplified somewhat and it can be represented that Coillte seeks to have all forest products diverted or all the output of the forests diverted into forest products and not into the energy space. Our position is very straightforward, that is, we support renewable energy and the use of biomass for renewable energy but we believe it should focus on the renewable heat sector because that is where one yields the best efficiency from using forest products. Our concern has not been reduced since we spoke with the committee previously.

It is still the same.

Mr. Gerry Egan

The concern remains that the introduction of a subsidy for co-firing of peat stations would distort the market, especially for sawmill residues. We do not believe this is a good use of the incentive because the burning of forest residues or sawmill resides in a power station for electricity generation purposes is only approximately 30% efficient. Where a scarce resource is available we should direct it towards the highest value end use, that is, to the manufacture of high-value forest wood products.

There is no change.

Mr. Gerry Egan

There is no change in the position since we spoke to the committee last.

Mr. Ciaran Black

There is one point which is more relevant to climate change. The carbon values in the use of biomass in the power sector would accrue to the traded sector and deprive the non-traded sector - this is the most difficult aspect for us to achieve nationally - of a raw material that we could use in the heating sector. There are two issues involved, namely, its use and the carbon value implications. Post-2012 all of the national targets are directed towards the non-traded sector and it will no longer be to our benefit.

I thank the delegation for its enlightening presentation which has been very informative and helpful to the committee. We thank it for its support. Working together, we can surely achieve something. I am sure the delegation will allow me to note its request. We are due to have a number of meetings with a number of stakeholders. We have also invited the Minister of State at the Department of Agriculture, Fisheries and Food, Deputy Connick, to come before the committee to make a presentation. I suggest we have a joint meeting with the Joint Committee on Agriculture, Fisheries and Food rather than bring in the delegation again to outline the process involved.

The joint committee adjourned at 4.20 p.m. until 2.30 p.m. on Wednesday, 24 November 2010.
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