Tasmanian Times

Economy

Carbon accounting & FT profitability

As Forestry Tasmania (FT) contemplates its future, a future free of government subsidies, its rolling 3 year production plan for native forest harvesting has been posted online.

Almost all the planned coupes are small in size and disparate in location inevitably increasing the extraction costs of timber, thereby making a return to profitability even less likely.

Notably included in the current 3 year plan is the clear felling of a 51 hectare coupe FD 053A at Lapoinya in NW Tasmania.

FT privately suggests harvesting the coupe will be a profitable operation. This is a rare occurrence for FT which, on average loses $20 for every tonne of timber harvested or $250k in cash terms for a coupe this size.

It is therefore a little surprising FT bypassed the opportunity to showcase its profitability and sustainability bona fides and release a little more info about an alleged profitable operation, one that needs to be replicated across many coupes if FT is to survive the current insolvency period currently overseen by the head of Treasury as a newly appointed director of FT.

The Friends of Lapoinya Action Group (FLAG) has engaged with FT with a view to fully understand what is planned. However the perfunctory community consultations have raised more questions than answers.

As part an overall economic assessment of the coupe FLAG undertook a carbon audit to ascertain likely carbon losses from a clear fell operation.

Carbon audit

All above ground biomass was measured in 8 sample plots comprising 4 ½ % of the coupe.

The carbon content of the coupe was estimated to be 267 tonnes per hectare.

FT indicated the proposed harvest would remove 12,500 tonne of timber. This will leave 206 tonne of carbon after harvest.

The most recent Direct Action auction established a price that the government is prepared to pay for carbon abatement.

That price was $14 per tonne. Many of the successful projects at the auction were already underway, others would have been undertaken regardless, so there was a feeling the price at the first auction will rise as the government finds itself required to pay more in the future to achieve the same result.

Nevertheless we will use the figure of $14 per tonne, the amount the government is prepared to pay for carbon abatement, as the extra environmental/social costs of logging the coupe.

It is sometimes claimed, quite legitimately, that a lot of the carbon that leaves via harvested timber, will end up in the atmosphere. Very little will be preserved as furniture, say.

Also considerable below ground carbon may be lost when coupe clearing and burning occurs.

Hence the carbon loss of 206 tonnes per hectare and the carbon price of $14 per tonne are arguably conservative estimates which imply carbon costs of clear felling of $3k per hectare.

Coupe revenue

FT expects to harvest 12,500 tonnes of logs, 14% sawlogs, 34% peelers and 52 % chips.

FT has a brief opportunity to add a little value to chipping logs as it is now an exporter in its own right. The Resources Minister has flagged a cessation of this area of activity for FT, with FT withdrawing to become purely a log producer

Applying averages obtain from FT reports suggest the net revenue from this coupe after harvest, carting and chipping to be $5k per hectare.

Coupe expenses

The costs of roads and bridges, described as maintenance when FT applied to National Parks for permission to upgrade the access road to the coupe located on reserve land, was suggested by FT to be only $90k. Others with experience in this field are highly sceptical of this low figure.

Burning and regeneration, FT has indicated, can be done for $51k. Because of the myriad assortment of streamside reserves and buffer zones simply unleashing an Enola Gay assault won’t be possible and a higher cost is likely according to old hands.

Nevertheless we will use the lower estimates.

FT does not operate on the margin, supplying timber when and where it’s demanded and maximising prices where possible. Its hands are tied by virtue of the statutory need to supply 137k tonnes sawlogs often with long term contracts and the contractual requirement to supply 157k tonnes of peeler billets to Ta Ann. FT’s about a nimble as a hippo on stilts.

It’s not unreasonable therefore to apply wage costs for the proposed coupe on an average rather than marginal basis.

FT produces roughly 1.5 million tonnes of timber pa. One of its goals for 2014/15 was timber production per employee of about 6600 tonnes. Given the proposed coupe is 12,500 tonnes and wage costs per FTE are $90k, the wage cost of the coupe is estimated to be $170k.

FT also has miscellaneous overheads but these are roughly offset by sundry income amounts and ignored for the purpose of this exercise.

Coupe costs will therefore be at least $311k or $6k per hectare.

Cash profit

With net revenue and costs of $5k and $6k per hectare respectively, the cash loss is $1k per hectare.

As already noted the expected loss for a coupe of this size obtained by applying the average across all FT coupes, is $250k or $5k per hectares

The coupe might be better than most but it still appears to be a cash drain. Even worse if the costs of roads, bridges and regeneration are more than expected.

Accounting profit

The value of standing timber is an asset of FT. If it is chopped down and sold the write down in the value of asset in an expense.

For an insolvent entity like FT even if makes a cash profit, which it can’t do currently and is unlikely to do for a few years at least, almost certainly it will make an accounting loss after including the fall in value of clearfelled coupes, in this case from $200k say, or $4k per hectare, to zero.

It is important to understand the FT dilemma. Even if cash profits can be restored, the accounting loss from the write down of clearfelled assets will lead to a shrinking balance sheet.

Imagine FT as an operation that has been bequeathed a shed full of Queen Anne furniture. Selling items each year may lead to a few pesos in the bank but the writedown in the value of inventory each year will ensure it makes an accounting loss. Especially if it continues to log slow growing juvenile forests like the Lapoinya coupe.

A writedown of $4k per hectare will convert the $1k cash loss to a $5 k per hectare accounting loss.

Social loss

Adding the carbon cost from clear felling as calculated above of $3k per hectare to the accounting loss gives a social loss of $8k per hectare

Summary

Leaving the coupe standing has a carbon value of $4k per hectare.

Clear felling the coupe will lead to

• a cash loss of $1k per hectare

• an accounting loss of $5k per hectare

• a social loss of $8k per hectare

Regardless of whether one believes in climate changes the fact that a market price for carbon exists as a result of Direct Action means areas of native forest must be reassessed as potentially having a much greater value than that reaped by FT as it currently operates.

First published on John Lawrence’s website, Tasfintalk here

• Karl Stevens in Comments: What really pi$$e$ me off is cheap power from domestic solar panels is being re-sold to subsidise Forestry Tasmania.

• John Powell in Comments: The above was very succinctly put to a Public Forum in Wynyard on Sunday attended by almost 200 passionate community folk. Despite invitations to ALL relevant politicians the only attendees were Peter Whish-Wilson and Andrea Dawkins. Suspect a few votes may have dissolved in to the ether for those non-attendees. Lapoinya will NOT GO AWAY!

• John Hayward in Comments: … It is hoped that Tasmania, on its expected annexation by the state of Sarawak, will be given its spirit name of Kleptomania …

• John Lawrence in Comments: … The Steering Committee’s Final Report into Forestry Tasmania which reported to Gutwein and Harriss in April 2015, hinted (on page 12) that FT was in breach of competitive neutrality guidelines. No aggrieved party has stepped forward to make a complaint to the Economic Regulator, so the government is turning a blind eye to the breach for as long as possible, I suspect, enabling FT to make a few extra $s (although still a loss). Pathetic.

• Karl Stevens in Comments: I’m seriously questioning if FT is obliged to make a profit at all? They are compelled to cut-down X-thousand cubic metres of sawlogs annually but where does it say they need to do this at a profit? I think they could make real money by simply ransoming trees to the people who regard nature as an integral part of the planet’s biosphere. So any takers on my question? Do Forestry Tasmania need to destroy forests profitably or is destruction such an integral component of the Tasmanian psyche that funding it will always be assured?

Jenny Weber: Australia’s relentless corporate welfare to Malaysian logging company … Bob Brown Foundation’s Campaign Manager Jenny Weber has expressed alarm for Tasmania’s threatened rainforests of the Tarkine, and criticised the company Ta Ann for appalling logging practices that are un-sustainable, “Ta Ann’s new plywood mill in north-west Tasmania is another very controversial foothold by the Sarawak timber company in Australia. Ta Ann has today opened a second mill on the doorstep of the largest tract of temperate rainforest in Australia, Tasmania’s Tarkine. More than 400 hectares of ancient forests are scheduled for logging in the Tarkine region to supply Ta Ann in the next three years.” “We are very concerned about the supply of timber to this new mill, sourced from logging high conservation value forests, not only in the Tarkine, and other contentious logging areas elsewhere in Tasmania. These are forests with critical habitat for endangered species, storehouses of carbon that can reduce climate change impacts if left intact and unique natural ecosystems with value far greater than lost to the taxpayer subsidised logging industry,” Jenny Weber said.

Karl Stevens’ Satire …

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28 Comments

28 Comments

  1. Russell

    August 16, 2015 at 11:42 am

    Re #27
    Thank you very much for your enlightening and informative answer, John.

    The way I see it, if the Feds get a win we all win equally.

    It would also give Tasmania a good leverage point to maintain our unequal share of the GST and even increase it.

    It does indeed look like our forests are worth much more standing than felled. Much more than I thought previously.

    I look forward to your further examination into the subject.

    Cheers.

  2. john lawrence

    August 15, 2015 at 5:55 pm

    Russell (#23) that’s a really hard question.

    At this stage the only beneficiary from a carbon aspect when publicly owned trees are left standing is the Federal Government via the mechanism of valuing forest management credits as part of the Kyoto protocol.

    Stopping clearfelling is a sure fire way of meeting emission targets which means the government will spend less on other abatement measures.

    Forest management credits only have a value for the Feds. The only way we as a State can benefit is to get the Feds to give us some of their money.

    That is one reason the Feds were able to offer the IGA money that ended up getting diverted to Freeloaders Inc here in Tassie.

    The value of the forest management credits from extra reserves was estimated by Andrew Macintosh of the Australia Institute in a study for the Independent Verification Group as part of the IGA process. He reckoned the Feds recouped their dough in just one year. The created reserves had many times the value as a carbon store as measured by the carbon accounting system which values forest management credits,than the money received as part of the IGA. Lara sold us short. Mackintosh reckons it’s billions short.

    I’m not sure what effect Harriss’ ripping up of the IGA has affected matters, but given that nothing Harriss has done to date has improved our lot, it’s probably fair to say we’re further away than ever from getting the best value from our forests.

    I suspect legislating not to log for 6 years after Harriss changed the status of those forests was so the forest management credits wouldn’t be affected. I stand to be corrected on that.

    My figure of a carbon store like Lapoinya being worth $4k per hectare was a bit of a guess.

    Measuring carbon values in forests using Kyoto rules is complicated, involving baselines etc etc. I wouldn’t admit to understand the rules.

    Probably the best way to get some idea of the value of carbon credits that may pay an income stream is to look at the rules that apply to private forests. Forests Alive operate projects here in Tassie that generate income from forest conservation. Check their website. I’ll write more when I understand how the $s are calculated on a coupe or project level.

  3. John Hawkins

    August 13, 2015 at 2:37 pm

    I have no particular wish to be a spoilsport.

    Forestry Tasmania in the words of our Prime Minister no less would do anything except sell their arse to get FSC.

    They have blown $7 million under the TFA in an attempt to buy FSC.

    All packaging, cardboard, envelopes and timber products that have a proper retail value are FSC accredited.

    FT is still not FSC accredited that may just tell you something about Forestry in the state of Tasmania.

  4. Robin Charles Halton

    August 13, 2015 at 2:00 am

    #20 Chris, I checked Uptons on Argyle St today, Ta Ann Tassie Oak ply and Eucalypt Form Ply is available both stamped with AFS/ PEFC standards.

    I asked management, they state so far the Ta Ann laminate is sent overseas for gluing then some of it is sent back here as ply for retail.

    Around construction sites in the city I have noticed what looks like plantation eucalypt ply from Chile.

    #22 John, oh come on dont be such a spoil sport, Ta Ann may not need FSC, it might be just a farcical phase in the history of global control of forest products.

    It was Evan Rolley is spruiking the 15% figure I am the messenger based on an ABC News appearance about the transformation of eucalypt into a solid wood product at the Smithton mill, more employment and opportunities for private plantation growers to be included in the value adding ply laminate business.

    Despite all of the turmoil to date, it will be interesting to see how the price of hardwood ply compares when the Smithton mill makes availability of its product in Australia.

    I reckon Ta Ann will be here to stay, happy days ahead ah!

  5. john lawrence

    August 12, 2015 at 10:56 pm

    Gordon (#17) I posted a blog titled FT Closer to Closure following the Harriss April announcement which followed the Steering Committee report:

    http://www.tasfintalk.blogspot.com.au/2015/04/ft-closer-to-closure.html

    The report revealed nothing more than an admission the government was about to start looking for a solution.

  6. Russell

    August 12, 2015 at 9:51 pm

    John Lawrence, are you able to tell us how much these coupes would be worth as annual income from carbon credits if they were left standing?

  7. John Hawkins

    August 12, 2015 at 4:53 pm

    Abetz the chief headkicker in Tasmania for the Liberals and self appointed No 1 on the Senate ticket has an undying hatred of FSC as he brands it under the Green mantra. See The Rise and Fall of Gunns pp. 325-326 for a discussion on this matter by Beresford.

    Lack of FSC bankrupted Gunns their lookalike AFS does not cut the mustard.

    Ta Ann will not get FSC for its laminated products in Australia as they are sourced from native forest – forget the regrowth nonsense.

    As a result there is No Market for Ta Ann’s laminated products in Australia until FSC accredited their products are unsaleable except in the third world.

    Halton you know this so why spruik 15% of the market?

  8. Dr Gordon Bradbury

    August 12, 2015 at 2:06 pm

    John (#17) are you happy to do a critique of the Steering Committee’s report? Given that the mainstream media completely ignored the report it would be good to get some discussion going about the Report and its findings. I was unaware of the report until now.

  9. Chris

    August 12, 2015 at 12:47 pm

    #19
    Uptons doing a great line in laminate, Australian timber designed and made in the peoples republic of China.
    Like trying to find Australian grown pineapple in Australia’s biggest Poker machine operators….Woolworths.
    Hooray.
    “AS Ta Ann say they will tap 15% of the Australian market”.
    Will that tap include Castle Forbes Bay Vino outlet cos I believe you can buy tax deductible wine from Ta Ann, probably the only cask to come in Rolled plywood casks at a sawmill winery.

  10. Robin Charles Halton

    August 12, 2015 at 3:32 am

    #16 John Powell, as with any native forest coupe I look to the potential to harvest when optimum product volume/value can be achieved, usually this would be at maturity.

    Regrowth 80-120 years range.
    After severe wildfires in wet forests when the standing crop is crown damaged and subsequent growth would only produce mainly pulpwood.

    Currently Ta Ann Tas possess a chain of custody certification as does a range of Tasmanian sawmillers.

    In Tasmania FT , Norske Skog and Forico comply with the AFS standard with PEFC certification.

    I am not clear on the application of FSC for our native forests!

    Bunnings retail FSC timber products so it is claimed.

    AS Ta Ann say they will tap 15% of the Australian market.
    Next time I go to a timber retailer, Bunnings, Mitre 10, Uptons I will ask the management as I like to buy Tasmanian.
    As well look for stamped hardwood laminate and see if TAT are suppliers, it makes sense to me the local product should be readily available in Tasmania now!

  11. Karl Stevens

    August 12, 2015 at 12:19 am

    I’m seriously questioning if FT is obliged to make a profit at all? They are compelled to cut-down X-thousand cubic metres of sawlogs annually but where does it say they need to do this at a profit?
    I think they could make real money by simply ransoming trees to the people who regard nature as an integral part of the planet’s biosphere.
    So any takers on my question?
    Do Forestry Tasmania need to destroy forests profitably or is destruction such an integral component of the Tasmanian psyche that funding it will always be assured?

  12. john lawrence

    August 11, 2015 at 9:53 pm

    Peter (#12) makes the point “… back to things commercial, if this coupe is logged at a loss, ie the foresting is subsidised, isn’t that anti-competitive and should the ACCC or other authority seriously checking that?”

    This is almost certainly true. I wrote a blog about it on my tasfintalk site:

    http://www.tasfintalk.blogspot.com.au/

    titled FT and the economic regulator, back in Dec 2014:

    http://www.tasfintalk.blogspot.com.au/2014/12/ft-and-economic-regulator.html

    The Steering Committee’s Final Report into Forestry Tasmania which reported to Gutwein and Harriss in April 2015, hinted (on page 12) that FT was in breach of competitive neutrality guidelines.

    No aggrieved party has stepped forward to make a complaint to the Economic Regulator, so the government is turning a blind eye to the breach for as long as possible, I suspect, enabling FT to make a few extra $s (although still a loss).

    Pathetic.

  13. John Powell

    August 11, 2015 at 7:42 pm

    RCH, a question for you have so much interest in Ta Ann and this coupe?

    If SCS Global Services do NOT provide FSC Accreditation in their audit (which I understand is with the FT Board and Minister Harriss and both are under instruction to reveal results by end August)what does this mean to Ta Ann?

    Will they be able to receive unaccredited peeler logs from Lapoinya or indeed anywhere else where FT logs?

    If so what implications does this have in the market place?

  14. Stephan

    August 11, 2015 at 6:22 pm

    So;

    This highlights financial irresponsibility on a rather scale by our elected officials. Why aren’t I seeing headlines in the paper and politicians being frog marched to Risdon?????

    Could it be two reasons?

    One word – starts with C and ends with ability, something our politicians have when in spades it comes to evading consequences.

    One word – starts with C again and I’m not all that sanguine about the outcome for our law enforcement people if they tried.

    Ahhh Tasmania 🙂

  15. Sharka Todd

    August 11, 2015 at 5:12 pm

    I’m not sure if FT care too much about money but rather meeting quotas. Is logging Lapoinya needed to meet the timber quotas they have agreed to? If not, then why log?

    Clarity is needed on these issues and clear and full communication and consultation with the public that they serve is a necessity of a public enterprise.

  16. Karl Stevens

    August 11, 2015 at 5:06 pm

    Chris 11. You are right. Elon Musk and Tesla will make it possible for Tasmanians to dump Tasnetworks for ever.

    Seems ‘tasnetworks’ refers to a system of subsidising deforestation using consumers.

  17. Peter mackenzie

    August 11, 2015 at 4:49 pm

    From reading other items by John Lawrence, I don’t doubt that he is correct with his calculations.

    I may sound and be naïve in my comment, but why are the elected government if Tasmania ( and by inaction the Labor opposition) allowing the destruction wildlife habitat, to make a loss.

    Surely if the government knows that a loss will be the outcome, the whole action should be reconsidered.

    Because in that case, it is not a true commercial enterprise, but is really a CSO or Community Service Obligation for keeping people employed and not much else.

    Which in turn means that should be properly considered against other potential uses of public funding for CSO use, and the action with the greatest public benefit decided for this use of public funds.

    In making that decision, all externalities such as the social costs should be included, such as the destruction of habitat for the creatures that live in this coupe.

    After reading many pro- forestry documents I have found that when there is mention of the sustainability of such forestry, there seems to be little or no consideration of the destruction if habitat and death/ forced relocation of creatures and the long-term outcomes for them and on the forests.

    And back to things commercial, if this coupe is logged at a loss, ie the foresting is subsidised, isn’t that anti-competitive and should the ACCC or other authority seriously checking that?

    And finally, if public money is to be used this way, there are many serious other needs in our society where public subsidies could do serious social good, without destruction of forests such as at Lapoinya.

    But I admit my expertise is more in transport and in community services (youth, ageing, disability) and not in forestry.

    And with roads, well it is official we just throw money at it – or it was official till IA culled the “Spend More Waste More” report from their website and the Minister disclaimed it. But they could dissolve away the former Infrastructure Coordinators last speech which confirmed the waste anyway!

  18. Chris

    August 11, 2015 at 1:44 pm

    Saving frantically at the moment to install batteries and go completely off the grid.
    Will the one celled brains figure it is more efficient to support and work with Solar residents or see their accounts and service fees disappear in a burst of sunlight.
    And as #10 says decreasing source of Forestry subsidy more generally known as the ” Harris denial that FT is not bankrupt”.
    The $389.44 a year of fixed charges will be missed by Tasnetworks, multiply same by the number of solar householders and where is the feed in tariff then?

  19. phill Parsons

    August 11, 2015 at 12:11 pm

    #1. Legacy solar panels are cost neutral until 2019. By that time battery storage may still be legal. No sensible owner of a solar system will pass up battery storage when the offset price will see a payback period way less than the life of the battery.

    Before then sensible owners will be considering and taking up battery storage. Solar panel owners will be a decreasing source of subsidy for FT.

  20. Robin Charles Halton

    August 11, 2015 at 3:16 am

    Like it or not Ta Ann has a significant interest in producing a “solid wood” product from this regrowth coupe now that has a value adding ply laminate mill up and running at Smithton.

    I said in an earlier article that for Ta Ann to be accepted as a part of its justification to access resource it would need to build a value adding Ply mill.

    Like it or not it appeared to have achieved this goal with government financial help.

    Now the sticking point, as I have an interest in the best outcome for this 55ha coupe.

    Will FT break even or generate a small profit from the sawlog/peelerlog/ pulpwood transactions involved to cover roading, administration and regen works!

    For me being a firm believer in maxiumimising high quality solid wood production (future sawlog) are the best standing timber trees on the coupe capable of generating optimum sawlog first and foremost!

    Given the assessed production figures it seems unlikely as closer to 25% sawlog, 25% peeler and 50% pulp it could have been better to wait till another twenty years or so till the regrowth matures before harvesting.

    We all have different aspirations being Production Forest not Reservation the coupes primary purpose is to produce wood for industry.

  21. Karl Stevens

    August 11, 2015 at 1:25 am

    james 7. Prove it?

  22. james

    August 10, 2015 at 10:15 pm

    @Karl Stevens,
    There is no cheap power from domestic solar even at the lowest price aurora pays it costs them more than what they pay to get it from hydro.

  23. Jo McRae

    August 10, 2015 at 9:24 pm

    FT will never change – sure they have been told they have to make a profit, but they won’t believe it is the end of the bailouts until they put themselves so badly in debt that the situation is [once again] critical.

    In the meantime, beautiful areas of Tasmania get destroyed, to satisfy the egos and politics of the few.

    After all, this is the [broken] backbone of Tasmania’s job scene! and must be supported at all costs, or political heads will roll.

    Enough to make any caring, intelligent person sick.

  24. john hayward

    August 10, 2015 at 7:44 pm

    Uniquely in Tasmania, there is no release of carbon from an FT coupe due to their calculation that their carbon emissions are perfectly balanced by their practice of re-sowing their clearfells.

    it should also be remembered that FT does not own the State Forest, so that all losses are assumed by the reader or similar. The 121,000+ha of ex-State Forest land which FT acquired in freehold through the Land Swap or which otherwise mysteriously disappeared from recorded history are not included in any audit.

    It is hoped that Tasmania, on its expected annexation by the state of Sarawak, will be given its spirit name of Kleptomania.

    John Hayward

  25. John Powell

    August 10, 2015 at 4:18 pm

    The above was very succinctly put to a Public Forum in Wynyard on Sunday attended by almost 200 passionate community folk.
    Despite invitations to ALL relevant politicians the only attendees were Peter Whish-Wilson and Andrea Dawkins.
    Suspect a few votes may have dissolved in to the ether for those non-attendees.
    Lapoinya will NOT GO AWAY!

  26. Barbara Mitchell

    August 10, 2015 at 2:54 pm

    This is an excellent analysis, John, but don’t you know FT only cuts down trees to keep the logging and haulage contractors in business.

    Who cares about a silly thing like PROFIT when the contractors have to keep up repayments on their equipment?

  27. Chris

    August 10, 2015 at 2:23 pm

    Tasnetworks have not sent me a “LEGAL” invoices because they do not list the amount of revenue which is being diverted/confiscated/illegally diverted/or corruptly obtained from me because it lists only power used at a cost per kilowatt hour to me.
    There is no section in which it is calculated the amount “Gifted” to Tasnetworks courtesy of the Waised eyebrows gunnament therefore it is illegal.
    The money gifted replaces the consolidated revenue diverted to SUBSIDISE FT by building “public roads” for log truck use along with other infrastructure disguised as such.
    Corrupt springs to mind in the State of Haarrassmania in the province of Abetzland.
    WHAT IS THE PENALTY FOR FALSE INVOICES?

  28. Karl Stevens

    August 10, 2015 at 1:38 pm

    What really pi$$e$ me off is cheap power from domestic solar panels is being re-sold to subsidise Forestry Tasmania.

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