1. 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

2. 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)

3. Model Base year: 2007 Steady-state forestry model links to the CGE NZ—small open economy 12 sectors, 5 types of land, factors (labor, capital) are mobile among sectors, land is mobile among 5 land- used sectors, joint production one household, government, enterprise, investment- savings, rest of world Four carbon tax scenarios ($0, $25, $50, $100)

4. Sectors Land-used sectors

5. Forestry

6. CGE production Three-level nesting, Leontief function at the top level and between domestic and imported Allow substitution between value-added input Sector IntermediateValue-added Domestic Import Capital Labor Leontief CES

7. Land allocation Five types of land; assuming a composite land used in the sector production. The Armington substitution (CET) is allowed for land allocation

8. 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)

9. 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

10. Data

11. Results - Forestry ForestryPc=0Pc=25Pc=50Pc=100 rotation year19.63120.22720.81522.046 yield322.612342.103361.516402.479 timber price186.983190.7196.009200.558 NPV112521.3812912.6513381.4313814.62 NPV202065.4234224.0478790.557 NPV30-1458.28-2940.39-5933.08 NPV415808.6116863.1618086.0920121.07

12. Results - Land price change Land price is increasing due to the strong demand. Forestry land increases the most. pc=0pc=25pc=50pc=100 LForest0.9974.0219.92519.629 LOther1.0331.3192.3914.25 LGrass11.1211.7422.635 LScrub1.0011.9434.3728.682 LCrop11.0511.4331.678

13. Results - Forestland change Forest land demand by ind (hectares)Forestland use by ind/total Forestland hectares pc=0pc=25pc=50pc=100 Horticulture and fruit growing0% Sheep-beef42%3%1%0% Dairy6%0% Other agriculture2%0% Forestry50%96%99%100%

14. Results-Other land change Otherland demand by ind (hectares)Otherland use by ind/total otherland hectares Horticulture and fruit growing1%0% Sheep-beef91%62%30%9% Dairy4%2%1%0% Other agriculture3%1%0% Forestry2%34%69%91%

15. Results-grassland change Grassland demand by ind (hectares)Grassland use by ind/total grassland hectares Horticulture and fruit growing0% Sheep-beef81%70%46%18% Dairy14%11%5%0% Other agriculture3%2%1%0% Forestry1%17%47%82%

16. Results-scrubland change Scrubland demand by ind (hectares)Scrubland use by ind/total scrubland hectares Horticulture and fruit growing0% Sheep-beef84%26%8%2% Dairy4%1%0% Other agriculture3%1%0% Forestry9%73%92%98%

17. Results-cropland Cropland demand by ind (hectares)pc=0pc=25pc=50pc=100 Cropland use by ind/total cropland hectares Horticulture and fruit growing17%15%12%3% Sheep-beef73%71%61%36% Dairy7%6%4%0% Other agriculture3%2%1% Forestry0%6%22%60%

19. Pc=0Pc=25Pc=50Pc=100 GDP0155419.1 GDP EX155419.1154961154221.3153479.8 Pc=0Pc=25Pc=50Pc=100 Pfx11.021.0481.073

20. Commodity price commodity pricepc=0pc=25pc=50pc=100 com111.054,1.1111.263 com211.131,1.4141.764 com311.049,1.1041.215 com411.425,1.984.008 com511.021.0481.072 com610.999,0.9950.996 com711.060,1.1591.314 com810.998,0.9960.995 com911.007,1.0171.036 com1011.0071.0131.031 com1111.000,1.0011.004 com1210.9960.9910.988

21. Import valuepc=0pc=25pc=50pc=100 Horticulture and fruit growing357.714320.603294.665260.957 Sheep, beef cattle139.609101.12673.35548.965 Other Agriculture381.248271.696201.283132.225 Natural Forestry55.1815.4475.75 Minerals, oil and coal3120.1623199.3913298.783392.634 Processed Agricultural products799.979676.405570.1459.121 Processed forestry products725.921733.563749.185772.826 Other Manufactured products35393.4635086.3935012.4135365.46 Utility6.9996.8896.8536.787 Construction178.018179.53179.968185.91 Services9532.229611.5949633.2979627.454

22. 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

23. Appendix I (Forestry carbon payment)

24. Appendix II (Timber production)

25. Appendix -equations

27. Market clearing Commodity market:

28. Market clearing Factor market