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For several decades, the alternative commercial and economic uses and management of Australia’s native forests have generated considerable debate. In the past five years, this debate has sharpened as the native forest sector has contracted in response to increased competition in international and domestic wood product markets. New carbon markets are also emerging that could enable the Australian government and native forest owners, including state governments, to earn carbon credits from altering management practices in native forests. In particular, reducing or stopping harvesting in Australia’s native forests will now result in Forest Management (FM) credits being recorded in Australia’s greenhouse accounts under the Kyoto Protocol. The preservation of native forests could also lead to the generation of Australian carbon credit units (ACCUs) under the Carbon Farming Initiative.

The native forest sector’s decline and emergence of these carbon credit opportunities have raised questions about the financial returns of forest conservation versus commercial harvest. To explore this issue, we conducted a financial analysis of the Southern Forestry Region (SFR) of New South Wales comparing the net financial benefits (revenues minus expenses) from harvesting and processing native forest logs in the region to the net financial benefits that could be derived by using these forests to generate carbon credits (FM credits and ACCUs). Due to the absence of reliable data on non-market items — e.g. biodiversity and heritage values — the analysis was confined to financial flows and did not consider net economic benefits. In other words, it was a financial rather than economic analysis.

New South Wales’ Southern Forestry Region (SFR) was employed in this comparative analysis because the structure of its native forest sector is broadly representative of that found in many other parts of Australia. In recent years, the SFR processed approximately 450,000 m3 to 500,000 m3 of broadleaved native logs per annum (predominantly Eucalyptus and Corymbia spp.). About 70 per cent of these were pulplogs, which were chipped at the region’s major woodchip mill, South East Fibre Exports (SEFE) in Eden, before being exported to Japan to make paper products. Until late 2012, the SFR also supported four medium-sized native hardwood sawmills and a collection of smaller mills that processed approximately 100,000 m3 of native sawlogs per annum.

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