Farm Forestry New Zealand

Emissions Trading Scheme back to basics

Forest 360, New Zealand Tree Grower August 2020.

Often the sentiment towards the Emissions Trading Scheme, or the ETS as commonly used, is that it belongs in the too hard basket. Perhaps the best advice we can give at this point is to not pick at the nitty gritty as you risk becoming overwhelmed. Instead, take a step back and consider what you know about your own forest, woodlots or trees, then have another look at the basics of the ETS and determine whether in fact there may be something in it for you.

The same applies for anyone planning new planting. As the price of carbon increases, so too do the potential benefits. Keep an open mind even if you are only planning to plant what you consider to be small areas.

Questions to ask in your own evaluation

You should ask what your personal objectives are. You also need to know the short and long-term intentions for the land and trees. For example you need to think about −

• The return on your investment
• Succession planning and keeping land in the family
• If you need a source of short-term cash-flow
• The permanent non-timber benefits including soil conservation, habitat for wildlife and family enjoyment.

For your personal risk profile you should ask yourself if you are you interested in carbon credits that come with an obligation. You may not want to hand over liabilities to your children.

Having a reasonably clear idea of your overall objectives and attitude to risk helps to set the framework for other decisions. This includes what you plant and where you do it. If you are planning new planting consider whether or not registering for the ETS is right for your circumstances. Entering the ETS does not make sense for everyone but it can provide supplementary income while your investments grow.

Common missed opportunities

The next set of questions are around some of the practical details of your forest – either already planted or in the planning stages.

• In your potential forest area what land and trees are eligible for the ETS?
• What is species and age class composition of the planting?
• What are the site specific growing conditions and limitations?

Definition for forest land eligible for the ETS

At this stage it may be a good idea to remind you of a summary of the outline definitions of forest land when considering registering for the ETS. First, the land in areas greater than one hectare, must qualify as post-1989 forest land, meaning it has been planted with trees only from 1990 onwards.

The tree species planted must be able to reach at least five metres in height. The area planted needs, on average, to be greater than 30 metres wide and with less than 15 metres between potential canopy edges of spaced trees. The overall potential canopy cover must be greater than 30 per cent. This usually means trees planted 12 to 15 metres apart will be sufficient for most plantation species, which is quite wide final spacing for any species.

For those with existing trees – we regularly see some common missed opportunities in terms of their ETS potential including −

• Areas people think are too small
• Woodlots destined to be selectively harvested
• Riparian and wetland areas
• Poplar and willow spaced planting
• Native vegetation naturally regenerated or planted from 1990 onwards.

Right species, right place farm

This is a case study for a farm with the right species in the right place. The farm is an attractive 300 hectare hill country property in the Wairarapa with a range of tree planting. In this case study we will consider −

• A one hectare oak plantation planted in 2015
• Five hectares of ground-durable eucalypts planted in 2018
• A significant length of riparian planting, along with a wetland, which has been fenced and planted with native species, one hectare planted in 2015 and one hectare in 2016.

The owners enjoy seeing a variety of species and the associated bird life and seasonally changing landscape, but also want to use some of the timber grown on the property. None of their children are planning to come home to farm. Therefore, their long-term objective is to have an attractive, well-managed property which commands a good sale price when they retire in around 20 years. They are naturally risk-averse, but some extra cash would be welcome so consider what the ETS might offer them.

The first hurdle is to ensure that the land is post 1989 forest land. If you are uncertain about exactly what this means, it can be quickly checked by a consultant with the relevant mapping capability. Then you need to check whether the various planting meets the other forest land criteria mentioned earlier. A walk among the trees and a review of farm maps will, in most cases, provide confirmation of the potential ETS eligibility.

Management options for the oaks

The oaks were planted in a sheltered area mainly for their amenity value. The owners do not expect the oaks ever to be harvested, so they can be managed to maintain a permanent canopy cover in perpetuity, as defined by the ETS. This means maintaining the forest land definition. It will enable enduring carbon, in other words carbon to accumulate with limited liabilities as it does not have to be surrendered becasue there will be no harvest.

In practical terms for the oaks this might mean one or two thinnings until the trees reach an attractive final spacing of around 10 metres apart. At this point they can be left to grow into big trees with a lifespan of several hundred years, potentially with a natural succession of regeneration establishing in any gaps created if a tree is lost.

Hardwoods		Age in years
		1 to 5	6 to 10	11 to 15	16 to 20	21 to 25	26 to 30	31 to 35
Eucalypts, oaks, poplars, willows	New Zealand Units per hectare	63	188	158	117	92	67	44
	Accrued total	63	251	409	526	618	685	729

Plan for the durable eucalypts

The plan for the durable eucalypts is to selectively harvest them for posts to use on the farm, starting at around 10 to 12 years, and eventually clear-felling the oldest trees for bigger sawlogs then replanting the whole five hectares. The plantation, which is on gently sloping land, can be selectively thinned, with logs extracted by small-scale equipment and the timber milled and used on the farm.

As long as the minimum of 30 per cent canopy cover is retained, there will be no carbon liabilities. If the plantation is registered under averaging, which is the newer government option, the owners can claim a one-off allocation covering approximately the first 15 to 16 years of carbon accumulation and not have to repay it when the plantation is finally clear-felled, based on felling age of 30 years. There would be no potential liability to pass on to future owners as long as it was replanted. For this option we will assume the owners or their successors will manage the trees with the plan to eventually fell them and replant.

Species	New Zealand Units for each compliance period
	2018 to 2022	2023 to 2027	2028 to 2032	2033 to 2037
Exotic hardwood oak one hectare	163	175	132	101
Exotic hardwood eucalypts five hectares	315	940	790	0
Indigenous two hectares	38	90	123	122
TOTAL New Zealand Units	485	1,198	1,054	210
Value at $25 a unit	$12,123	$29,950	$26,350	$5,250

The riparian and wetland area

The aim for this area is to look after it well, ensuring the young native trees get established and do not get swamped with competing vegetation. In the wetland area there are native grasses and flax which obviously do not qualify as a tree species, so they have inter-planted the area with kahikatea which should grow well and has the potential to grow to significantly over five metres and reach 30 per cent canopy cover.

The fenced area is accessible for four wheel drive vehicles. Therefore, the plan is to contact a local beekeeper and gauge their interest in over-wintering some hives on one of the higher banks which does not flood.

The likely carbon earning potential

The oaks and eucalypts would be classified as exotic hardwoods in the ETS, and the amount of carbon they accumulate would be calculated from the nationally applicable tables. The first table at the top of the page shows the carbon credits which the oaks and eucalypts would be deemed to accumulate on each hectare during the regular five-year ETS compliance periods up to the age of 35 years.

The second table summarises the indicative carbon, and approximate dollar value based on $25 for each New Zealand Unit, using the standard carbon table produced by the Ministry for Primary Industries. The assumption is that the oak plantation is classed as a permanent forest, the durable eucalypts enter the ETS under averaging 15 years of carbon allocation and the riparian and wetland area is entered in the ETS as native species in perpetuity.

Summary

The case study represents a typical opportunity present on many farms. Carbon income could provide additional income at an average of $3,700 a year, based on a carbon price of $25 a unit, over 20 years. In addition, there are durable timber posts to be used, possible income from bees along with the pleasure of having the trees.

The Emissions Trading Scheme may not be for everyone, but we recommend you do not dismiss it before checking out some of the basics. In our next article, we will look at the earning potential of some other types of vegetation which can be eligible, including natural regeneration and spaced poplar and willow poles.

The Forest360 Land Use and ETS team are based in Masterton but operate nationwide.