Farm Forestry New Zealand

Allocation or exemption opportunity

Stuart Orme, New Zealand Tree Grower May 2010.

With the arrival of the Emission Trading Scheme (ETS) there has been the emergence of two land categories otherwise unknown before in New Zealand −

• Post 1989 forest land
• Pre 1990 forest land.

Post 1989 forest land is deemed eligible to receive carbon credits on an annual basis if a participant joins the ETS and the land was not in forest before 1990. With this come some obligations but as time moves on and we work through more actual case studies people are realising these are quite manageable.

Pre 1990 forest land is land of one hectare or greater covered by indigenous or exotic forest on or before 31 December 1989, and in predominantly exotic forest species on the 1 January 2008. One example this is land with an exotic forest species in the ground in 1989. Another example is an indigenous forest in 1989 that has since been cleared as part of a land preparation operation for planting into what is now an exotic forest species.

Current rules state, and do not expect them to change, that if pre 1990 forest land is deforested, then the land owner has an obligation to surrender a certain number of carbon units (NZUs). In the lower North Island this number is 866 NZUs for a 30-year-old forest. At $25 per NZU that amounts to $21,650 per hectare.

Softening the blow

There are two initiatives about to be become available designed to soften this blow −

• The pre 1990 forestry allocation plan
• The less than 50 hectares exemption entitlement

The pre 1990 forest allocation plan has been out for its third consultation process which closed off on 29 March 2010. It is expected that the final version will become current on or about the 1 July and be open for application for compensation credits till the 30 June 2011. These compensation credits are allocated to offset the potential costs of deforestation or the loss of capital value caused to your land due to this encumbrance placed on it.

During the same period, some land owners will have the opportunity to apply to have an exemption that will allow them to deforest their land and change the land use from forestry to something else at no penalty. This would be as long as the land owner on the 1 September 2007 owned less than 50 hectares of pre 1990 forest at the time.

The process is entirely optional and you will have the choice to take advantage of either option or a mixture of both. You do not have to apply for your compensation credits but you will have to pay the deforestation tax if you deforest more than two hectares at some stage.

Currently the plan intends to allocate 60 units to land owners who owned the land on or before the 31 October 2002 and 39 units to land owners who have purchased the land on or after 1 November 2002. This date was chosen as the government first announced its intention to introduce deforestation controls on that date.

A total of 38 per cent of these credits will be allocated on or before the 30 June 2011. The balance will be in the next compliance period, which could be as soon as early 2013 if still applicable.

Tax rules associated with these credits are such that their sale will not attract tax as they are given in compensation for the effect on capital value of land reducing. There is no surrender or return requirement for these as your obligations to keep the land in forest exist whether you take advantage of the proffered compensation or not.

Below is an example using 40 hectares of pre 1990 forest land that has been in the same ownership since 2002. If only 39 units are allocated then the numbers reduce accordingly.

	NZUs	Value at $20 per NZU
40 hectares at 60 NZUs per hectare	2,400	-
38 per cent allocated now	912	$18,240
62 per cent allocated in 2013	1,488	$29,760
Total compensation at $20 per NZU		$48,000

How do you apply for these credits?

MAF have set up a separate group to process the pre 1990 applications.You will need to open an NZEUR account for the credits to go into – if you already have one from your post 1989 registration process, this will be fine.

You will also have to apply to MAF to recognise your pre 1990 forest land so that the credits can be allocated. MAF will need a shape file of the land and evidence of legal ownership for review– again similar to the current post 1989 application process.

MAF intend to be able to process these from 1 July this year. Once the application is approved they aim to give the credits to the relevant NZEUR account shortly after. This compares with the post 1989 participants who are currently restricted to between January and March the following year.

Initially applications will be paper based but MAF hope to have an online process running by September this year.

Best tip for ETS registrations

Many would have read that you have until the 31 December 2012 to register your post 1989 forest to be able to claim your credits for Compliant Period One 2008- 2012. The actual date, if you want to take best advantage of the ETS opportunity, is before the 30 June 2011. So why is this the case?

The burden of proof rests with the participant to prove that land is post 1989 when making application to put forest into the ETS. I have been involved with 52 applications so far. MAF have declined to accept land within the majority of the applications as it has been deemed to be pre 1990 forest land as their photographic base shows it to have been in vegetation before 1990.

Many have eventually been accepted, once proof has been supplied to prove the vegetation was gorse or another non forest species. But a large number have lost land from their initial application because they were unable to provide the acceptable proof.

If a participant does not have their ETS application approved before the end of June next year and finds they have land excluded, they will be too late to apply for the compensation credits for that excluded post 1989 land. Our advice is to continue to get registered as soon as possible if intending to join the ETS as it can take considerable time to prove eligibility if required to do so.

Remember the definition of pre 1990 forest land is land with a forest species growing on it before the start of the 1990 calendar year, capable of reaching −

• Five metres in canopy height at maturity on that site
• 30 per cent canopy cover and covers more than one hectare.

This is a definition that can be applied to not only production plantings but also many protection plantings such as willow and poplar, arboretums, and other forest areasFurther information can be obtained from the MAF web site and help line – 0800 CLIMATE