Farm Forestry New Zealand

We are almost there for a truly functioning ETS

Stuart Orme, New Zealand Tree Grower November 2018.

By the time you read this article, the deadline for making submissions on proposed improvements to the Emissions Trading Scheme will have passed and will be in the hands of the government and policy makers. The government will then consider policy and draft amendments to the Climate Change Response Act which will progress through Parliament in late 2019.

The Emissions Trading Scheme

The ETS is New Zealand’s main policy method for reducing emissions and meeting the stated emissions reduction targets. As a result of the recent review, a number of decisions were made and options considered, followed by a public consultation period which closed in September.

Forestry plays the lead role in New Zealand to meet our emission reduction targets. For those at ground-level – the land owners, forest owners and farmers − there is significant discussion and no doubt concern about how the Climate Change Response Act, and proposed ETS changes, will affect them. The consultation topics generating the most interest included −

• The use of ‘averaging’ accounting
• Recognition of carbon storage in harvested wood products
• The permanent forest category.

Averaging

If introduced, averaging would allow forest owners and other participants in the ETS to receive their NZ Units, averaged over a number of rotations, during the forest’s first rotation. The participant would have the option of accepting an allocation of NZ Units based on the first 18 to 20 years of carbon sequestered in a rotation. This allocation would carry no obligation and would not be required to be surrendered at harvest, as long as the forest was re-planted.

It could also mean that, if the forest was destroyed in a catastrophic event such as fire or disease, the owner would not be liable for the carbon lost. This again assumes that the forest is replanted and the land use continues to meet the forest land definition

Averaging is not a new concept and is currently applied under Australia’s carbon farming initiative and more importantly how New Zealand’s international emissions will be measured from 2021 onwards. There were various options covered within the ETS consultation, but the preferred option assumes that averaging, if adopted, would allow 18 to 20 years of first rotation carbon to be defined as enduring carbon.

One of the main concerns raised at a public stakeholder meeting I attended was around how averaging would affect those with existing forests in the ETS compared with those registering new forests. For existing forests the options were – continue to use carbon stock change, as seen on a graph as a saw-tooth pattern, or a one off, one-way choice of averaging or carbon stock change. If averaging was an option for existing forests, consideration would then have to be given on how a transition would take place. It was proposed this would happen at the end of a Mandatory Emissions Return period, or a mini-period, possibly in 2021.

For new forests, the preferred option was that it would be mandatory to use averaging for all trees planted after 1 January 2020. While you can understand this being the government’s preferred option, in our submission we have disagreed with this as we believe the date of registration into the ETS matters, not the planting date. Many people established new planting in 2018 on the expectation that averaging was coming in and may be disadvantaged if averaging is not an option.

Harvested wood products

After harvest, trees are converted into wood products which have various lifespans, ranging from paper to timber used in buildings and furniture. These products store carbon which will eventually be released at the end of their useful lifetime. The current ETS makes no allowance for carbon stored in harvested wood products but assumes instant oxidation at the time of harvest.

Recognition of harvested wood products would mean that some liability would be deferred over the lifetime of these items. This accounting is complex, especially as so much of New Zealand’s timber is exported as logs. Under current projections this process could add a further 120 NZ Units for every hectare of planted trees, or three to four year’s worth of enduring carbon. Other than the status quo, the options proposed were that ETS participants using averaging would receive additional NZ Units from harvested wood products or that an industry good fund would be created with these funds.

We endorse passing harvested wood products units to forest participants and believe averaging should be available to all currently registered ETS participants.

When trees are felled the government will account for the carbon released using the averaging method, therefore benefiting by a lower emission number. The forest owner should also have the option to benefit

Permanent forest category

A new Permanent Forest category is proposed to replace the Permanent Forest Sink Initiative which is a government sustainability forestry programme. It was an alternative to the ETS for those wanting to create permanent forests. Participants enter into a covenant which has no fixed termination date, but with the right to terminate after a minimum term of 50 years.

The options for those current Permanent Forest Sink Initiative covenant holders would be to −

• Transfer to the new Permanent Forest post-1989 activity
• Transfer to a standard post-1989 activity
• Leave the ETS and repay all units received.

We support the simpler mechanism but for it to work, the tax laws around having to pay tax on the value of the transfer must change.

Carbon Zero Act

In addition to the ETS review, in December 2017 the government sought to deliver on its election promise of setting a target of having nett zero greenhouse gas emissions by 2050 and putting this into law. Before the introduction of a Zero Carbon Bill, Cabinet agreed to a consultation period which ended in July. The government will now consider various policies and it is anticipated that the Bill will be drafted by the end of 2018, will go to select committee early in 2019, and a Zero Carbon Act will come into force in mid-2019.

The Act will have a flow-on effect in setting New Zealand’s emissions budgets. It will determine how many emissions are allowed under each budget, the ETS framework and ultimately our climate and economic future. By making this law it is hoped that it will provide certainty for communities and businesses. The result may not quite be zero carbon but it will be progressive, achievable and sustainable in the long term. Take a big breath, we are almost there.

Stuart Orme is a Registered Forestry Consultant based in Masterton.