Recently-announced reforms to the Emissions Trading Scheme are being welcomed by foresters, with one industry body chair saying carbon average accounting, where a forester is not penalised for harvesting so long as they replant, will encourage farmers to plant out land in forests.
Farm Forestry Association chair Neil Cullen says carbon average accounting will allow foresters to harvest “without a concern that this will result in a cash-flow problem for them” because the reform reduces ETS compliance costs.
Forestry Minister Shane Jones and Climate Change Minister James Shaw announced the second set of changes to the ETS in late-March as part of broader reforms to make the scheme fit-for-purpose.
They believe the changes will see 89 million more trees planted in coming years and an extra 45 million tonnes of carbon dioxide stored in NZ’s forests.
The introduction of averaging accounting applies for all forests registered from January 1, 2021, and the option to use the new accounting method for all forests registered in 2019 and 2020.
Shane says by taking a long-term view of the amount of carbon in a production forest, averaging means forest owners will be able to trade more carbon NZUs at lower risk, and not have to worry about finding units to repay at harvest.
“It’s essential the ETS provides the right incentives for forestry over the long term so we can deliver on our One Billion Trees programme as well as our commitment to taking action on climate change and supporting the transition to a low emissions future,’ says Shane.
“We’ve heard from the forestry sector about the need to make the ETS simpler while increasing the incentives to plant trees – simpler accounting for the carbon stored in trees will make a positive difference for anyone considering investing in forestry.”
Shane says the timing of this decision – as 2019’s planting season is about to get under way – is important for forest owners. “They can now go ahead with planting this year knowing they can choose the new system and we hope this provides the certainty they’ve been seeking as a sector. We expect to make further decisions soon on the details of averaging accounting, and whether forests already in the ETS can transition to averaging.”
Making system simpler
Neil says making the system simpler to understand is also crucial. “I know it’s a complex system, but it needs to be understood by a forester or a farmer without having to go on a course.
“If it’s too complicated, a landowner will do something else, or nothing. The end result is regional investment opportunities are missed and rural communities are less wealthy. ”
James Shaw says Cabinet has also agreed to several operational changes to streamline the ETS process for forest owners. “We’ll improve the emissions rulings process where applicants can get an assessment of their land prior to investment and enable the use of a mapping instrument to make applications even easier.
“These proposals work together: the improved emissions ruling process will be in place once the legislation changes, while we develop the mapping instrument over the longer term.”
James says these changes are part of a number of overlapping policy levers aiming to strike the right balance between production and protection. “We need clean water and reduced greenhouse gasses. We also need food and employment, including in the regions.”
Transition path clear
The Forest Owners Association president Peter Weir says the announcement is timely and the transition path clear – as many investors have been seeking transparent, simpler rules for a long time.
Peter says the changes much-needed certainty, especially in the context of the Parliamentary Commissioner for the Environment’s report and the forthcoming report back to Ministers from the Interim Climate Change Committee.
“The critical thing to make a revised ETS work is that there is political will behind it. We simply can’t have politicians shifting goal posts every three years. In the big picture, NZ needs equity between the land-based sectors, and long-term stability. Without these factors behind it no reform of the ETS will make it work.”
The changes were developed by the Ministry for Primary Industries, Te Uru Rakau and Ministry for the Environment following consultations in 2018.
Long lived wood products
Other changes will be announced this month, particularly around how to incentivise the storage of carbon in long lived wood products. The Government plans to introduce these changes to Parliament later this year as a suite of changes to the Climate Change Response Act.
James says alongside these important forestry changes, the Government is progressing more amendments to the ETS, to support NZ’s commitment to the Paris Agreement and our transition to a low emissions future.
“We aim to introduce the changes to Parliament around the middle of this year. We’re also making the scheme fairer, and creating the ability for the Crown to make sure people are operating within the intended framework,” says James.
- Introducing averaging accounting for all forests planted from 1 January 2021;
- Six major operational changes, including:
- Making it easier to identify ETS-eligible land prior to investing in planting;
- Ensuring the six-year stand-down period for grant-funded forests works as intended;
- Aligning the ETS Mandatory Emissions Return Periods with the Paris Agreement timing;
- Enabling better enforcement in cases of persistently non-compliant returns or missed returns from post-1989 forest owners;
- Strengthening the compliance process for transmissions of interest when a forest changes hands; and
- Enabling enforcement in cases of permanent forest being intentionally clear-felled; as well as
- Six further minor and technical changes to resolve ‘bugs’ in the system and enable better operation of the ETS over the long term.
Averaging vs carbon stock change accounting
- The current forestry accounting approach (carbon stock change) requires a participant to account for any loss of carbon in their forests, even if that loss is temporary.
- This means when trees are harvested, foresters must pay to the Crown a significant amount of the New Zealand Units (NZUs) they have earned from a forest’s growth, even if the forest will be re-planted.
- Under ‘averaging’ accounting, there is no longer a need to surrender NZUs upon harvesting. Participants will instead receive NZUs as their forest grows, up to a determined average level of long term carbon storage, and will not face any liabilities on harvest if they replant.
- Averaging also reduces the costs and complexity for forest owners, and gives them freedom to trade NZUs as they will not have to be surrendered at harvest – increasing the incentive to plant forests through the ETS.