The NZ Emission Trading Scheme
Considerations for Maori Forest Owners
Author: Andy Dick, Senior Consultant, Interpine
Article ID : ETS0909 Sept 2009
Key words: ETS, Maori, Carbon Credits, NZU, Kyoto

The NZETS is generally a positive development for forest owners in New Zealand whether Maori or not. Forest owners can now generate additional income through trading carbon credits that are allocated to them as their forests remove carbon from the atmosphere. The scheme is a little confusing but not so complex that the key aspects cannot be described in a couple of pages.

International Background:

• In 1997 most developed countries made commitments to reduce or stabilise greenhouse gas emissions in order to reduce mankind’s affect on global warming/ climate change (the Kyoto Protocol). Greenhouse gas emissions for each participating country were benchmarked at 1990 levels and the first accounting period for emission reconciliation is 2008-2012. The United Nations has developed criteria for measuring how each signatory nation has to account for their emissions at the end of each accounting period.
• Although there are a number of greenhouse gases, the most significant and easiest to measure is carbon and one tonne of CO 2 gas has become the universal measure of greenhouse gas emissions.
• While the Kyoto agreements have been made at an inter-governmental level it is up to each signatory nation to implement internal policies as they see fit. To manage liabilities under Kyoto, emission trading schemes have been developed and these are generally seen internationally as the most equitable way to incentivise entities to reduce their carbon emissions. Other options available to Kyoto member nations include carbon taxes and in New Zealand the Clark Government tried, unsuccessfully, to introduce a carbon tax in 2003.
• The basic principles of emission trading schemes are simple: if you produce a tonne of carbon (above a permitted level) then you must purchase a carbon unit to compensate for your emissions. If you reduce your carbon emission or you offset carbon production then you earn credits that you can trade with emitters. The markets set the economic price for carbon and businesses that release a lot of pollution will be penalised more than environmentally efficient competitors.

National Background:

• The New Zealand Emissions Trading Scheme is the NZ Government’s main tool for meeting New Zealand’s’ commitments under the Kyoto Protocol and it is a contentious piece of policy. The NZETS became law in September 2008 (one of the last pieces of legislation enacted under the Clark coalition Government) and was rapidly subjected to select committee review by the new National coalition government elected in November 2008. It is expected that a modified NZETS will be legislated prior to December 2009 (NZETS is law now but only affects the forestry sector).

NZETS General:

• The NZETS will be applied at a sector level and the timing of sector introduction in to the scheme is varied. For instance the forestry sector was entered in to the scheme in 2008 whereas electricity, industry and transport is scheduled for introduction in 2010 and agriculture in 2015. Date of entry is an ongoing compromise between carbon and economic accounting.
• Internationally, there are a range of “types” of carbon units which adds confusion to the carbon sector. Although virtually all units represent one tonne of carbon dioxide, the value of the unit differs depending on where it arises from and what market it is traded in. For the NZETS a New Zealand Unit (NZU) has been created that early trading evidence rates as “close” to top dollar on the major European trading system (about 25 – 28 NZD/tonne).

NZETS Forest Specific:

• Trees and forests “breathe in” (sequester) carbon from the atmosphere so they are considered positive agents in the climate change business. In the NZETS it is proposed that the owners of Kyoto forests are issued with NZUs for every tonne of carbon that their forests sequester. However, there are important definitions as to which forests qualify for units.
• An artifice of the Kyoto protocol is the definition of Kyoto forest which applies an economic value to carbon sequestered in forests that were established after December 31 1989. If an area was forested prior to that date then that forest is not considered a Kyoto forest. The NZETS mimics the international definition and in essence creates two distinct types of planted forest: pre 1990 and post 1989 (Kyoto) forests.
• Owners of older forests are penalised if they do not re-establish their forests after harvest. The owners are charged the equivalent of the lost carbon from their trees which at expected unit trading prices would be in excess of $10,000/hectare. Pre 1990 forests are automatically covered by the NZETS and the Government allocates a number of NZUs to owners of these forests to recognise the new land use penalty that the NZETS imposes on them. This is beneficial to those forest owners that have every intention of replanting their forest after harvesting.
• The treatment of harvesting is different for a pre 1990 and a post 1989 forest. For a post 1989 (Kyoto) forest the forest owner that has elected to join the NZETS must pay for the release of carbon associated with carbon removal (not exactly good science but that is what is in the legislation). So while you earn credits for the carbon your forest sequester you also owe units for the carbon deemed to be lost at time of harvest (although initially you cannot owe more units than what you have received). For pre-1990 forests (non-Kyoto) there are no penalties at harvest time: penalties only apply if you do not re-establish a forest and you have seven years to do this.
• The quantity of NZUs to be allocated to pre-1990 forests (including ex Crown Forests) has yet to be finalised. The range of units to be allocated to these forests has been discussed at between 39 and 60 units/hectare (the total number of units to be allocated has been set).
• Owners of forests established after 1989 (Kyoto forests) have a choice over whether they participate in the NZETS. There are nominal fees associated with joining the NZETS and trading NZUs.
• Under the NZETS Kyoto forest owners can only earn NZUs from the carbon sequestered in their forests from January 1 2008 forward. Any carbon sequestered before then is not valued under the NZETS.
• Indigenous forests are treated neutrally under the NZETS. That is, there is no immediate opportunity to gather credits for the carbon that these forests sequester.
• There is an opportunity to trade carbon credits in to the international “voluntary” market centred on the USA but getting voluntary units verified and vetted is tedious and expensive and voluntary units trade at a heavily discounted price to that offered by the regulated (Kyoto) market.
• In addition to the NZETS there are other forestry positive programmes that have been developed by the Government to facilitate the establishment of carbon forests: the Permanent Forestry Sink Initiative and the Afforestation Grant Scheme.

NZETS for the Maori Forest Owner:

• For Maori with land the NZETS is generally positive as it creates a new economic product (sequestered carbon) and provides new incentives and subsidies for establishing fresh forests.
• Definitions of Kyoto forest are tight and the onus is on the landowner to demonstrate that land was non –forested prior to 1990. Scrub can be defined as forest so trees that have been planted after extensive scrub cutting and burning may not meet the definition of a Kyoto forest and are therefore not able to earn NZUs.
• The NZETS penalises Maori forest owners that want to convert to dairy or other less carbon friendly land use. Also, the NZETS while making the establishment of forests more profitable penalises agriculture as a land use (from 2015 forward) for carbon emitted by animal herds. So Maori landowners that have a mix of land use may win through carbon sequestration within their Kyoto forests yet lose through the conversion of their non Kyoto forests to an alternative land use and may also lose through the carbon emissions of their animal herds.
• The position for Maori forest owners that have received ex Crown forest as part of historical Treaty settlement is fluid. The NZUs to be allocated to these forests depends on ongoing negotiation as part of the political process (ex Crown forest is all pre 1990 non Kyoto forest).
• The exclusion of indigenous forest from the NZETS disadvantages the land owner that has large tracts of native bush on their property.

For further information visit the MAF website:
http://www.maf.govt.nz/climatechange/

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