Majority gained for passing NZ Emissions Trading Scheme

Majority gained for passing NZ Emissions Trading Scheme

Plans for a revised Emission Trading Scheme (ETS) were announced by the New Zealand Government on Monday, which included a promise that forest owners will be able to openly trade their carbon credits internationally. By doing a deal with the Maori Party that promises special treatment for iwi that gained forests in Treaty of Waitangi settlements, the Government has secured the parliamentary majority it needs to pass the amended ETS.

NZ Forest Owners Association Chief Executive, David Rhodes, says the proposed changes to the ETS will give investors increased confidence in the potential of carbon farming in New Zealand. Overall little has changed for forestry from the situation that existed a year ago. The association is pleased that the government has not entertained unhelpful suggestions that owners of Kyoto forests be prevented from continuing to trade credits on international carbon markets and be subject to a price cap.

"Using taxpayer subsidies to cushion households and energy-intensive industries, including wood processors, on the basis that it is in the national interest, is far more appropriate than asking forest owners to pay. If this had happened there would have been no carbon market, because forest owners would not have been trading anything," Mr Rhodes says. He says the taxpayer through the government will have to wear the cost of a greater level of protection proposed for emitters, but the important thing is that a price signal will be established and this will start to drive appropriate changes in the economy.

Agriculture has received the greatest level of protection with its entry deferred by a further two years. This will be something of a dampener to forestry expansion in the short-term due to the maintenance of unrealistic land prices, but forward-looking farm managers will start to plan for being in the ETS.

"Other self-funding policy changes are needed to make carbon forestry an attractive proposition," says Mr Rhodes. These are still being considered by officials. A carbon price and yield averaging scheme, for example, would give a land owner a regular income from carbon during the life of a forest on the condition that the forest was replanted at harvest. This would be very attractive to owners of smaller blocks suitable for carbon forestry.

Mr Rhodes says the government's decisions do not change the position of pre-1990 forest owners. They will still get limited compensation for not being able to convert their land to a more productive use without paying a very substantial deforestation tax.

How will changes to the Emissions Trading Scheme impact on the forestry sector?

Post-1989 forests are eligible to earn carbon credits from 1 January 2008 but there is no current domestic market as no emitting sector requiring units has entered the scheme. Finalising sector obligations will create a market and income stream and generate interest in further forest plantings. Foresters will have options to sell units internationally or bank them so will not be overly disadvantaged by a fixed price option.

Pre-1990 forests incur deforestation liabilities for harvesting and not replanting. These are unaffected by the changes except in having access to the $25 fixed price option. Allocations for these forest owners will proceed in 2010 and these units will be bankable and able to be sold internationally.

No change is made to provisions of the Act with respect to offsetting in Commitment Period 1 (CP1) due to the financial risks to Government and the economy. Minor changes in the Act will be made in respect of tree weeds and some technical aspects of reporting.

Read about all of the features of the revised ETS here.

Minister for Climate Change Issues Nick Smith says the changes to the ETS will halve the price impact on households for fuel and electricity; the fixed price option will provide certainty and stability to enable carbon markets to mature; and the changes to transitional support for industry will encourage cleaner technologies without driving jobs, investors and emissions offshore. The Government's aim is to have the Bill passed into law in time for the global climate change summit in Copenhagen in December.

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