Australian carbon forestry attracting interest

Friday 18 Aug 2023

The Carbon forestry market is attracting interest in Australia as its government implements policy changes and provides financial grants, but there is uncertainty in New Zealand amid its decision to redesign rules for forestry projects in the country's emissions trading scheme, sources told S&P Global Commodity Insights.

This comes as the Australian government has been taking some measures, such as revoking water-related regulations that placed additional barriers on the registration of plantation-based carbon projects in high-rainfall locations, to encourage the entry of plantation projects in the Australian Carbon Credit Units scheme.

The government also allocated A$73.76 million in June to help establish new long-rotation plantation forests in Australia. According to an Australian plantation-based carbon project developer, the current government is more supportive of the plantation methodology as it expects increased tree planting to benefit Australia's 2030 and 2050 targets.

New Zealand and Australia both allow plantation forestry projects to earn carbon credits by either planting new forests or changing harvesting patterns for existing plantations.

NZ’s policy uncertainty

Meanwhile, the growing carbon forestry sector in New Zealand has run into policy uncertainty. The New Zealand government in June opened a consultation to redesign the ETS to reduce reliance on offsets, in addition to framing a new policy for the registration of exotic forests, which account for the majority of carbon forestry projects.

This followed the cabinet's decision in December to implement weaker price settings for ETS auctions against the advice of its national climate body, which recommended a steep increase.

"The decisions made by cabinet and proposals for changes to ETS rules by officials have destroyed a market which was starting to work," said James Treadwell, president of the New Zealand Institute of Forestry. The uncertainty around policy led to a steep fall in NZU prices, which tumbled to a multiyear low of NZ$35/mtCO2e on July 5.

"There is definitely that feel in the market that capital investment is currently being impacted in New Zealand due to the uncertainty," said Amy Smith, team leader for land use and ETS at Forest360, a forestry consultant. "Investment has dried up [in New Zealand] or even reversed in the form of capital flight, and yes Australia is looking far more attractive," said Treadwell.

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Source: spglobal

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