CARBON FARMING AND THE EMISSIONS TRADING SCHEME

In our Autumn 2009 newsletter we introduced the topic of Carbon Farming, and the implications to the rural sector arising as a result of the ETS. Seamus recently attended a seminar put on by MAF that clarified some of the earlier guidelines presented back in 2009.In December 1997 New Zealand and other countries signed an international agreement to reduce the emission of greenhouse gases.  This agreement has become known as The Kyoto Protocol. New Zealand ratified this agreement in December 2002, and is one of 170 countries to ratify. 

New Zealand faces particular challenges in meeting targets to reduce emissions compared to other developed countries due to its emissions profile. Around 50 per cent of New Zealand’s emissions come from agriculture. The number of options to reduce emissions from agriculture is more limited in the short term compared to other sectors. The ETS is New Zealand’s primary response to the challenge of reducing greenhouse gas emissions.  The ETS is a price-based mechanism for reducing the amount of gases emitted into the atmosphere. The ETS is relevant across all sectors in the NZ economy, and is a way for NZ to meet international commitments regarding climate change.

 “The ETS gives incentives to plant trees, replace thermal with renewable energy and invest in energy efficiency so we can do our share to cut emissions”                       

– Hon Dr Nick Smith – Minister for Climate Change issues.

These incentives may apply to many of you who are not aware of your eligibility to benefit from the scheme. If you have any forest land on your property, you need to ask yourself the following questions about your property:                                                               

1. Is there one hectare or more of exotic trees on my property that were planted prior to January 1990, and were still in existence on 1 January 2008?      

2. Is there a wooded area that’s been planted since 1990 that was planted on the same piece of land as a previously harvested forest that was in existence in 1990?

To be a forest, the one hectare (or more) need only have the potential to have 30% tree crown coverage at maturity. There are various exceptions to the rule, for example shelter belts with a width of less than 30m can be excluded. However, we are finding that many of our clients have small shelter plantings around a homestead: firewood clusters of plantings: an arboretum of exotic trees within the home grounds, or even have a naturally regenerated planting of exotic tree species. These plantings potentially fit the definition. Therefore, we recommend you take the time to check whether your land contains a pocket of trees that may require further consideration.

The consequences of having a pre-1990 forest can be substantial.  The costs associated with harvesting or deforesting such an area of land could be anywhere between $12,000 and $30,000 per hectare.  If you have got forest land, act now to exempt it from the ETS scheme (which every landowner in the country is perfectly entitled to do for any parcel of forest land up to 50ha), then the risk of that cost eventuating is removed.

Alternatively, the ETS can provide many forest and land owners with opportunities to generate income.  The ability to generate substantial cash flows under the ETS and increase forest profitability, and consequently your Lands Expectation Value (LEV – discounted value of future revenues and costs) is possible to land owners via carbon trading. Growing new plantations of trees can be very profitable, particularly if they have only been recently planted, preferably after 2008.  Participation in the ETS does involve some level of risk, but this risk can be managed. Generally if you minimize the risk, you minimize opportunities’ for return, the bigger the risk, the bigger the reward.          

1.  Afforest independently of a scheme. This means you are in control of what you plant and can de-forest at any time without incurring any liabilities, However, you will not be eligible to earn NZU’s for the carbon sequestered in your forests.                                                                                                                                                                                                                                                                       2.  Register to participate in the ETS. Any land owner who has 1 or more hectares of exotic or indigenous forest that was first established after 31 December 1989 can voluntarily register to participate in the ETS. You will be entitled to receive NZU’s for your forest as it grows.                                                                                                                                                                                                                                                                                       3.  Register in the PSFI. This is the option that is ideally suited to land owners who are planning on planting permanent forest, e.g. a covenant will protect the forest for 50 years. You can earn carbon credits through the Kyoto Protocol which you can then trade and sell on the international carbon market. But, this means that you will not be able to fell that land for a set period of time, a minimum of 50 years.

Forests that already existed before the end of 1989 will automatically be included in the Emissions Trading Scheme, but some can apply to be exempted.  Owners of post 1989 forests have the choice to voluntarily enter into the Emissions Trading Scheme and receive all credits and associated liabilities pertaining to their post 1989 forest land.  These forest owners will receive NZU’s as stocks (carbon stocks) increase, and will be required to surrender NZU’s if stocks decrease as a result of activities or events such as harvesting or fire.  Owners of post 1989 forests will have 18 months from the passing of the Emissions Trading Scheme legislation to decide to join the Emissions Trading Scheme.  Forest owners wishing to join the scheme after this date will have to wait until after 2012 to join. 

PFSI                                                                                                                                                                                                                                                                             A permanant forest sink covenant is to be submitted along with the PFSI Application.  Once the application is approved, the landowner enters into a covenant with the Crown which the landowner must then register on the land title.  MAF requires applicants in the PFSI to include a 2-D map area of the forest land in question.  This must be submitted in the form of Geospatial data or a Survey Plan.  The forestry sink covenant will remain in place for at least 50 years, but may be terminated early if specific conditions are met e.g. The landowner chooses to become a participant in the Emissions Trading Scheme in relation to the forest sink area before 1 January 2010.

With on-going planting, it is possible to achieve a forest estate that has no carbon price risk after harvest. Participants can use ETS as a way of financing the sustainable development of a forest. Due to the legislative changes put through Parliament late last year, the ETS is, in our view, an opportunity which should be of interest to farmers and landowners. Because of the large number of farmers in the greater Hawke’s Bay region who have already planted part of their land in forestry, we have taken a keen interest in ETS and we have developed a number of options for land owner clients with forest holdings or who have land suitable for planting. We think that there are significant benefits for farmers who decide to register under the ETS.

If you are interested in any of these initiatives, would like advice or you have any further queries please don’t hesitate to contact Seamus on (06) 878 6349 or 0800 TO SURVEY or email seamus@subdivision.co.nz

The information provided in this article was predominantly sourced from the Ministry of Agriculture and Fishing, http://www.maf.govt.nz/forestry/forestry-in-the-ets