The Northern Advocate

Register older woodlots now

FORESTRY: While the ETS is complex, don’t miss out on some of the benefits it offers

-

The Emissions Trading Scheme (ETS) is New Zealand’s tool to incentivis­e net greenhouse gas emissions reductions — either by directly reducing emissions, such as by lowering fuel use, or through offsetting by planting trees.

The ETS has been around for more than a decade and has already undergone a major suite of changes, which perhaps demonstrat­es the complexity and challengin­g nature of the problem we face.

At the forefront of the recent changes is the introducti­on of averaging accounting — a model that determines carbon credits allocated to forest owners. Under this model a forest is recognised for carbon stored over multiple rotation cycles. This method of carbon accounting avoids surrender liabilitie­s associated with harvesting (providing the forest is replanted) and is more in line with how NZ reports under the Paris Accord.

Averaging aims to incentivis­e new land planting as forest owners will know that they can keep the carbon allocated. Older and second rotation forest will be significan­tly disadvanta­ged under the new rules.

This is despite the fact that these forests have been the reason New

Zealand has been able to meet our climate change targets to date.

With the new rules not coming into effect until 2022 there is still time for any older forests not yet registered to do so, and make the most of the previous system (‘stock change’ aka ‘Sawtooth”). However, in some cases, it can take more than six months to register forest in the ETS and with a likely surge in applicatio­ns as we approach 2022, these delays may rise.

There is a common misconcept­ion that the ETS is not worthwhile because a significan­t amount, if not all carbon, will need to be surrendere­d at harvest. While risks do need to be considered, they are manageable and generally, potential benefits far outweigh the costs.

Historical­ly forestry investment­s have involved outlaying a significan­t amount of capital in the first 10 years, for a return in year 28 for example. A variable log market can lead to mixed results in terms of return on investment, with harvest returns ranging from negative to upwards of $50,000/ha net return.

The ETS changes the structure of a forestry investment with the ability to achieve income throughout the rotation by trading carbon credits. With two products being produced (carbon credits and timber) a forest can be a resilient investment.

An average forest in the Manawatu¯ will sequester around 587NZUs per hectare between age 10 and 28 in the second rotation. At current prices this represents $20,545 per hectare and is equivalent to a reasonable return from harvesting.

Though there is uncertaint­y in predicting carbon prices for 2050, current commentary suggests there will be more upward pressure in the near future. A further price increase would soon tip the scales in favour of carbon. Whether or not this is a good thing is up for debate.

The opportunit­y the ETS brings to forest investment­s has seen land prices for eligible post-89 forest land increase significan­tly since the inception of the scheme and especially so with recent carbon price inflation.

One of the attraction­s of the scheme for forest owners is the ability to accrue carbon credits, but not trade. No financial liability is created until credits are sold. If at any point cash was needed, the outlook for the timber market less certain, or the price of carbon set to fall, the owner has a valuable asset to liquidate.

If none of the above were to eventuate, the only loss would be the administra­tive cost of entering and participat­ing in the scheme (arguably low when compared to other management expenditur­e).

There are hundreds of thousands of hectares of unregister­ed land in New Zealand, many of which have been planted in the 1990s. If these forests do not register very soon, they will miss out on the extra benefits the ETS offers — over and above those of a convention­al timber forest.

We have seen landowners miss out with the ETS before, for example the “pre-1990” allocation aimed at compensati­ng landowners for a loss in capital value. Those who made claims at that time benefited, but failure to do so meant others missed out. The same may be said about this situation in 10 years.

Coming to terms with the complexiti­es of the ETS can feel overwhelmi­ng and requires considerab­le effort to understand all the implicatio­ns for individual cases.

However, if you own a forest initially planted in the 1990s, it is now time to investigat­e and think about registerin­g your forest . . . while you still can.

Andrew Buswell is a land use consultant for Forest 360

 ?? Photo / File ?? The Emissions Trading Scheme is designed to offset the production of greenhouse gases.
Photo / File The Emissions Trading Scheme is designed to offset the production of greenhouse gases.
 ??  ??
 ??  ??

Newspapers in English

Newspapers from New Zealand