MAF Provides Detailed Response to Questions of Post-89 Forests, the ETS and Forestry Rights

In response to two key questions from PF Olsen, MAF provided the following answers (slightly modified by PF Olsen). Please note that the answers are MAF's interpretation only, and should not be seen as a binding ruling. MAF and PF Olsen advise readers to obtain their own legal advice prior to taking any action or making decisions.

The Situation: A forestry right holder wishes to become a participant in the ETS and the landowner gives them permission to do so.

Q1. What liability, if any, would the landowner face if the forestry right holder as the participant did not meet his/her carbon liabilities by surrendering NZUs? e.g. harvested forest, became bankrupt and forestry right expires without surrendering NZUs.

A1. The landowner would not inherit the carbon liabilities that accrued while the forestry right holder was the participant. Section 192(7) of the Climate Change Response Act (CCRA, as amended) provides, in essence, that the transferor (i.e. the forestry right holder) continues to be liable in respect of any obligations that arose in relation to the carbon accounting area while the transferor was a participant.

Q2. The forestry right expires and the forestry right holder, as the participant, has surrendered the NZUs required to fulfil their obligations. Is the landowner obligated to replant the land (or allow land to regenerate)? Or can the landowner now deforest without any penalties?

A2. Again, section 192 of the CCRA (as amended) applies. The obligations of the landowner, once the forestry right expires, depends on whether the land remains in the ETS or not. If the landowner only permitted the forestry right holder to participate in the ETS during the term of the forestry right the forestry right holder would need to ensure the land was removed from the ETS before expiry of the forestry right. In most cases of existing post-89 forests, this will mean surrendering (at harvest) the equivalent number of carbon credits as claimed.

Where the land remains under the ETS on the expiry of the forestry right, section 192 applies and, in summary, the following is required to happen:

  • the forestry right holder (as transferor) is required to file an emissions return (and pay carbon liabilities or receive credits)
  • the forestry right holder and the landowner are required to notify the Chief Executive of the transfer of the forestry right
  • the forestry right holder ceases to be the participant as at the date of transmission
  • the landowner becomes the participant in relation to the forestry right interest as at the date of transmission
  • the Chief Executive enters the landowner into the register as a participant in the ETS (if not already on register)

It would be possible, however, for the landowner to then decide to opt out of the ETS (i.e. after the s 192 process registering them as a participant). To achieve this, the landowner would need to follow the provisions in the CCRA re removal from the register as a participant (and this would include filing an emissions return for the period they were a participant).