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Emissions Trading Scheme Update

With Maori party support, the Government this week outlined planned changes to the Emissions Trading Scheme (ETS):

  • Situation largely unchanged for forestry - the deforestation liability remains, the pre-1990 partial compensation/free allocation of credits remains, the < 50ha exemption for pre-1990 deforestation liability remains and the ability to enter post-1989 forests into the ETS and earn carbon credits remains.
  • The proposals of "averaging" and "offsetting" and a force majeure for uninsurable losses as lobbied and presented to the select committee have not been taken up.
  • Energy, transport and industrial emitters will join the ETS on 1 July 2010 but only be required to account for 50% of their emissions (up until 1 January 2013).
  • Government to introduce a fixed-price option of $25/tonne (up to until 1 January 2013).
  • Agriculture entering the ETS has been pushed out from January 2013 to January 2015.

Nick Smith had this to say - "The Government will be introducing to Parliament next week (week commencing 21 September 2009) a Climate Change Bill implementing these changes to the ETS. We will be continuing to work with Labour and other parties to try and build as wide a consensus as possible in this important policy area. Our objective is to have the revised law passed by the time of the Copenhagen climate change conference in December."

Heightened and Broad-based ETS Activity Expected

This strong hint of multi-party support bodes well for enduring legislation. So whilst there is still considerable detail to be revealed, there is a much clearer path for forestry now.

With this increased ETS certainty we are expecting heightened and broad-based interest in the ETS. Already we are getting considerable enquiry from forest owners for registering and selling carbon credits, and emitters interested in purchasing carbon credits. A big challenge for PF Olsen will be handling the work flow. In this regard, we request your assistance. If you are starting to think that you might wish to participate in the ETS, we encourage you to register your interest with us now. This will enable us to anticipate work-loads and make sure we have the management resources in place to deal with the demand. If we have to turn down, or queue work, our service priority will be to those that have signalled early on that they wish to work with PF Olsen.

Engaging PF Olsen as your carbon forestry manager will keep all carbon credit sales options open. You may wish to sell your carbon credits yourself or you can aggregate your credits with other PF Olsen client's credits to form more marketable packages. This is important as most carbon credit buyers will be looking for sales of relatively large volumes.

In the sections below we outline situations which may describe your situation, or an area you are interested in learning more about. At the end of each section is a place for you to "click" and respond. Please take the opportunity to make a response so we can follow up with you.

What Should I Do as a Pre-1990 Forest Owner?

As previously advised, pre-1990 forest owners should all apply for their partial compensation/free allocation of New Zealand Units (NZUs - carbon credits), unless you are eligible and wish to apply for the less than 50 ha exemption from the deforestation carbon liability. Details are still forthcoming from the Government in the form of a revised Allocation Plan and deadlines. However, if you are a pre-1990 forest owner you should make sure now that you have a failsafe way of ensuring you don't miss out on this opportunity.

One option is to appoint PF Olsen to make the application for you. This will make sure critical deadlines are met, all mapping and documentation is correctly processed and, most importantly, the maximum number of units is applied for. If you have not already taken up this option, but wish to do so, click on the link below and we will forward you further details and how to register for this service.

Simply click and press Send and we will forward you details. (If you have already responded and sent a form to us, you don't need to respond again).

Important note: If you planted a forest some time after 31 December 1989 on land that was scrub covered as at 1 January 1990, the Ministry of Agriculture and Forestry (MAF) may interpret the land as pre-1990 forest-land. The issue here, is that if you think you have post-1989 forest-land, but actually have pre-1990 forest-land, you could inadvertently forgo the partial compensation/free allocation credits, and also be ineligible to earn carbon credits from your forest's growth. If you are in doubt you should either make an application for pre-1990 credits and see if it is rejected or contact MAF to see if they can assist you with making this call.

What Should I Do as a Post-1989 Forest Owner?

The ETS provides an opportunity to gain annual revenues from carbon sequestered in your growing forest. As we have stated before, you can enter your post-1989 forest into the ETS at any time up to 31 March 2013 and claim the credits from 2008. Up until now we felt there was insufficient certainty for most forest owners to justify the hassle and expense of registering (and the window of filing 2008 returns closed 31 March 2008).

As mentioned above, the recent Government announcements, and political support for the planned amendments suggests that there is sufficient certainty for those post-1989 forest owners who wish to join the ETS to do so and start getting prepared to lodge an emissions return between 1 January 2010 and 31 March 2010. Prior to that, a forest owner must register in the ETS and register as a user in the NZ Emission Unit Register and open an account. The most complicated part of this process is forming Carbon Accounting Areas, which will have an important bearing on managing your carbon risk profile.

If you are still uncertain about whether or not to join the ETS, our technical paper may help. To order a copy, simply click and press Send and we will forward it to you. Also see Reflections on the Possible Market for NZUs below.

If you would like to register your interest in PF Olsen possibly providing carbon management services (no obligation), please Simply click and press Send and we will put you on our e-mail communication data base.

What Should I Do if I want to Establish a Carbon Forest?

The best returns from carbon forestry will come from establishing new post-1989 forests and being able to claim the carbon credits through the full rotation. Whilst you have to account for carbon loss at harvesting, so long are you replant, you only have to account for around 80% of the total carbon claimed. This is due to carbon stored in the trees branches, stumps and roots remaining on the site. A carbon and timber forest not only can provide impressive returns on investment, it can also bring in early cash flow (from age four onwards). The chart below shows the carbon profile of a Radiata pine stand (tonnes CO2/ha). 

If you would like to receive our technical paper outlining in detail the opportunities to profit from planting a new carbon forest, and the risks involved, Simply click and press Send and we will forward you the paper.

If you would like us to assist you with establishing a new carbon forest, click here to e-mail us your enquiry and contact details.

Reflections on the Possible Market for NZUs

Due to the transitional phase for emitters and a cap on the ability to sell carbon credits offshore (via converting an NZU to an AAU), supply of NZUs from forestry could exceed available sales. Our analysis shows that if all partial compensation/free allocation NZUs are claimed and hit the market, there will be insufficient sales opportunities if all post-1989 forest owners choose to join the ETS and sell their credits, in CP1 (2008 to 2012). Please note, there are two big ifs there, and the level of uptake of post-1989 forest owners in the ETS is (very) unclear. But if this were the case early registration of credits in the emissions register could have a sales advantage. On the other hand, once the price cap of $25/unit is lifted 1 January 2013 and emitters have to account for more of their emissions, the price might of NZUs might rise.

If this all sounds a bit gibberish to you, it's not surprising. However, if you think you there is potential for you to benefit from carbon forestry, taking the step of joining the ETS, registering as a user in the NZ Emission Unit Register, opening an account and filing an emissions return is still a relatively low cost commitment - and you can review the options of what to do with your NZUs on an ongoing basis. I guess you could call it getting Carbon-Ready.

PF Olsen is still actively developing mechanisms to increase the options and returns from carbon forestry. These include -

  • Aggregating carbon credits to create more attractive sales packages for domestic and off-shore emitters and carbon purchasers.
  • Creating a carbon pool for forest owners to mitigate carbon price risk and create economies of scale.
  • Opportunities to sell carbon credits forward.
  • Selling NZUs with no liability at harvest time.

Now that there is more certainty with the ETS, these developments will advance more quickly.

If you are interested in possibly participating in any of the above opportunities, please register your interest by Simply click and press Send and we will put you on our e-mail communication data base.

Tree-stock availability for 2010 Planting

High current harvesting levels (requiring restocking next year) and expected 2010 ETS and Afforestation Grant Scheme (AGS) planting is expected to result in tree stock demand in 2010 exceeding supply. Our market intelligence to date indicates that almost all of next year's planned production is already spoken for.

PF Olsen has a small quantity of uncommitted GF Plus container-grown Radiata seedlings available for 2010. If you wish to enquiry how you can secure these, please click here and detail your needs.

Planting NOW

We also have some GF Plus container trees available for planting now. Being container grown they can be planted out much later in the season. If you have land that can be grazed hard and planted soon, this remains a viable option to get your forest growing now. Click here to enquire.