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Update on the Emissions Trading Scheme

Pre-1990 Forestry Allocation Plan Update

We have been advised by the Ministry of Agriculture and Forestry (MAF) that the application process to apply for the pre-1990 allocation is now not likely to commence until August 2010 with the Forestry Allocation Plan not being finalised until late July. Until such time we cannot begin to process applications.

MAF Publication Updates

MAF has recently published an updated Guide to Forestry in the ETS, including an introductory version. These documents are essential reading for those interested in joining the ETS and will answer many questions relating to post-1989 and pre-1990 forest land. These documents can be viewed at the following links:

http://www.maf.govt.nz/sustainable-forestry/2010-introduction-to-forestry-in-ets.pdf
http://www.maf.govt.nz/sustainable-forestry/2010-ets-guide.pdf

MAF has also published a detailed land classification guide for forestry in the ETS. If you have doubts as to how your land is classified in the ETS, this guide will help you determine its status. It gives 19 examples of how to classify land under the ETS which covers the most likely scenarios. This guide can be viewed at the following link:

http://www.maf.govt.nz/sustainable-forestry/2010-classifying-land-for-forestry-ets.pdf

Don't Leave Your Post-1989 ETS Registration Application To The Last Minute!

In the May edition of Wood Matters we discussed flexibility in timing of applying for carbon credits for commitment period one (CP1), i.e. 2008 to 2012 sequestration, and expressed a view that you could wait until 2012 to make a final decision. Whilst there is some flexibility, please note that it is risky leaving it to the "last minute".

One deadline for claiming carbon credits for CP1 relates to needing to become fully registered into the ETS by the end of December 2012. Fully registered means the application is received, processed and approved by MAF. If you miss this deadline, you will no longer be able to claim your carbon credits for CP1; they will be lost forever.

Whilst at first glance, it would appear you have plenty of time, there are two risks with waiting until "the last minute" to register in the ETS:

  1. There may be complications associated with proving eligibility.
  2. If a large number of forest owners seek registration at the same time, close to the deadline, MAF could struggle with processing them all in time.

Be aware that delaying joining the ETS until later in 2012 does run the risk of disappointment from the factors above. Therefore, for those that have not already decided whether or not they will join the ETS, it is highly recommended that such a decision is made so you can submit your registration application sometime in 2011 or early 2012 at the latest. To date about 350 post-1989 forest owners are registered in the ETS out of potentially several thousand.

In making your decision on whether or not to join the ETS with post-1989 forest land, you need to consider the following factors:

  1. Your desire to generate income from selling carbon credits. If you don't intend selling your credits, you should question whether it is worth incurring the costs of registration and claiming credits with no offsetting additional revenue. On the other hand, some people feel that claiming the credits is a good "insurance policy" against possible legislative changes such that carbon has to be accounted for at harvest, regardless of whether you've joined the ETS or not. [Editors note - this is a somewhat cynical view but cannot be entirely discounted. As the Carbon Monitor points out, Governments cannot bind subsequent Governments.]
  2. Managing the liability, and price risk, for the carbon credits you have to account for at harvest (capped at the total number carbon credits received). If you have sold all your carbon credits, will your harvest revenue cover the cost of the carbon liability? Do you have other post-1989 forest of different age classes or the ability to plant new forest to help offset the carbon liability?
  3. Risk of loss of carbon via catastrophic event and the ensuing liability.

The ability to manage carbon liabilities and minimise carbon price risk exposure at harvest will hopefully become clearer over the next 12 months, still giving you time to make an informed decision and fully register before December 2012. Please email colin.hercus@pfolsen.com if you have not already received our paper "Forestry for Timber and Carbon" for further information on these issues.