Should I Wait Until 2012 to Decide Whether or Not to Claim Carbon Credits?

Forest Enterprises Limited (FEL), a forest and investment manager in the Wairarapa and East Coast of the North Island, recently advised (most) post-1989 forest owners to wait until 2012 to decide whether to opt in to the Emissions Trading Scheme and claim carbon credits (NZUs). In 2012, should post-1989 forest owners decide to join the ETS, there will be time to do so before 31 December 2012, the last date to secure NZUs for the five years from 1 January 2008 to 31 December 2012. The thinking behind this recommendation is:

  • Avoids the costs of ETS registration and NZU filing - if the ultimate decision is not to join; in any event it delays the expenditure.
  • Gives time for the market (and price discovery) to develop.
  • Gives time for more demand from emitters to develop as free allocations, joining deferrals and partial obligations work through.
  • Gives time for the development of securities and products for managing carbon price risk.

However, FEL also points out that it might be worth joining the ETS (at least prior to the end of 2012) even if you don't plan to sell your NZUs. It could be a relatively low-cost "insurance policy" against a successive government changing its position on accounting for carbon loss at harvest. Currently, the legislation is such that if you don't join the ETS and don't claim NZUs, you don't have to account for any carbon loss at clearfall. Faced with a huge fiscal cost when the large areas of early 1990s plantings mature, however, a government could conceivably legislate that carbon loss does have to be accounted for, whether NZUs have been claimed or not. Having NZUs in "the bottom drawer" could be very valuable if this happened.

The few forest owners with post-1989 forests planted after 1999 have the opportunity to claim NZUs and sell them without the need to purchase all of them back at harvest (so long as they don't deforest). This makes joining the ETS and selling some of the NZUs more attractive as it takes away some of the carbon price risk.

This advice is consistent with that of PF Olsen's. For the majority of post-1989 forest owners, unless you want to sell your carbon credits in the near-term, there is little need to opt into the ETS at the moment. This recommendation could change if it appears that many forest owners are delaying joining until the "last minute" which could risk bottle necks at MAF and professional service providers due to being inundated with applications. PF Olsen will try to monitor this situation as best we can and advise of developments.

Steve Wilton, Managing Director and founder of FE went on to say: "In our opinion, understanding these factors [about the ETS] should lead to a healthy degree of caution about the long term viability of carbon farming as a stand alone financial undertaking. Our view is that the underlying plantation forestry investment must itself be financially viable, and the carbon opportunity considered a potential added bonus, for so long as there is a market for carbon. No Forest Enterprises co-ordinated and managed forestry investment was established for carbon farming purposes."