Forestry and the Emissions Trading Scheme

ETS Announcement - Averaging

The Government announced a third set of changes to the ETS, including more detail on averaging accounting. Key points are:

  • Forests registered in the ETS before 2019 will not be able to transition to averaging. This decision will be reviewed in 2021.
  • Forests will earn NZUs up to their forest’s “average age”. This age will be determined primarily by the expected harvest age, and age “bands” will be used to allow some flexibility in harvest timing.
  • Forests joining the ETS after their first rotation will be considered to have already reached average age. These forests could therefore only benefit from averaging if they increase carbon storage (e.g. through increased rotation length, or change in species).
  • Offsetting will be made available to post-1989 participants using averaging accounting. This ensures that some flexibility of land-use is maintained.
  • Foresters using averaging accounting won’t have to pay back NZUs after adverse events (assuming re-establishment occurs within four years). They will instead pause earning units until the forest has recovered to its pre-event level.
  • Decisions made by current participants will stay with the registered forest. This means if a current owner increases rotation length past the norm, subsequent owners will have to either maintain the same rotation length or surrender NZUs if wanting to harvest earlier.
  • There will be a stand-down period before deforested areas could be re-entered into the ETS as a “first-rotation” forest on the averaging approach, to ensure that they are actually “first-rotation” forests.

More detail on the decisions above (and others) can be found here.

The government is planning further consultation on regulations pertaining to operational detail later this year. This will include how average age is calculated, design and application of age bands, and what the stand-down period following deforestation will be.

Price update

NZU prices remained around the $23.00 mark for most of July, before increasing at the end of the month. Prices rose to around $23.85 by the end of the month, spurred by announcements around forestry averaging and phasing down industrial allocations.