Forestry and the Emissions Trading Scheme

Ināia tonu nei: a low emissions future for Aotearoa

Final advice to the Government was publicly released by the Climate Change Commission (CCC) on Wednesday 9th June. The CCCs report - Ināia tonu nei: a low emissions future for Aotearoa – contains advice on setting emissions budgets, emissions reduction plans and requests from the Minister of Climate Change.

The CCC recommendations focus on addressing gross emissions at source, and suggest that reliance on forestry removals (especially from exotic forests) could make maintaining net-zero beyond 2050 more challenging.

The CCC summarise their forestry recommendations as follows:

  • A comprehensive national programme to establish more native forests, to ensure removal of emissions beyond 2050 while delivering cultural, biodiversity, erosion control and water quality co-benefits.
  • Amendments to the NZ ETS and other climate policies to manage the amount of forests planted due to climate policies.
  • Planting more exotic production forests, but fewer than the country would see under current ETS settings.
  • Effective, integrated pest management to help establish new forests and maintain carbon in existing forests.
  • Clarification on the role of permanent exotic forests in our transition, and deliver policy to achieve this role. Some stakeholders are concerned about the impact on local economic activity, employment and environmental risk of large-scale afforestation of such forests.
  • Encouraging additional carbon storage in smaller blocks of trees on farms.
  • Preventing loss of carbon from drained peatlands and destruction of wetlands.
  • Maintaining and increasing the carbon stock in existing pre-1990 forests through activities like pest and fire control, and enrichment planting

The full report can be found here, with the detailed forestry recommendations in Chapter 18.

Price update

NZU prices traded a range between $36.50 and $37.50 for much of May, but the market has reacted upwards to the release of the Climate Change Commission’s final advice to the Government. A new high of $40.10 was seen today (9th June) as the reports were released, but anticipation saw the build start a few days earlier.

EUA pricing peaked mid-May at around 56.60, but has backed off slightly and currently sits around 52.15. One factor that may have influenced this drop was the launch of the United Kingdom’s own ETS, put in place following Brexit to manage emissions reductions domestically. Until its launch, UK emitters had been buying EUAs to hedge carbon price risk. On opening, benchmark December 2021 UK Allowance (UKA) traded at slightly higher prices than the equivalent EU allowances.