ETS revamp: averaging accounting for forests

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Changes to the Emissions Trading Scheme (ETS) will see 89 million more trees planted in the coming years and an extra 45 million tonnes of carbon dioxide stored in New Zealand’s forests.

Forestry Minister Shane Jones and Climate Change Minister James Shaw have today announced a second set of changes to the Emission Trading Scheme (ETS) as part of broader reforms to make the scheme fit-for-purpose.

“Today’s announcement includes the introduction of averaging accounting for all forests registered from January 1 2021 and the option to use the new accounting method for all forests registered in 2019 and 2020,” Shane Jones said.

“By taking a long-term view of the amount of carbon in a production forest, averaging means forest owners will be able to trade more carbon (NZUs) at lower risk, and not have to worry about finding units to repay when they harvest.

“It’s essential the ETS provides the right incentives for forestry over the long term so we can deliver on our One Billion Trees programme as well as our commitment to taking action on climate change and supporting the transition to a low emissions future.

“We’ve heard from the forestry sector about the need to make the ETS simpler while increasing the incentives to plant trees – simpler accounting for the carbon stored in trees will make a positive difference for anyone considering investing in forestry,” Shane Jones said.

“The timing of this decision – as the 2019 planting season is about to get under way – is important for forest owners. They can now go ahead with planting this year knowing they can choose the new system and we hope this provides the certainty they’ve been seeking as a sector. We expect to make further decisions soon on the details of averaging accounting, and whether forests already in the ETS can transition to averaging.” 

James Shaw said Cabinet had also agreed to several operational changes to streamline the ETS process for forest owners.

“We will improve the emissions rulings process where applicants can get an assessment of their land prior to investment and enable the use of a mapping instrument to make applications even easier,” James Shaw said.

“These proposals work together: the improved emissions ruling process will be in place once the legislation changes, while we develop the mapping instrument over the longer term.

“These changes to the ETS are part of a number of overlapping policy levers that aim to strike the right balance between production and protection. We need clean water and reduced greenhouse gasses. We also need food and employment, including in the regions.

“Alongside these important forestry changes, the Government is progressing more amendments to the ETS. These changes will improve the ETS to support New Zealand’s commitment to the Paris Agreement and our transition to a low emissions future. We aim to introduce the changes to Parliament around the middle of this year.

“We are also making the scheme fairer, and creating the ability for the Crown to make sure people are operating within the intended framework,” James Shaw said.

Note to editors:

The changes were developed by the Ministry for Primary Industries, Te Uru Rākau and Ministry for the Environment following consultations in 2018. 

They complement other changes announced in December 2018, and others still to come in May, particularly around how to incentivise the storage of carbon in long lived wood products. The Government plans to introduce these changes to Parliament later this year as a suite of changes to the Climate Change Response Act.

The individual changes are:

  • Introducing averaging accounting for all forests planted from 1 January 2021;
  • Six major operational changes, including:
    • Making it easier to identify ETS-eligible land prior to investing in planting;
    • Ensuring the 6 year stand-down period for grant-funded forests works as intended;
    • Aligning the ETS Mandatory Emissions Return Periods with the Paris Agreement timing;
    • Enabling better enforcement in cases of persistently non-compliant returns or missed returns from post-1989 forest owners;
    • Strengthening the compliance process for transmissions of interest when a forest changes hands; and
    • Enabling enforcement in cases of permanent forest being intentionally clear-felled; as well as
  • Six further minor and technical changes to resolve ‘bugs’ in the system and enable better operation of the ETS over the long term.

Averaging vs carbon stock change accounting

  • The current forestry accounting approach (carbon stock change) requires a participant to account for any loss of carbon in their forests, even if that loss is temporary.
  • This means when trees are harvested, foresters must pay to the Crown a significant amount of the New Zealand Units (NZUs) they have earned from a forest’s growth, even if the forest will be re-planted.
  • Under ‘averaging’ accounting, there is no longer a need to surrender NZUs upon harvesting. Participants will instead receive NZUs as their forest grows, up to a determined average level of long term carbon storage, and will not face any liabilities on harvest if they replant.
  • Averaging also reduces the costs and complexity for forest owners, and gives them freedom to trade NZUs as they will not have to be surrendered at harvest – increasing the incentive to plant forests through the ETS.
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