Thursday, November 30, 2023

Forestry frustrated by ETS turmoil

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Ill-timed and over-reaching, says planters of government plans to reform scheme.
Forest owners are losing faith in the ETS as an investment tool for earning additional forestry income, and are stepping away from investments given the uncertainty around ETS reviews, Grant Dodson says.
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A complete loss of confidence among forestry owners in the Emissions Trading Scheme  proposals has prompted them to call for the government to put any planned changes on hold until options can be revisited.

The government is putting forward four options for ETS reform, all which have drawn criticism from various sectors amid claims they risk overcomplicating the market, or pulling in too much centralised control. 

One option is to achieve closer parity between offsetting with ETS credits and actual emissions reduction by restricting the type of New Zealand Units (NZUs) emitters can use. This could involve the government limiting how many forestry-generated units emitters can buy to offset  emissions with.  

A second proposal is to create two ETS markets, one for emissions reduction and one for emissions removal.

A third option is to limit the ability of big emitters to use forestry NZUs to offset, and selling NZUs to government or on a separate market.  

But critics have claimed this could create an “A” and “B” status in the NZU market, with forestry units facing a possible tumble in value if they cannot be bought by big emitters. 

This would further disincentivise NZ’s tree-planting rate, the largest tool the country has on hand to at least offset emissions.

Another option is to allow the government and overseas buyers to buy NZUs from removal activities like carbon-absorbing trees, raising the price to incentivise reduction and removal of carbon.

Forest Owners Association president Grant Dodson said the third and fourth options border on nationalisation of private property.

“Foresters have invested in the ETS in good faith and the NZUs have been vested to foresters who can sell them on a free market to offset emissions.” 

He said all were aware of the price risk involved but those two options amount to the government pulling the rug from under them.

Iwi, forest owners, farmers and carbon credit investors have already lost about $3 billion in the downgraded carbon values resulting from uncertainty around the market. 

Before Christmas carbon values were about $88 a NZU, but they now sit at $60 a unit.

The collapse occurred when the government failed to act on the Climate Change Commission’s recommendations to tighten the ETS settings and unit quantities. 

The government has since moved to back down and take heed of a High Court ruling calling for tighter settings that reflect carbon budgets and NZ’s commitments under the Paris Accord.

Dodson said the timing of the ETS review is bad, with planting well underway for the season. 

Forest plantings for coming years are already looking tenuous after this season. The collapse in carbon prices earlier this year discouraged many investors from expanding their holdings and NZ’s targeted forestry plantings are likely to fall below minimum within three years.

“It’s been only recently that the planting rates have increased. We hardly even know if the increase is short term or not, and with the options presented in the ETS consultation document, investor confidence has been smashed.”

Meantime Beef + Lamb NZ has heralded the release of a report it commissioned on changes to the ETS, supporting the need for urgent changes including the introduction of some limits on forestry offsets.

One key change proposed is the exclusion of using exotic plantations as a permanent carbon forest, except in limited circumstances.

The report says that in 2022 10,000ha of new permanent exotic forests were established, up from 5000ha in 2019. It acknowledges the increase in permanent exotics is modest.

Estimates are that there are about 30,000ha of exotic permanent plantings in NZ, out of a total exotic forestry estate of 1.75 million hectares. 

But the report’s authors claim permanent exotic is expected to account for over half the 645,000ha of new afforestation by 2030.

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