What is the Emissions Trading Scheme (ETS)

November 19, 2010 at 9:00 am

The Emissions Trading Scheme (ETS) is created by the Climate Change Responses Act 2002.  The ETS is designed to eventually cover all significant greenhouse gases (covered by the Kyoto Protocol) and will involve all sectors in New Zealand. 

The object of the ETS is to support global efforts to reduce greenhouse gas emissions by helping New Zealand to:

–       reduce net emissions below “business as usual” levels;

–       comply with our international obligations, including our Kyoto Protocol obligations.

To reduce greenhouse gas emissions, the international community has signed two agreements; The United Nations Framework Convention on Climate Change (UNFCCC), adopted in 1992; and the more widely known Kyoto Protocol, signed in 1997 in Kyoto, Japan.  For developed countries, the Kyoto Protocol sets target levels for reducing greenhouse gas emissions.  Either the targets are achieved by 2012 or countries must take responsibility for emissions above their targets.  These obligations are binding and there are penalties if obligations are not met.

 New Zealand forests play a critical role in meeting our country’s climate change objectives.  The Forestry estate has a significant store of carbon and there is potential for this to expand.  For this reason, forestry has become the first sector to enter the ETS effective from 1 January 2008.

Forestry land is included in the ETS in two ways:

–      Compulsory – when pre-1990 Forestry land is deforested (unless exempt); or

 –      Voluntary – when owners of post-1989 Forestry land chose to bring it into the ETS.

 Indigenous forests established before 1 January 1990 are not included in the ETS.  Owners of these indigenous forests have no obligations under the ETS, even if they deforest.  Equally they do not have any entitlements under the ETS.

 I will now summarise the definitions of Post-1989 and Pre-1990 land.

 Post-1989:

Post-1989 Forestry land is exotic or indigenous Forestry that is established after 31 December 1989 on land that was not Forestry land on 31 December 1989: 

Owners of post-1989 Forestry land may voluntarily join the ETS, and in doing so,  become Participants who are entitled to receive NZU’s for the increase in carbon stored in their forests as they grow. Those NZUs can be sold in New Zealand or converted and sold internationally. 

Participants also have the following legal obligations for the Forestry area registered under the ETS: 

  • to report at least once every five years on the carbon stocks in their registered Forestry area using methods, and to a timeline, specified in the Climate Change (Forestry Sector) Regulations 2008 (the Regulations);  
  • to surrender Emissions Units if the carbon stocks in their registered Forestry area fall below a previously reported level (for example, due to harvesting or fire). However, liabilities will not exceed the Emissions Units transferred for the area of forest;  
  • to notify the Government if any part of the forest area registered in the ETS is sold or withdrawn and, if required, surrender any Emissions Units transferred for that area of forest.  

Participants in the ETS may choose to register part or all of their post-1989 forest land, at their discretion. Additional forest areas can be added at any time. 

Landowners have until the end of 2012 (the end of the First Commitment Period) to decide whether to register for that period. If they do, all carbon sequestered since 1 January 2008 would earn NZUs. After 2012, they can still register, but only carbon sequestered from 1 January 2013 will earn NZUs. 

No NZU’s are earned for carbon sequestered before 2008. 

If landowners do not register, the gains or losses in carbon stocks in their forests are retained by the Crown. 

Pre-1990:

Pre-1990 forest land is an area that was forest land on 31 December 1989, and that on 31 December 2007 is still forest land and is covered by predominantly exotic forest species. For these forests:

Forest landowners can:

Harvest, and replant or regenerate their forests without joining the ETS or incurring liabilities (no reporting is required);

 If the forest owner owned the pre-1990 land on 20 July 2010, they can apply for an allocation of NZU’s which each hectare of eligible pre 1990 forest land will receive: 

  • 60 NZU’s (23 NZU’s by the end of 2012;  37 NZU’s during 2013) for land under the same ownership since 31 October 2002; or
  •  39 NZU’s (15 NZU’s by the end of 2012; 24 NZU’s during 2013) if the ownership of the land changes from 1 November 2002; or
  • 18 NZU’s (7 NZU’s by the end of 2012; 11 NZU’s during 2013) for eligible Crown Forest Licence land transferred to an Iwi under a Treaty of Waitangi settlement after 1 January 2008.

The 2013 allocation of units is still to be confirmed and maybe subject to changes in international deforestation rules.

No NZUs are earned for forest growth.

If an area of more than 2ha is deforested in any five year period from 1 January 2008, the forest landowner automatically becomes a Participant in the ETS unless the area deforested is exempt land. They must notify the deforestation activity, and then submit an emissions return.

If a forest landowner becomes a Participant in the ETS as a result of deforestation, they must surrender Emissions Units equal to the amount of CO2  emissions calculated as resulting from the deforestation.

A pre-1990 forest landowner may apply for an exemption from ETS obligations in two situations: if the total area owned by the person who owned the land as at 1 September 2007 (with any associated persons) was less than 50ha; or deforestation involves trees designated as weeds.

Pre-1990 forest landowners have no obligations under the ETS unless the land is deforested – that is, unless they clear non-exempt forest and convert the area to another land use (for example, to dairy farming) or it otherwise ceases to be forest land.

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Entry filed under: Forestry.

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