Post-1989 forest owners worried about ETS delay

The Kyoto Forestry Association (KFA) is concerned about reports the Government plans delaying bringing other industries, notably transport, into the Emissions Trading Scheme (ETS).

It says this risks significantly devaluing the carbon credits, now known as New Zealand Units (NZUs), that post-1989 forest owners have been earning since 1 January 2008 under the Government’s Climate Change (Emissions Trading and Renewable Preference) Bill, which is currently being considered by the Finance & Expenditure Select Committee but yet to be passed by Parliament.

From 2003 to 2007, KFA ran a high-profile campaign for the carbon credits which led to the announcement by Forestry Minister Jim Anderton in September 2007 that the Labour/Progressive Government had agreed that NZUs would be earned by those who planted trees since 1 January 1990 and by those who plant new forests in the future.

“If other sectors aren’t brought into the Emissions Trading Scheme under the agreed timetable, then those who sequester greenhouse gases may have no one to sell credits to and that would seriously devalue them,” KFA spokesman Roger Dickie said today.

“That would act as a major disincentive to investors planning to plant new forests in 2008 and beyond, which is counter to the Government’s intention of increasing forest cover in New Zealand. In fact, this change in position would guarantee that no new planting will take place in 2008/9. Unless we start planting forests then not only will the forestry industry continue to remain in a state of suspension but New Zealand will be forced to buy the vast majority of its credits offshore.”

Mr Dickie said that the Government and KFA had worked in good faith to resolve their differences last year, leading to the Government’s September 2007 announcement. He said that had given forest owners assurance about the integrity of the next round of consultation and the Select Committee process.

“It would be unfortunate if the Government now made unilateral changes to the ETS without considering their economic impact on post-1989 forest owners and new investors coming into the industry,” he said.

KFA is monitoring the situation closely and hopes for more information in the next few days.

END

Inquiries: Roger Dickie

Kyoto Forestry Association

Ph: 027 4428687

 

BACKGROUND INFORMATION:

Introduction to Carbon Credits

Kyoto carbon credits are earned by those individuals and businesses that sequestered carbon by planting new forestry since the Kyoto Protocol’s baseline of 1 January 1990, and by those industries which have cut their carbon emissions since then.

Through the 1990s and early part of this decade, Government officials1 made clear that forestry investors would gain financially from the credits, which are a clear property right, as confirmed by the Treasury. Climate Change Minister Pete Hodgson told the Ninth Annual Resource Management Law Association Conference on 5 October 2001 that New Zealand had secured rules on forest sinks that will provide valuable credits for our post-1989 forest plantings. He said no other country's plantation forestry industry had more to gain from the Protocol than New Zealand's.2 Foreign Minister Phil Goff also told foreign governments that New Zealand forest owners would own the credits.3

Statements such as these fuelled a planting boom through the 1990s with 30,000 ordinary New Zealanders and forestry companies putting up as much as $400 million per annum of their own risk capital to invest in more than 600,000 hectares of new forest – both because of the benefits predicted to arise both from the sale of wood products and from carbon credits earned from carbon sequestration.

In 2002, however, the Government indicated that it intended to confiscate the credits, causing tree planting in New Zealand to plunge and New Zealand to experience net deforestation for the first time in living memory.

The Government has previously indicated it would limit its confiscation of the credits to those associated with the First Commitment Period of the Kyoto Protocol, costing forest owners nationwide as much as $2.5 billion, or $1.25 billion according to the Government’s calculations, depending on the market value of carbon credits. In early 2007, however, Government officials indicated they may extend the confiscation to the Second Commitment Period, putting eventual losses nationwide up to at least $8 billion.

The Government also proposed retrospective penalties of up to $13,000 per hectare on the owners of forests planted before 1 January 1990, if those forest owners decide to convert their land to another land use. While the Prime Minister denied the penalties would be so high, some have speculated that the retrospective tax may now be as high as $65,000 per hectare.

In February and March 2007, MAF carried out a consultation process on these and other ideas to address climate change. More than 2,800 people attended consultation meetings and 3,000 individuals and organisations prepared submissions. Overwhelmingly, the confiscation of the credits and the proposed retrospective tax were condemned, and the Government also came in for criticism for its handling of the matter. More positively, the National, Green, Maori and ACT parties broadly supported the forestry industry on the question of carbon credits, while the Federation of Maori Authorities announced plans to challenge the 2002 confiscation in the Waitangi Tribunal. The Kyoto Forestry Association (KFA) ran billboards art major airports to draw public attention to the issue.

This led to the Government announcing in September 2007 that post-1989 and future forestry investors would earn NZUs and would be able to trade these with other sectors in the economy, such as the transport sector.

The Government’s announcement was strongly welcomed by KFA which said: “It indicates that the Labour/Progressive Government has listened carefully to our 30,000 supporters, the more than 2,800 people who attended consultation meetings in February and March and the more than 3,000 individuals and organisations who prepared submissions on the issue. It demonstrates to us that the Prime Minister and her Ministers have worked hard and in good faith on this issue and it gives us assurance about the integrity of the next round of consultation, noting that we believe we have a property right to these credits. Most importantly, the Government’s announcements will give people confidence to look more seriously at new forestry investment to reverse our current low levels of new plantings and reverse the trend towards deforestation.”