How will the revised ETS affect forestry?

Monday 21 September 2009, 10:42AM
By Science Media Centre

Associate Professor Euan Mason of the School of Forestry at the University of Canterbury, comments on the likely effects on forestry and greenhouse gas production of the new, revised ETS announced this week.

The new ETS is being seen as a 'weaker' ETS due to its subsidies for business as well as the late inclusion of agriculture - on of the country's most heavily-emitting industries - in the ETS, amongst other things.

In his commentary, Assoc. Prof. Mason points out that the new, weaker ETS will is unlikely to encourage afforestation due to lowered demand for NZ Carbon Units. He also says that the ETS will require that New Zealand changes its behaviour towards greenhouse gases at a slower rate.

An excerpt of Assoc. Prof. Mason's comments can be read below - the full version, with accompanying graph, is available on the SMC website.

Impacts on domestic demand for NZUs

Under the existing ETS, domestic demand for NZUs would likely have exceeded the maximum capacity of existing Kyoto forest (planted since 1989 on grassland) to supply credits by approximately 2013, thereby providing a powerful incentive for investing in new forest plantings.

Under the proposed ETS, domestic demand for credits would not be likely to exceed the maximum capacity of current Kyoto forest to supply NZUs until the early 2020s.

In making these calculations, there is a large uncertainty about national emissions of GHGs in future. The nation emits approximately 88 Mt of CO2 equivalent/annum, and 88 million NZUs are required to fully offset this level of emissions. National GHG emissions are likely to increase under the proposed ETS, which would bring forward the time when demand exceeded supply from existing forests, but this effect is difficult to quantify.

Impacts on supply of NZUs from the forestry sector

Supply of NZUs might come from three sources within the forestry sector. Firstly, a proportion of Kyoto forest owners will register for the ETS and the maximum possible supply from this source is approximately 16 million NZUs/annum. Secondly, pre-1990 forest owners will receive an allocation of 50 NZUs per hectare in compensation for the removal of the right to change land use without financial penalties. This latter supply of NZUs will be a one-off total of approximately 72 million NZUs. Perceptions of likely demand for NZUs and the extent to which this demand will be satisfied by NZUs accrued by existing forest owners will strongly influence levels of new planting, the third source of credits from the sector.

Investments in new planting are typically very sensitive to land cost, and lower requirements for offsetting emissions (due to greater allocations of free credits to emitters) in the proposed ETS will very likely mean that land costs are higher than they would have been under the existing scheme. This will impact on planting rates, but the effect is difficult to quantify without a much more detailed analysis.

Final comment

In summary, the proposed ETS provides a weaker incentive for new forest planting than the existing ETS, and rough calculations suggest that all the domestic demand for NZUs could initially be met by sequestration in existing forests and from NZUs supplied to pre-1990 forest owners. The lower rate of reduction in free credits (1.3% per year) for emitters will mean that land values may remain higher and that there will be a significantly lower domestic demand for NZUs. On balance, the proposed ETS will require a slower rate of change in our behaviour with respect to GHGs.

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