Carbon catch-up

Alternatives to the exclusion of exotic forests from the Emissions Trading Scheme are back in the mix. By Joanna Grigg.

In Business7 Minutes

Alternatives to the exclusion of exotic forests from the Emissions Trading Scheme are back in the mix. By Joanna Grigg.

Without getting bogged down in detail, here’s a quick summary of where things are at with the Emissions Trading Scheme.

The Government has hit pause on the plan to exclude exotics from the new permanent post-1989 forest ETS category. This is a win for forestry advocates, including iwi who actively swayed Economic Development Minister Stuart Nash and Climate Change Minister James Shaw. It was an impressive campaign.

Emerging Forests managing director Mark Belton was one of the campaigners. In Country-Wide June, he floated an alternative scheme, to take the heat out of farmland conversions, but still allow permanent exotics in the ETS.

He suggested exotics should be allowed for permanent carbon forestry but only when integrated within farmland owned by New Zealand citizens. This should primarily be located on problem marginal LUC 6, 7 and 8 land types.

He floated the idea of landowners and the Government partnering on permanent carbon forests. They would take 50% each of the carbon credits. He believes this so-called ‘Belton-scheme’ would decelerate the carbon market price, making it rewarding but more stable. Returns per hectare to the landowner would be reduced – slowing the land price escalation problem. Will this idea be taken on board?

Will the farm sequestration choir sing as loudly and in unison, as the foresters?

In their July report, the Climate Change Commission threw the cat among the pigeons suggesting onfarm sequestration be excluded from an agriculture emissions scheme. Instead, it should lie within the MPI-administered ETS. The reasons were that it would be too complicated to run and too costly.

Will Beef + Lamb NZ, Federated Farmers and other farmer groups, wanting inclusion of farm sequestration outside the ETS, get the same response from their advocacy? Perhaps not, unless Maori farming groups rally to the cause. The weight of the Climate Change Commission advice may tip it.

Farmer organisations have cried that it’s unfair to exclude farmland trees. Kiwis pride themselves on being fair. The beast that is the ETS, tends to see only in black and white, and onfarm indigenous blocks are seldom let through the gates. Yes, building a custom system to measure onfarm sequestration might be tricky and require building another beast to do it, but shouldn’t we try?

A possible solution is a voluntary option for farms to opt into measuring and contracting sequestration, via He Waka Eke Noa.

Keep it simple and don’t try to count every shrub, scrub and stump. Build on it over time, as the science comes through. With a subsidised methane tax, increasing in cost over time, farmers may not see it making much of a difference to their bottom line initially. They may opt in later as the tax increases. Watch this space.

The Climate Change Commission made some more big calls last month. One was the suggestion that the Government put shopping for carbon credits overseas back on the agenda. And now, not later. NZ will never meet emissions reduction targets otherwise.

There are no approved overseas units in the NZ ETS. Dr Rod Carr, in his chair’s message, said it is essential the Government secure access to sources of offshore mitigation as soon as possible, and decide how this will affect the NZ ETS. This matter cannot be left until later this decade, he said.

The other was decarbonisation. Carr wants to see it start now. Unless this is addressed, the ETS is likely to deliver mostly new plantation forestry rather than gross emission reductions, he said.

“This would ultimately put our economy at a competitive disadvantage relative to a decarbonised global economy and shift cost burdens on to future generations.”

They want to see the stick used on emitters. The government provides some NZUs for free to firms undertaking activities that are both emissions-intensive and trade-exposed. This is called industrial free allocation. The commission suggests the Government reduce the subsidiary businesses’ allocations on carbon liabilities. In other words, businesses have to reduce emissions, not rely on subsidiaries.

One issue has been the stockpile of credits in private ownership. There are 144 million units held in the NZ ETS as of June 1, 2022. This is about four times as many units as were surrendered for emissions released in 2021. The commission suggests reducing auction volumes, and driving down the surplus by 2030. Watch the price rise.

Auction price levers should be pulled, suggests the commission. It suggests reducing the limit on the number of units available for auction from 16m in 2023 to 10m in 2027. It also suggests raising the trigger prices for the cost containment reserve and auction reserve price. Combined, these moves set the tone for the carbon market which agriculture is being drawn into.

“He suggested exotics should be allowed for permanent carbon forestry but only when integrated within farmland owned by New Zealand citizens.”