A reset of the Emissions Trading Scheme is a step in the right direction; however, more is needed to restore confidence in forestry, according to the New Zealand Forest Owners Association.
When the Government tightened Emissions Trading Scheme (ETS) settings late last year, the unit price for carbon dropped from $88 per unit to $33.
As reported by RNZ, the NZ Government has accepted advice from the Climate Change Commission to raise the price reserve; from December, the bottom price will lift from $33 to $60.
In updating the scheme’s settings, Minister of Climate Change James Shaw said the ETS is a crucial tool for New Zealand to meet its climate change obligations.
“The Government has made its annual decision on unit limits and price control settings for the New Zealand Emissions Trading Scheme for 2023 – 2028, to drive stronger action on emissions reduction target.”
“Annual reviews of the unit settings and price control limits provide an important opportunity to ensure the settings are fit for purpose.”
As reported on Tuesday, the NZ Government will introduce a ‘two-tier cost containment reserve trigger price.’
Under the NZ ETS, activities generating carbon emissions, like mining coal, must surrender an emissions unit for every tonne of pollution that results.
“They can buy these units through Government auctions or on the secondary market,” according to the NZ Department of Environment.
Under the auction settings, “price controls comprise the reserve price (lower price control) and the trigger price (upper price control).”
If reached in an auction, the trigger price releases a volume of emission units held in the cost containment reserve.
Under the reforms, the Tier 1 trigger price will increase from $82 to $173 in the December NZ ETS auction.
NZ Forest Owners have welcomed the decision.
The revision will make investment in carbon forestry more lucrative, with NZ Forest Owners president Grant Dodson welcoming the move.
“Nationally, there are about 95 million forestry units in New Zealand,” Dobson said.
“At the peak, they were worth about $8.5 billion; they then dropped to under $4 billion.”
“That money is owned by local iwi, councils, farmers, foresters and investors, so it was a significant loss in value.”
Dodson said changes to the ETS late last year knocked confidence out of the sector and have had significant flow-on effects.
“The company I run has pulled out of a substantial land transaction.”
“We’re expecting to plant the last of our land next year, and then after that, we have nothing in the pipeline, and we won’t be buying any more land until we get some security.”
“I’m also aware of significant seedling orders being cancelled for 2024 in nurseries across the country, so there will probably be job losses.”
“People are waiting for the outcome of the ETS overhaul before making any big decisions.”
Last month, Wood Central reported that reforms to the ETS significantly impact investment in New Zealand forestry.
Māori are major plantation forest owners – owning about a third of plantation forestry, which will tip to over 40 per cent as more Treaty of Waitangi settlements are completed – but holdings are often on marginal land, which can be challenging to make money from.
Some Māori see selling units on the ETS – carbon farming – as a significant opportunity.
Te Taumata chairperson Chris Insley warned that the reforms might harm the Māori, putting ETS revenue at risk.
“[It] will eliminate $10 billion development opportunity for Māori off marginal land,” Insley said.
According to Te Kapunga Dewes, head of the Māori Forestry Association, the state, yet again, dictating Māori land use.
“It told my great grandfather that we should be clearing all the natives and putting them into farmland; that’s the way to go,” he said.
“Fast forward, and we were told, ‘no no, actually clearing land was a very unclever idea, Māori, you fullas need to plant trees and boy have we got a tree for you, and it’s called a pine tree’.
“Now, the Government is saying, ‘Oh actually, Māori, pine trees are not good’.”
The proposed changes to the ETS market.
The New Zealand government released four options for reforming the future ETS market. These include:
- Use existing levers to strengthen incentives for net emissions reductions, for example, reducing the number of NZUs sold through auction.
- Increase the demand for emissions units by allowing the Government and/or overseas buyers to purchase them.
- Strengthen the incentives for gross emission reductions by changing the incentives for removals.
- Create separate incentives for gross emission reductions and removals.
Wood Central reports that the most likely outcome will be splitting the ETS market into two – with a market for emissions reductions and another for removing emissions from the atmosphere like tree planting.
Submissions on changes to the ETS and the permanent forest category close on 11 August 2023.
