Title: The Impact of the NZ ETS Review on Existing Forests and Forestry NZUs
Introduction:
In this article, we discuss the concerns surrounding the New Zealand Emissions Trading Scheme (NZ ETS) Review, specifically its potential impact on existing forests and forestry New Zealand Units (NZUs). We address the proposal to force existing forests into a new scheme and reclassify NZUs, which has been described as a significant expropriation of private forestry rights. We also highlight the importance of grandfathering these forests and NZUs to stabilize the carbon market.
Concerns Over the NZ ETS Review:
The NZ ETS Review has raised concerns among stakeholders due to the lack of engagement from the government in addressing the issue of grandfathering existing forests and forestry NZUs. The review suggests that existing forests may be forced out of the NZ ETS and into a new scheme, resulting in the reclassification of approximately 96 million existing NZUs as removal units. This move has been regarded as a potential violation of private forestry rights.
The Need for Grandfathering:
The proposal for a new scheme, based on the Climate Change Commission’s suggestion of incentivizing afforestation, overlooks the fact that existing forests registered under the NZ ETS before this year predominantly follow stock change accounting. This means that foresters receive NZUs as the forests grow but must surrender a significant portion of those NZUs back to the government upon harvest. The Commission has recognized this and emphasized that these foresters should retain the majority of NZUs to meet harvest liabilities.
The Significance of Existing Forestry NZUs:
It is crucial to understand that existing forestry NZUs, which are retained by foresters to meet their harvest liabilities, are not available for sale to emitters and cannot contribute to any surplus that might impact future NZU prices. The Climate Change Commission’s analysis in July 2022 estimated that approximately 52 million existing forestry NZUs were not part of the “surplus” NZUs in the market at that time. This is due to their unavailability and reduced risk to emissions budgets.
Flawed Calculation of NZU Supply:
The Review fails to maintain a distinction between forestry NZUs from pre-2023 forests (not expected to be supplied to the market) and those from 2023 onwards forests that could potentially be available. Figures 4 and 5 of the Review incorrectly include both types of forestry NZUs in the “Expected forestry supply,” leading to an overestimation of the NZU supply exceeding demand from emitters and consequent declining NZU prices. This highlights a fundamental flaw in the Review’s analysis.
Stabilizing the Carbon Market:
The government’s immediate priority should be to stabilize the carbon market, which has been severely impacted by the lack of clarity regarding the treatment of existing forests and forestry NZUs in the Review. The absence of a commitment to grandfathering has caused a meltdown in the carbon market and halted future forest establishment. If no net afforestation occurs, the repercussions will persist and potentially result in significant financial losses, affecting future Nationally Determined Contributions (NDCs) and trade embargoes.
The Cost of Inaction:
The failure to act promptly and grandfather existing forests and NZUs may result in substantial financial implications, potentially amounting to billions of dollars. The damage caused by going against the Climate Change Commission’s advice and not protecting existing forests and NZUs far outweighs any financial gains from treaty efforts such as the EU trade treaty. Failure to meet NDCs also carries penalties under the treaty, further exacerbating the consequences of inaction.
Call to Action:
It is imperative for the government to take immediate action to stabilize the carbon market by declaring a commitment to grandfather all existing forests and NZUs from any changes to the NZ ETS rules. By doing so, the government can provide much-needed certainty to forestry participants and incentivize future forest establishment. This step is vital for meeting future NDCs and avoiding potential trade embargoes and penalties outlined in the EU trade treaty.
Additional Piece:
Title: Ensuring a Sustainable Future: Balancing Forest Conservation and Carbon Market Stability
Introduction:
As discussions surrounding the potential impact of the NZ ETS Review on existing forests and forestry NZUs continue, it is crucial to delve deeper into the broader context of forest conservation and carbon market stability. The delicate balance between these factors holds the key to a sustainable future. In this additional piece, we explore the significance of afforestation incentives, the long-term benefits of protecting existing forests, and the potential for innovative solutions to achieve both environmental and economic objectives.
Afforestation Incentives: Encouraging Sustainable Practices
As mentioned earlier, the Climate Change Commission proposed a separate mechanism to incentivize afforestation as part of the NZ ETS Review. While the intent behind this suggestion is to foster future forest establishment, it is essential to consider how these incentives can align with the conservation of existing forests. By ensuring that the incentives promote sustainable practices and responsible land management, we can strike a balance between afforestation and the protection of valuable natural resources.
Preserving Existing Forests: An Investment in the Future
Grandfathering existing forests and forestry NZUs is not only a matter of protecting private forestry rights but also an investment in the future. Long-standing forests play a crucial role in carbon sequestration, biodiversity preservation, and soil conservation. Their significance extends beyond their immediate economic value, as they contribute to ecosystem services, climate regulation, and the overall well-being of our planet. Recognizing and safeguarding the contributions of these forests is essential for a sustainable future.
Innovative Solutions: Carbon Offsetting and Forest Conservation
While the NZ ETS Review and the debate surrounding grandfathering existing forests remain at the forefront, it is worth exploring innovative solutions to advance forest conservation efforts and carbon market stability. Carbon offsetting programs that enable emitters to invest in sustainable forestry initiatives can serve as a complementary approach to the NZ ETS. By diverting funds towards forest conservation and restoration projects, emitters can effectively balance their carbon footprint while supporting the preservation of existing forests.
Collaborative Partnerships: Government, Industry, and Environmental Organizations
To ensure long-term success in achieving forest conservation and carbon market stability, it is vital to foster collaborative partnerships between the government, forestry industry, and environmental organizations. By working together, these stakeholders can develop comprehensive strategies that address the concerns raised during the NZ ETS Review while promoting sustainable land use practices that benefit both the environment and the economy.
Conclusion:
As discussions continue regarding the NZ ETS Review’s potential impact on existing forests and forestry NZUs, it is crucial to recognize the importance of achieving a balance between afforestation incentives and the protection of valuable natural resources. By taking proactive steps to stabilize the carbon market and grandfather existing forests and NZUs, the government can lay the foundation for a sustainable future. Embracing innovative solutions and fostering collaborative partnerships will further enhance our ability to secure a greener and more resilient world for generations to come.
Summary:
The article delves into the concerns surrounding the NZ ETS Review’s potential impact on existing forests and forestry NZUs in New Zealand. It highlights the need for the government to commit to grandfathering these forests and NZUs in order to stabilize the carbon market. The article explores the reasons for grandfathering, such as the limited availability of existing forestry NZUs and their non-contribution to the market’s surplus. It also discusses flaws in the Review’s calculation of NZU supply, emphasizing the importance of addressing this issue. In an additional piece, the article explores the significance of afforestation incentives, the value of preserving existing forests, and the potential for innovative solutions and collaborative partnerships to achieve a sustainable future.
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Dear Minister,
All commentators, including
ourselves, note with increasing concern your refusal to
engage with media and interested parties on the topic of
grandfathering existing forests and forestry NZUs under the
Government’s NZ ETS Review.
As you know the Review
contemplates that existing forests may be forced out of the
NZ ETS and into a new scheme and that around 96 million
existing NZUs generated by those forests will be
reclassified as removal units under the new scheme. We have
described this as a huge expropriation of private forestry
rights.
The genesis of the new scheme appears to be a
proposal by the Climate Change Commission that “a
separate mechanism could be created to incentivise
afforestation” (April 2023 Draft Advice on 2nd
emissions reduction plan, page 65). What the Commission
obviously has in mind is a separate mechanism that enables
direct control over the rate of future forest
establishment.
As we pointed out in our first press
release (Scoop/ 4 July), nowhere in the Commission’s
proposal does it suggest that existing forests should be
forced into the separate mechanism or that NZUs generated by
those forests should be classified as removal
units.
There was a good reason why the Commission did
not do this. Existing forests registered under the NZ ETS
before this year are almost all stock change
accounting forests. This means that while the foresters
concerned receive NZUs as the forests are growing, they must
surrender a large proportion of those NZUs back to the
Government when the forests are harvested.
The
Commission has determined that these foresters will retain
the bulk of the NZUs they receive to enable them to meet
harvest liabilities. Of course, they can use them in the
meantime e.g., as security for loans.
Obviously, the
NZUs which are so retained are not available to be sold to
emitters. They therefore cannot contribute to any surplus
which could impact future NZU prices – which is the concern
underlying the Review.
In its July 2022 advice on NZ
ETS unit limits and price control settings for 2023 –
2027, the Commission determined that an estimated 52 million
existing forestry NZUs were not part of the “surplus” NZUs
in existence at that time. This was because they were not
available to the market and therefore were less likely to
present risks to emissions budgets (July 2022 advice, page
40). You can see the Commission’s analysis at pages 19 –
23 of Technical Annex 1 to the July 2022 advice. This
analysis was relied on again by the Commission in its March
2023 advice (page 37).
Based on this analysis, it can
be expected that around 73% of forestry NZUs from existing
forests will not be released on to the carbon
market.
The Review itself also separately identifies
forestry NZUs having harvest liabilities (i.e., from
pre-2023 forests). This is presented in diagrammatic form in
Figure 3 of the Review consultation document. Figure 3
distinguishes NZUs with harvest liabilities from NZUs having
no liabilities.
The
note below Figure 3 includes the statements:
“The
light green area is the estimated number of NZUs from
forestry to be potentially available to the market that can
be traded. These are largely from new forests either on
averaging accounting or in the permanent forests category.
The dark green area represents NZUs held by existing
forestry participants to meet future harvest obligations.
It is generally not expected these NZUs would be
supplied to the market.” (Emphasis
added).
For some reason, the distinction between (1)
NZUs from pre 2023 forests (stock change accounting) which
are not expected to be supplied to the market and (2) NZUs
from 2023 onwards forests (averaging accounting and
permanent) which are potentially available to the market,
has not been maintained in figures 4 and 5. Both types of
forestry NZUs appear to have been included in “Expected
forestry supply”. This means that pre-2023 forestry NZUs,
which won’t be available to emitters on the market, are
included in the NZU supply which the Review concludes will
exceed demand from emitters, leading to falling NZU prices.
This suggests to us that the Review is fundamentally
flawed.
However, that is not our immediate concern
which is the need for the Government to stabilise the carbon
market by announcing that existing forests and forestry NZUs
will be grandfathered under the Review regardless of its
outcome.
The rationale for doing so is simple: If the
vast majority of NZUs generated by existing forests do not
contribute to the NZUs available to the market for emitters
to buy, then there is no reason why those NZUs and the
forests which generate them should be forced into a new
scheme. In other words, they should be grandfathered.
Failure to do so in the Review consultation document has
caused a meltdown in the carbon market and brought future
forest establishment to a complete halt. If, as some forest
industry leaders are predicting, no net afforestation occurs
next year that is a loss which is never made up and is
carried forward every year.
If the Government
doesn’t act now, then the cost, particularly in terms of
future NDCs, will potentially run into the billions of
dollars. Financial benefits gained by the Prime Minister’s
recent EU treaty efforts pale into insignificance when
compared to the damage done in going outside of the
Commission’s advice and not grandparenting existing forests
and forestry NZUs. The two are related of course. Failure to
meet our NDCs will apparently result in trade embargoes
(thereby nullifying some of what has been gained) as well as
penalties under the EU trade treaty itself.
The
Government needs to act now to stabilise the carbon market
pending a final decision on the Review by unequivocally
declaring that all existing forests and NZUs allocated to
them will be grandfathered from any changes to the NZ ETS
rules.
Halt NZU Grab
Campaign Co-convenors: H.
Bradbury and S.Thomson
https://www.scoop.co.nz/stories/PO2307/S00080/open-letter-to-minister-james-shaw-on-fundamental-flaws-in-the-nz-ets-review.htm
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