Is the Emissions Trading Scheme right for you?
There are benefits to registering your land in the Emissions Trading Scheme (ETS), but there are also obligations and risks for you to consider. Find out what to think about before you join the scheme.
Compulsory or voluntary participation
There are 2 classes of forest land in the Emissions Trading Scheme (ETS) – pre-1990 and post-1989.
If you have pre-1990 forest land you cannot register this in the ETS to earn carbon credits, but if you deforest the land you may automatically become a participant and could need to pay a deforestation liability.
If you have post-1989 forest land you can choose whether to register. If you register in the ETS you can earn carbon credits but may need to pay these back if you harvest or deforest. If you are not registered you will not earn carbon credits but will not need to pay any liability for harvesting or deforesting.
Benefits of participating
There are several reasons you might want to register your land in the ETS.
Forest land that’s registered in the ETS can earn carbon credits (New Zealand Units, or NZUs). This might make forestry more economically viable, or could provide another land use option for marginal land.
Newly planted forests benefit the most from the ETS. If forest land is registered as soon as it is planted it will earn the maximum amount of carbon credits. This can provide additional cashflow for the forest owner.
Some forest owners earn enough carbon credits to make it worthwhile owning a forest they will never harvest, just to “farm carbon”.
Also, if you are earning carbon credits you can participate in the carbon market.
Registering forest land can lock it into the ETS, making it harder to deforest it in the future. This may be a risk for some people but can also be a benefit – it can help ensure a forest you plant stays in the ground.
Risks of participating
There are some potential risks from participating in the ETS, though.
Registering land in the ETS can make it harder to change what’s being done on that land in the future. For example, you may need to pay back the carbon credits the forest land earned if you:
- harvest forest land that’s registered in the ETS
- deforest the land
- leave the ETS (deregistering).
This could affect the value of any land that is registered.
Participating in the ETS can be expensive and time consuming. You need to file an emissions return every 5 years, and you might need to hire specialists to draw maps of your land or measure the growth of your trees. If you only have a small area of forest land registered in the ETS the cost of participation may outweigh the benefits.
The price of carbon can change so you might not get as much as you expected if you sell the carbon credits you’ve earned, or you might need to buy credits when the price is high. The decisions you make and the things that happen to your forest could mean that you’ll need to surrender carbon credits in the future, and you could end up owing money.
The ETS rules can be complicated, and there are penalties for not following the rules. It’s vital for anyone involved in forestry to:
- get good advice
- take reasonable care
- exercise due diligence.
Buying, selling, or transferring land
- When you buy, sell, or transfer land, or register a forestry right or lease, you should find out if it is registered in the ETS and make sure you understand the impacts this could have. The choices made by previous land and forest owners can have impacts on you for decades into the future.
- The ownership of land can be separate from participation in the ETS – the participant may be a forestry right or lease holder, not the landowner.
- When someone sells land that’s registered in the ETS they do not have to transfer the carbon credits the land has earned to the new owner. If the new owner harvests the forest they may need to surrender carbon credits the forest earned but the old owner received. This is a private matter that should be taken into account when negotiating a sale or purchase, or a forestry right or lease.
- You must let Te Uru Rākau – New Zealand Forest Service know whenever you buy, sell, or transfer post-1989 forest land that is registered in the ETS.
Post-1989 forest land
- A mandatory emissions return needs to be completed every mandatory emissions return period (usually 5 years).
- An emissions return also needs to be filed when an interest in forestry land is transferred (such as any time the forest land is bought or sold, and sometimes when a forestry right or lease is granted or ends), or the land is deregistered from the ETS.
- Voluntary emissions returns can be submitted up to once a year.
Pre-1990 forest land
A mandatory emissions return needs to be completed every year, if any deforestation occurred on pre-1990 or pre-1990 offsetting land the year before.
Managing forest land
- The timing of when you register forest land can have a large impact on how many carbon credits you will earn and the range of management choices that are available. For example, if you register forest land using stock change accounting and the trees are not recently planted, you could earn far fewer carbon credits than if it was registered at planting. If a forest is not on its first rotation when it is registered in the ETS with averaging accounting you may not earn any carbon credits.
- Remember that you will have ETS obligations if you deforest pre-1990 forest land even if you have never registered in the ETS.
- If you have 100 hectares or more of forest land registered in the ETS you need to use the field measurement approach (FMA) to calculate carbon storage. This requires a team to measure a sample of trees in your forest so that we can calculate the forest’s growth from these figures. This can be an expensive and time-consuming process.
- Changes in the attributes of a forest must be recorded so you can report the carbon storage of your forest. This includes replanting in a different species, changing the harvest age, deforesting part of the forest, or adding to the forest.