11 October 2010
In last month's article I explained how an emissions trading scheme (ETS) worked. As much of New Zealand's rural land is planted in forest, or may be suitable for forest planting, there are many questions being asked by landowners as to how the ETS may affect their land.
Forestry is the first sector to be included in the ETS. The law applying to forestry in the ETS is complex and therefore legal advice should be sought in relation to the legal obligations or entitlements that may affect specific land and/or forestry rights. This article gives a brief outline of how forest land is affected by the ETS and explains some other schemes that are available.
It is important to distinguish the different types of forest to determine how the ETS may apply. Forest land may be classified as pre-1990 forest land or post-1989 forest land.
- Pre-1990 Forest Land* - compulsory participation in ETS if deforestation** occurs
Pre-1990 forest land is land that:
- was established in exotic or indigenous forest as at 1 January 1990; and
- is in exotic forest as at 1 January 2008.
Indigenous forests established before 1990 are excluded from the ETS. This means you will incur no liability for deforestation and have no entitlement to carbon credits for the carbon sequestered (or stored) in these forests.
If your land is pre-1990 forest land, then:
You must notify MAF and participate in the ETS if more than 2 hectares is deforested** in a 5 year period.If you deforest your land, you must submit an emissions return and surrender carbon units for decreases in carbon stocks. You may apply for an exemption from the ETS if your land is less than 50 hectares or if the trees are classified as "tree weeds". You are not entitled to earn carbon units for increases in carbon stocks in your forests. You may apply to receive a free allocation of carbon units.
Free carbon units
The free allocation of carbon units is available to the owners of pre-1990 forest land to compensate for the loss in value of the land because of the liability faced if the land is deforested. If you owned the land on 31 October 2002 you will be entitled to more carbon units than if you became the owner after this date. This is because, as at 31 October 2002, people would have been aware of the government's intentions with regard to forest land and the ETS.
The free units are going to be transferred in two stages: 38% of them will be paid before 31 December 2012, and 62% will be payable after 31 December 2012. As yet, it is not certain when and if the 62% allocation will be paid.
Choices for pre-1990 forest owners to make:
It is important that owners of pre-1990 forest land decide whether they wish to apply for the free allocation of units or the available exemptions. The deadlines for these applications are:
Tree weed exemptions - 31 October 2010
Less than 50 hectare exemptions - 30 September 2011
Allocation of free units - 30 November 2011
If you do not apply, you will miss out on the potential benefits, but you may still face liabilities under the ETS.
2. Post-1989 Forest Land* - voluntary participation in ETS
Post-1989 forest land can be either exotic or indigenous forest land that was established after 31 December 1989.
If your land is post-1989 forest land, then you may choose to participate in the ETS. If you participate in the ETS:
You must submit emissions returns at least every 5 years. You may choose to submit returns annually. You will earn carbon units for increases in carbon stocks in your forests. You must surrender carbon units for decreases in carbon stocks.
Choices for post-1989 forest owners to make:
Whether to participate in the ETS.Whether to participate in the ETS before 31 December 2012, and therefore receive carbon units for 2008 to 2012. (If you apply after 31 December 2012, you will only be entitled to units for increases in carbon stocks after 1 January 2013.)
How to participate in the ETS
For pre-1990 forest land, the participant may be either the owner of the land, or the person who has the right to deforest the land.
For post-1989 forest land, the participants may be either the owner of the land, the holder of a registered forestry right or registered lease, or the party to a Crown conservation contract.
To become a participant in the ETS you must:
apply to MAF and provide the required information. This includes a geospatial map of your land. open a New Zealand Emissions Unit Register holding account. This is the account which will hold your carbon units and from which units will be surrendered.
Emissions returns
Participants must submit returns which quantify the changes in carbon stocks in their forests. There will be two methods for doing this:
1. Using look-up tables. These tables set out pre-calculated values for carbon stocks based on the age of the forest.
2. Using the field measurement approach. These measurements will be based on a randomly located sample plots. This method is not yet available.
Participants' obligations
As well as providing the required information and submitting returns, participants in the ETS must keep their records for 20 years. MAF may audit the information supplied and check participants' records. If the land is sold, the participant must notify MAF and surrender any carbon units owing.
Other options to consider:
Forest owners can also consider whether to:
1. Tender for a grant through the Afforestation Grant Scheme; or
2. Register in the Permanent Forest Sink Initiative.
3. Tender for a grant through the East Coast Forestry Project.
The Afforestation Grant Scheme (AGS)
Grants are available through MAF or a regional council to plant trees on land that was not forested as at 31 December 1989, or was forested on that date, but was subsequently deforested and has no outstanding emissions liabilities. In 2010 this scheme was heavily oversubscribed.
If you are successful, then you must maintain forest on your land for at least 10 years. You own the forest and can deforest it after 10 years without any liability for deforestation. However, the Crown will own the carbon credits generated from the land during this 10 year period.
The Permanent Forest Sink Initiative (PFSI)
This initiative pre-dates and complements that ETS. Under this policy, landowners can earn carbon credits for permanent forests established after 1 January 1990.
PFSI participants have a covenant registered against the title to their land which binds them to the scheme for 50 years.
East Coast Forestry Project (ECFP)
The government established this scheme to encourage afforestation on erosion prone land on the North Island's East Coast. Grants are available for the establishment and management of forest. As with the PFSI, a covenant is registered against the title to the land binding the owner to the scheme for 50 years. Under this scheme, the owners of the land are entitled to the carbon units that may become available.
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Concepts:
*Forest Land is land of at least 1 hectare with a tree species capable of reaching 5 metres in height that have, or are likely to have:
tree crown cover of more than 30 per cent on each hectare; and an average crown cover width of at least 30 metres.
(Trees grown for the production of fruit or nuts are not forest species. Shelter belts and riparian strips less than 30 metres wide are not forest land.)
**Deforestation
Land is "deforested" when the forest is cleared and there is a change to another land use, such as grazing. Deforestation is deemed to have occurred at certain times after clearing when the land does not meet the criteria for a minimum number of stems per hectare and/or crown cover.
Please email me at barbara.mcdermott@nwm.co.nz with your ideas for future articles. Keep an eye out for next month's column, where I will discuss another relevant rural legal issue.
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Barbara McDermott is a partner of Norris Ward McKinnon, specialising in commercial and rural law. With offices in Hamilton and Huntly, we have friendly, expert legal advisors ready to help you with your business and personal legal matters.