TE ARAI COASTAL LANDS TRUST LIMITED (TE ARAI) SUBMISSION TO THE SPECIAL EMISSIONS TRADING SCHEME REVIEW SELECT COMMITTEE

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1 TE ARAI COASTAL LANDS TRUST LIMITED (TE ARAI) SUBMISSION TO THE SPECIAL EMISSIONS TRADING SCHEME REVIEW SELECT COMMITTEE TERMS OF REFERENCE ADDRESSED IN TE ARAI'S SUBMISSION 1. The following terms of reference are addressed in this submission: (a) (b) (c) Reference Point 5 -The submission considers in detail: "the impact on the New Zealand economy and New Zealand households of any climate change policies, having regard to the weak state of the economy, the need to safeguard New Zealand's international competitiveness, the position of trade-exposed industries and the actions of competing companies." Reference Point 7 -The submission considers briefly: "consider the case for increasing resources devoted to New Zealand-specific climate change research" Reference Point 9 -The submission considers briefly: "the need for any additional regulatory interventions to combat climate change if a price mechanism (an ETS or a tax) is introduced" SUMMARY OF TE ARAI'S CONCERNS 2. Te Arai Coastal Lands Limited (Te Aral) supports the Government's policy to mitigate the effects of climate change. Te Arai recognises that the New Zealand Emissions Trading Scheme (the NZ ETS), as provided for in the Climate Change Response (Emissions Trading) Amendment Act (Amendment Act), is a key initiative for complying with New Zealand's international treaty obligations. 3. That said, Te Arai holds a number of serious reservations as to whether the Amendment Act and its related regulations sufficiently meet the challenges of climate change, while providing for other important environmental, economic and social outcomes. Te Arai has limited its concerns expressed in this submission to the effects of the NZ ETS on forest land.

2 4. Te Arai's key concerns with the Amendment Act and its Regulations, particularly the Climate Change Forestry Sector Regulations 2008 (the Regulations), and the draft Forestry Allocation Plan are: (a) (b) (c) (d) The deforestation liability faced by owners of unproductive pre-1990 forest land is out of proportion to its potential emissions profile in terms of New Zealand's Kyoto liability; The Amendment Act and Regulations fail to encourage planting indigenous carbon sinks. More research into indigenous forest sequestration potential and the flow-on ecological benefits of such carbon sinks is required and must be incorporated in legislation. It is disingenuous for the Crown via its Treaty settlement process to provide settlement land to lwi and subsequent to the settlement, significantly devalue that land by imposing a deforestation liability. The free allocation provided in the Amendment Act and Regulations does not sufficiently compensate that loss of value. New Zealand's upcoming international negotiations should seek the ability to provide offsite mitigation for deforestation whereby deforestation on one site can be offset by afforestation on another. BACKGROUND TO TE ARAl 5. Te Arai is an incorporated joint venture between Te Uri o Hau and New Zealand Land Trust Holdings Limited. The key roles of the joint venture are to plan, obtain approvals for, and construct holiday accommodation and recreational activities (the Project) on a portion of a 616ha site north of Auckland in the Pakiri Beachre Arai Point area (the Te Arai Land). The Te Arai Land is presently dominated by a very low quality pine plantation. 6. The Te Arai Land was obtained by Te Uri o Hau as a component of its settlement with the Crown as confirmed by the Te Uri o Hau Settlement Act The development of the land is the principal method towards achieving the Settlement Trust's vision for Te Uri o Hau to gain self reliance within its rohe and parity with New Zealand for its next generation.

3 7. In order to assist in achieving these aims, Renaissance Group, the corporate arm of the Settlement Trust, entered into a joint venture (Te Arai) in 2003 with New Zealand Land Trust Holdings Limited. New Zealand Land Trust Holdings is a substantial, privately owned property company based in Queenstown,,which contributes property development expertise and other resources to the joint venture. 8. In brief, the Project, which is presently the subject of requests for a private plan change before Rodney District Council, involves the staged development of household units and related recreational and other facilities. One key aspect of the Project is the removal of poor-quality low-productivity pine forest and replanting large areas with indigenous vegetation. The Council hearing for consideration of that plan change is due to commence in March this year. 9. The Project will enable Te Uri o Hau, to make the best use of the land, and therefore realise both its economic and cultural aspirations. The Project will also result in a number of ecological benefits on forest land that is neither productive nor suited for commercial forestry. HOW THE NZ ETS AFFECTS TE ARAl 10. The Te Arai Land was planted with pinus radiata prior to 1 January 1990 and falls within the definition of 'Pre-1990 Forest Land'. Under the NZ ETS, Te Uri o Hau, as land owner, will bear the liability for any future deforestation. 11. The Te Arai Land is eligible for free allocation of New Zealand Units (NZUs) and is categorised as land acquired prior to While that level of allocation is likely to be higher than that available for parties who acquired land after 2002, the actual level of allocation is unlikely to be determined until late 2009 or early Te Arai has a relatively young pre-1990 forest (being second rotation on pre-1990 land). Most of its allocation will be in the second tranche - meaning that while any development on the Te Arai Land would face immediate deforestation liabilities, allocation/compensation to Te Arai would not be until later (and the allocation values also remain unknown for some time).

4 13. As noted above, replanting and rehabilitation undertaken on the Te Arai Land as part of the Project will be dominated by indigenous species. However, the current NZ ETS provisions do not encourage or recognise the biodiversity and sustainability advantages of any native forest plantings. That is because, pre-1990 land cannot obtain any credits for forest sequestration at present under the NZ ETS. In addition, for any post-1989 land plantings undertaken on the Te Arai Land (following repayment of any deforestation liabilities), the rates of sequestration for indigenous forest under the NZ ETS are so low compared to exotic plantings, that there is no incentive to change to more environmentally sustainable permanent indigenous forest cover. THE TE ARAl FOREST 14. The pinus radiata forest on the Te Arai Land was originally planted by the New Zealand Forest Service in 1963 as part of a sand stabilisation project. Following the disbanding of the New Zealand Forest Service, the forest was transferred to Carter Holt Harvey Limited via a Crown Forest Licence (CFL) prior to its purchase by Te Arai. 15. The current forest on the Te Arai Land is of poor quality for a number of reasons. First, the forest is located on soil with a very high sand content that is poorly suited to commercial forestry. The soil also is low in nitrogen, copper and boron, which requires corrective fertiliser applications at significant cost. The ongoing nutrient requirements (particularly in relation to nitrogen) represent a significant cost. That cost will likely become proportionally more significant given that N20 fertiliser costs will likely increase following implementation of the NZ ETS. In addition, the coastal location of the forest exposes it to salt spray and storms, which result in further reduced yield. Finally, the location of the forest and its level of public usage make it vulnerable to both fire and weed invasion. 16. In light of all the above factors, the Te Arai forest is significantly less fertile and productive than other forests in the region. Its sequestration rates also fall well below the average for the area. Economic, climatic and ecological factors dictate that exotic commercial forestry is not an ideal use of the Te Arai Land. The fact that the Land is currently forested is not by any design of the current owners, but rather an inherited fact that is not justified or practical in the current circumstances.

5 17. The current NZ ETS design imposes a significant restriction on the opportunity for any land use change at Te Arai. It curtails the opportunity by imposing a perpetual commercial plantation land use for sub-optimal return. In doing so it restricts Te Arai moving towards the most economically, environmentally and socially advantageous land use. Comparative analysis shows that on pure commercial plantation forestry terms, a forester would not choose to grow trees at Te Arai. INEQUITABLE EFFECT OF THE NZ ETS ON NON-PRODUCTIVE FOREST 18. Under the NZ ETS, if the Te Arai Land is deforested, Te Arai as the land owner will incur a liability. That liability is determined, pursuant to clause 15 of the Regulations, by multiplying the area of deforested land by the relevant figure in a series of 'look-up tables' attached as annexures to the Regulations. The look-up tables provide aggregated figures of carbon sequestration by trees of a given age, species and region. 19. Furthermore, the sequestration rates included in the look-up tables are based on growth modelling techniques which predict the growth of carbon stocks in productive, commercial forests. The difficulty in applying these tables to forest land generally is that they represent only aggregated rates for commercial forestry. They are not, as is recognised by the Ministry of Agriculture and Forestry, capable of accurately "reflecting local variations in growth rates due to variation in site factors such as fertility or soil moisture."' 20. Te Arai's key concern is that it should not be charged a deforestation liability on the basis of carbon sequestration figures that bear no relevance to the actual carbon sequestered by its trees. It is inequitable to impose a liability on a party that is out of proportion to that Party's contribution to New Zealand's Kyoto liability. 21. Te Arai instead requests that the Regulations be amended to allow pre-1990 forest landowners to either use the look-up tables to assess their liability or provide evidence of the total carbon actually sequestered by their forest (referred to as the Field Measurement" approach). ' Ministry of Agriculture and Forestry, "A Guide to Forestry in the Emissions Trading Scheme", October 2008, Page 13 5

6 22. The Ministry for Agriculture and Forestry's document "A Guide to Foresty in the Emissions Trading Scheme" confirms that as the Field Measurement Approach provides greatest accuracy, it will be able to be used by any post-1989 forest land owner in assessing their stocked carbon volumes and their level of liability. Te Arai requests that same flexibility be extended to pre-1990 forest land owners. FAILURE TO ENCOURAGE INDIGENOUS CARBON SINKS 23. If consented, the Project will result in the replacement and enhancement of areas of unproductive pine forest land with indigenous plant species. Such actions provide important ecological and biodiversity benefits aside from any benefits associated with carbon sequestration. Te Arai is concerned that the current NZ ETS and Regulations do not provide any incentives for the establishment of indigenous carbon sinks. 24. Under the NZ ETS, forest land planted after 31 December 1989 that is made up of primarily indigenous species could qualify as post-1989 forest land and receive NZUs. However, such forests will only be commercially viable as carbon sinks if the NZU income they derive is comparable with that of exotic forests. For pre forest land as well, the change from exotic rotation crops to indigenous forests (with enhanced ecological and biodiversity benefits) should be acknowledged and incentivised in legislation. 25. Currently, the look-up tables provide that indigenous forests earn three NZUs per hectare per year. By comparison, pinus radiata forests located in the Auckland region earn more than 27 NZUs per hectare on average over a 50 year period. Accordingly, the NZ ETS not only fails to encourage indigenous planting, it creates a disincentive to invest in indigenous forest land. While owners of indigenous post forests could choose to adopt the Field Measurement approach discussed above, such assessments are expensive and would likely be cost prohibitive for small land holders.

7 26. The Ministry of Agriculture and Forestry has accepted that the sequestration figures for indigenous forests are still under development and that the three NZU uniform rates will only be used until more research is available. However, updated tables are not expected until at least the end of this year. Te Arai considers that this delay is unjustified, and the Government must dedicate more resources towards assessing indigenous forestry sequestration rates. In the meantime, investment decisions are being made and opportunities to foster the establishment of indigenous forest sinks are being lost. DEVALUING SETTLEMENT LAND 27. A key concern for Te Uri o Hau is the undermining of its settlement agreements with the Crown by significantly devaluing settlement land with the imposition of the compulsory deforestation liability. That liability significantly affects the ability of Te Uri o Hau to develop or make use of its settlement lands in any way - other than for mediocre, poor quality forestry. Devaluing its settlement lands risks the ability of Te Uri o Hau to gain self reliance by providing economic and financial benefits for its future generations. 28. In Te Uri o Hau's case, the affect of the deforestation liability is pronounced. Through its settlement with the Crown, Te Uri o Hau received funds which it used to acquire the Te Arai Land. The Crown identified and then sold that Land to Te Uri o Hau in 2002 for a price based on the Crown's valuation of the Land's development potential. However, less than five years later, the Crown has passed legislation that severely affects the ability to develop that land. While Te Uri o Hau via the settlement purchased the land for commercial development, it is now estimated by forestry experts that the deforestation necessary to develop the site in a less intensive manner than the other coast subdivisions would attract an ETS liability of approximately $7,500,000. That is more than 50% higher than the valuation of the Te Arai Land at the time of acquisition. The Crown has in effect profited by selling an asset and subsequently imposing on it a liability undermining its value. In these circumstances, to impose the deforestation liability on Te Uri o Hau would be disingenuous, offend the most basic of Treaty of Waitangi principles, and replace one grievance with another.

8 29. This issue not only affects Te Uri o Hau. A number of other lwi who, via Treaty settlements, acquired forested land intended to be available for enhanced land use. In Te Uri o Hau's case, Te Arai will receive free NZUs from the Government of an estimated 60 NZUs per hectare. However, that compensation is inadequate in light of the potential deforestation liability now attached to the forest. Te Arai's forestry expert has estimated the deforestation liability at the time of hawest to be 800 NZUs per hectare. Accordingly, the free allocation only covers 8% of the estimated liability that Te Arai will face. Using the Government's published estimate of NZU price2 Te Arai will incur a liability following compensation of approximately $18,500 per hectare. For this to occur in the context of a Treaty of Waitangi Settlement is inequitable, unconscionable and must be rectified. 30. Te Arai requests the following: (a) (b) settlement lands to be exempt from the operation of the NZ ETS; or the level of free allocation available to settlement lands to be significantly increased. INTERNATIONAL NEGOTIATIONS 31. Te Arai considers New Zealand's future international negotiations must secure the ability to provide offsite mitigation for deforestation so that deforestation on one site can be offset by comparable afforestation on another. This will provide for higher and better uses of land, while still providing for carbon efficient solutions. In Te Arai's case, it would allow land never suited to forestry to be used more efficiently, and ensure that any deforestation undertaken on the Te Arai Land is offset by appropriate afforestation. TE ARAI'S FUTURE INVOLVEMENT 32. If there is an opportunity to be heard on these submissions, Te Arai seeks to be heard before the Committee. Equally, if it is of use to the Committee, further background information relating to Te Arai's plans and practices can be provided. 'see htt~://w.treasurv aovt.nz/aovernmenvliabilities/kvoto where treasuty estimates the price of an NZU to be approximately $25.

9 33. Te Arai looks forward to its continued participation in this process, and to receiving the Committee's recommendations. Dated 27 February 2009 K R Price I A M Lampitt Counsel for Te Arai Te Arai's contact for this submission is: c/- K R Price ChanceryGreen PO Box AUCKLAND 1143 Phone Fax karen.price@chancerygreen.com