Craigmore Sustainables NZ

Transcription

1 Craigmore Sustainables NZ Submission to Finance and Expenditure Committee Re Climate Change Response (Emissions Trading and Other Matters) Amendment Bill September 2012 Summary Craigmore has established 6,500ha (net stocked area) since 2010, probably making it the largest establisher investor innew forests under the NZ ETS; Foresters which have establishednew forests under the ETS (at least 20,000 30,000ha) are most affected by the Government s proposal not to limit the purchase of international units entering the NZ ETS; Under the new offsetting provisions in the Amendment Bill these new forests will be further penalised as they would be excluded from using their forests as offsets for pre 1990 land, which is highly inequitable; The specific change recommended in order to make the amendments to the ETS more equitable is set out in the table below; As probably the largest establisher/funder of new post 1989 forestry, and given the specific issues we raise with regard to offsetting, we wish to be heard at Select Committee (please contact me on ). Section Change Policy Rationale 186B Specifically allow Post 1990 offsetting forest land to include post 1989 land provided that it was planted after or on 1 January B (a) (ii) was not forest land on or after 31 December 1989; and was deemed to be post 1989 forest land and planted after 1 January 2008, provided any NZUs issued in respect of the land are surrender to the EPA Planters of new ETS forests (i.e. those planted after 2008) are disproportionately impacted by the government decision not to limit international units into the NZ ETS, given the economics of young forestry. Offsetting provides an additional important market for these forests that would not be available to existing new forests under the current Bill. Therefore not extending the definition of Offsetting Forest Land is highly inequitable to those who have established new forests under the ETS to date. Minimal impact to net NZ Kyoto position any argument that allowing post 2008 forests to be classified as Offsetting Forest Land would create misalignment between NZ and Kyoto carbon credit accounting policies would be overstating the case, as even if there were issues, the area of Post 89 forest planted between 2008 and 2012 is only approx. 20,000 30,000ha (i.e. and therefore this is a small issue at the NZ level but a very significantissue for those foresters who supported the ETS through new plantings). Greater economic benefit to New Zealand as drafted the current offsetting rules would likely require new forests to be established. However, this would take time and cause a significant delay. Use of existing new plantings creates a ready supply of offsetting forest land.

2 Changing Complexity the current drafting is likely to create an additional class of land with different embedded value i.e. post 2013 land (as being the only land available for offsetting). A much simpler and more equitable solution is to have one class of land starting from the commencement of the ETYS Extending the definition of Offsetting Forest Land would assist existing forest establishers to maintain momentum for afforestation by creating a secondary market for forests planted since 2008, freeing up capital for further afforestation. Introduction to Craigmore and the NZ ETS: This submission is from Craigmore Sustainables NZ Ltd, on behalf of the Craigmore ForestryFund. The Craigmore Forestry Fund has established approximately 6,500 ha of new/greenfieldsforestry in 2010, 2011 and The ability to generate tradable carbon units has been a driving force in establishing these forests. All 6,500 ha of the new Post 1989 forest plantings have either already been, or are in the process of being submitted to MPIfor registration into the Post 1989 ETS. The land planted by Craigmore Forestry was underdeveloped, marginal or erodible farmland. Therefore planting softwood and hardwood trees on these marginal landscapes has created a net benefit to New Zealand. This initial planting was considered to be stage one, with larger forestry establishment programs set out for For example, an immediate 1,200 ha of planting has been deferred as a result of poor carbon outlook. In addition, the Craigmore Forestry Fund has also investigated further investment opportunities in wood processing, as well as sustainable energy opportunities via wood waste or biofuels. However, a stable and comprehensive ETS platform is necessary for such additional investment. Provided momentum can be maintained, Craigmore sees significant opportunity to work with owners of marginal land who lack the necessary capital for afforestation. Craigmore has experience with this via agreements already in place with Maori trusts and other private land owners, in order to use what was under or un productive land for new Post 1989 plantings. Craigmore s Concerns with the Amendment Bill and the ETS: The biggest areas of concern are: 1. The narrow focus of Post 1989 forest land proposed to be eligible for Pre 1990 offsetting. Exclusion of recent post 1989 new planting from the definition of Offsetting Land and Post 1990 Offsetting Forest Land. 2. The unrestricted use of cheap offshore units to meet domestic emissions liabilities.

3 3. The surrender obligations such as the 1 for 2 principle and the allocation of free units to emitters. Pre 1990 Offsetting Craigmore supports the ability to introduce offsetting and supports allocation of the second tranche of Pre 1990 creditsto landowners where they do not take up offsetting. However, as currently drafted, the Amendment Bill limits offsetting land by only including Post 1989 land that is not currently planted i.e. this excludes land that has been planted between 2008 to 2012 in support of the ETS. Craigmoreconsider it is important that all new forests established since the introduction of the ETS in 2008 are eligible to be used as offset forests, and not just future forests established in 2013 and beyond. The reasons are: Complexity exclusion of land planted from from the definition of Offsetting Forest Land creates yet another category of ETS land i.e. land planted after 1 Jan 2013, which will have a different value in a low carbon price context to land planted from 2008 to Equity Early planters of new Post 1989 forests are disproportionately impacted by the government decision not to limit international units into the NZ ETS. Further exclusion from the Offsetting market creates a significant inequality that favours those foresters that have not supported the ETS with new plantings. Curtailing momentum and future afforestation future investment in afforestation requires significant lead time, meaning that those existing funders of new plantings are likely to be the major future planters. Extending offsetting land to include post 2008 plantings helps to maintain momentum for new plantings through creation of a strong floor market for existing new forests. Minimal impact to net NZ Kyoto position any argument that allowing post 2008 forests to be classified as Offsetting Forest Land would create misalignment between NZ and Kyoto carbon credit accounting policies would be overstating the case, as even if there were issues, the area of Post 89 forest planted between 2008 and 2012 is only approx. 20,000 30,000ha (i.e. and therefore this is a small issue at the NZ level but a very significant issue for those foresters who supported the ETS through new plantings). Greater economic benefit to New Zealand allowing forests planted from to be used as offseting forest land enables the market to develop quickly so that it can better support sustainable landuse change decisions and build a strong offsetting market. Government must also ensure the offset forests maintain appropriate forest management standards, including forest health and tending. It will be a negative result for NZ if those parties pursuing offset forests, simply buy and plant marginal land and then walk away. This would have significant negative implications as low quality offset forests can create downstream environmental hazards in the form of increased susceptibility to pests and disease, windthrow or fire risk, gully collapse (as old trees cause landslides on steep land with thin topsoil) as well as having limited commercial value. It is encouraging to see such policy is allowed for in the Bill, however, the effectiveness of the subsequent regulations will be the defining factor in how this risk will be managed.

4 Offshore Units Recent analysis shows that 70% of the emissions liabilities surrendered in 2011 were sourced from offshore units. This represents a major outflow of cash from NZ and erodes the credibility of the ETS. No other domestic ETS allows such wholesome use of UN credits which are being sourced at historically low prices due to their lack of environmental credibility. Craigmore supports a policy to reflect decisions taken by the EU, South Korea and Australia to limit the phasing limitation the ability for domestic for NZ emitters to meet their emission liabilities with offshore units. Most other ETS schemes have a domestic focus and allow a small portion of offshore units to supplement the domestic supply. This would strengthen the NZ ETS and help correct supply and demand in NZ and raise carbon prices to a level where the ETS generates meaningful behavior change at reasonable cost. Craigmore also notes that Government proposal for auctioning NZUs is not the solution to the above supply and demand issue. Without meaningful restrictions on offshore units, the auctions may simply be operating within a price cap dictated by the cheapest available offshore unit. Surrender Obligations and Free Allocation The ability for emitters to continue with the surrender obligations with the 1 for 2 obligation should be removed and full obligations should be imposed. Also, the intention to remove the phase out of 1.3% of the free allocation of units to emitting sectors should not proceed. These measures, along with the $25 price cap are not relevant whilst the carbon price is $4 $5. Only by sending clear and strong signals to all emitting sectors that they will be responsible for their emissions liabilities, will the imbalance of supply and demand be addressed, the ETS will become meaningful and will help NZ meet it targeted emissions reductions. The important point is to acknowledge that the ETS is embedded for the long term, and that emitters are aware of eventual transition to full obligations. Given that some sectors are shielded from the full cost of obligations it is vital that foresters can access international markets (export NZUs/AAUs) and trade offshore at best price. Overall, NZ s ETS will gain most credibility from including all sectors in the scheme. Other Comment on ETS Legislation Impacting on the Forestry sector Craigmoresupports the supporting amendments to the operation of the ETS such as that where replanting is not possible after natural disturbances it will not be deemed deforestation, and the amendment whereby minor clearing of forest land boundaries will not be deemed deforestation. However, overall, the forestry sector needs confidence inthe durability of the ETS to ensure that continued planting programmes remain in place. This will help provide a vital store of carbon once the current wall of wood from the 1990 s planting boom commences harvesting around 2020, and ETS harvest liabilities occur. Climate change is a long term problem with severe consequences. The science behind the impact of human activities in influencing climate change is strengthening each year. If these

5 points are accepted, New Zealand has a very difficult long term carbon deficit issue by virtue of its wall of wood. It can be argued that in a low carbon price that this is not an issue, and that in a high carbon price context these trees may not be harvested, thereby avoiding liabilities. However, many of those trees planted in the mid 1990s will be very vulnerable to windthrow, disease and pests,if they remain standing well beyond their normal harvestable age, especially given that they are planted on steep and eroding country. In other words, New Zealand is very likely to face a significant carbon risk if these trees are not harvested. The best mitigation of this risk is additional new planting in order to flatten the harvest profile, and liability profile of the New Zealand forestry sector. At 6,500 ha of new forest establishment, Craigmore Forestry has completed probably the largest new land planting programmeunder the ETS. However, further measures are required to ensure the necessary planting occurs.if there is to be no limitations on the use of international credits in the NZ ETS then extension of the definition of offsetting forest land to include plantings will greatly assist that momentum. Thank you for the opportunity to make this submission. Craigmore welcomes any feedback, and wishes to be heard at the Select Committee hearing. Yours sincerely Che Charteris Managing Partner Craigmore Sustainables