About the ETS
The Emissions Trading Scheme (ETS) was designed to:
- create incentives to reduce our greenhouse gas emissions in New Zealand
- help us meet international obligations under climate-change treaties like the Paris Agreement and the Kyoto Protocol.
Forestry is one of the sectors covered by the ETS. The ETS encourages new forests to be planted, and older forests to be replaced if they are ever cut down.
How the ETS works
The ETS is based on trading New Zealand Units (NZUs or units). These units are sometimes called "carbon credits", "carbon units", or "emission units". One unit represents 1 tonne of carbon dioxide, or equivalent greenhouse gases.
Units can be bought or sold. The price for units reflects supply and demand in the scheme and changes over time. The government sets the number of units supplied into the scheme. Those responsible for greenhouse gas emissions in certain sectors must pay units. (This is also known as "surrendering" units.) They either surrender units they have, or they must buy units from the market to surrender.
This increases the cost of releasing greenhouse gases into the air and provides an incentive for businesses to reduce their net emissions. This approach is in line with New Zealand's targets to reduce greenhouse gas emissions.
You can also receive units from the government when you remove greenhouse gases from the atmosphere. As a forest grows, it absorbs carbon dioxide from the air. This means if you have registered in the scheme with eligible forest land, you may earn units over time as the forest grows.
When a forest is cut down, carbon is released. So if you clear or deforest certain land, you may have to pay units.
Registering in the ETS with forest land
If you're thinking about registering in the ETS, you'll need to find out if your forest land is eligible. The forest land that is eligible to enter the ETS is called “post-1989 forest land” because it is first established after 31 December 1989.
To be considered post-1989 forest land, there are some conditions your land must meet.
- The forest must meet a certain size, height, and crown cover, or be expected to in the future.
- Land eligibility is also determined by when the forest was established, and what was on the land beforehand.
Earn and pay units based on accounting method
From 2023, when you earn or pay (surrender) units depends on the accounting method the forest is registered under.
Other forest covered by ETS rules
Pre-1990 forest land is another kind of forest that it is covered by ETS rules. You cannot earn units from pre-1990 forest land. However, if you deforest the land or use the land for something else, you must tell us. You may have to pay units for deforesting the land.
Benefits of registering with eligible forest land in the ETS
If you register in the ETS with eligible forest land, you may be able to earn units as the forest grows. These units can be kept as an investment or sold. The value of units may go up or down over time.
However, when the forest is harvested you may have to pay units, depending on how the land entered the scheme. If you remove the land from the ETS, you must pay back all the units you earned.
Responsibilities if you register in the ETS
There are responsibilities involved if you register in the ETS. For example, you must:
- complete regular emissions returns when required (a report of the amount of carbon in your forest)
- collect and keep records about any calculations of carbon changes in the forest and any harvesting undertaken
- tell us about any changes (for example, if forest land in the ETS is sold or land agreements change, or if land is not eligible any more).
If you don't meet your legal responsibilities, you could receive a penalty or infringement notice. You may be charged a fine or a fee.
You may also be prosecuted. If you are convicted of a criminal offence, you could be liable to pay fines or face imprisonment.