Emissions Trading Scheme reviews
Between 2015 and 2019, the Government consulted with New Zealanders on potential changes and improvements to the Emissions Trading Scheme (ETS). Find out about what's changing.
On this page:
- March 2019 decisions
- December 2018 decisions
- July 2017 decisions
- The Climate Change Forestry Reference Group
Changes to the Emissions Trading Scheme (ETS) are being made to make the scheme easier to work with and to improve its effectiveness in incentivising forestry.
On 25 March 2019, the Government approved a second set of changes to the Emission Trading Scheme, in addition to those decided on in December 2018.
These new changes include:
- the introduction of averaging accounting for all forests registered from 1 January 2021
- the option to use the new accounting method for all forests registered in 2019 and 2020.
Introducing averaging accounting for eligible post-1989 rotational forests will reduce the costs and complexity of the ETS for forest owners.
What the change means
As at March 2019, the current carbon accounting approach ('stock change') requires a participant in the ETS to account for any loss of carbon in their forests, even if that loss is temporary. This means when trees are harvested, foresters must surrender back to the Crown a large portion of the carbon credits (New Zealand Units or NZUs) they've earned from a forest’s growth, even if the forest will be re-planted.
When the change comes into effect, forest owners who use the new 'averaging accounting' option will no longer need to surrender NZUs when they harvest (if they replant). Participants would instead receive fewer NZUs as their forest grows, up to a determined average level of long-term carbon storage.
Full details on the averaging accounting approach will be announced later in 2019.
The Government also approved 6 significant operational improvements for forestry, and 6 minor and technical improvements. The latest package of improvements also includes operational improvements to ensure the ETS works as planned for forestry. These include:
- making it easier for landowners to determine if forests they establish will be able to earn credits in the ETS
- aligning the ETS reporting cycle better with our international targets
- providing new forestry-specific enforcement tools to ensure the ETS has integrity.
Changes to the Emissions Trading Scheme (ETS) are being made to make it easier to work with and to improve how it incentivises forestry. The first set of proposed changes to the Climate Change Response Act 2002 were announced on 12 December 2018.
The aim of the decisions is to improve how forestry is treated in the ETS and the system's overall effectiveness.
This is the first set of decisions. A second set is expected in 2019. Both sets will result in a single Bill, amending the Climate Change Response Act 2002 (CCRA). We expect this will be introduced to Parliament in the second half of 2019. None of the changes will apply to participants with forests registered in the ETS or the Permanent Forest Sink Initiative (PFSI) until after the Bill is passed.
The forestry decisions involve:
- provisions for crediting carbon stored in permanent forests established post-1989
- 16 minor and technical improvements to how the scheme works for forestry owners
- 4 significant operational changes.
Introducing a new permanent post-1989 forest activity into the ETS and discontinuing the PFSI
On 17 December 2018, the Government announced decisions to discontinue the Permanent Forest Sink Initiative (PFSI). A new permanent post-1989 forest activity will be introduced into the ETS to replace it.
16 minor and technical changes to the ETS for forestry participants
These changes will improve the general operation of the scheme, improve efficiency for the Crown, and make the scheme more accessible for forestry ETS participants.
They include, but are not limited to, changes to enable a simpler process for:
- enacting existing exemptions from emissions liabilities
- transfers of post-1989 forest land after legal ownership changes.
Significant operational changes to forestry in the ETS
These will be introduced after additional changes to the ETS and Climate Change Response Act 2002 are made in 2019.
They will remove barriers to participation and compliance. They will increase land-use flexibility while ensuring the ETS supports afforestation and discourages deforestation.
The changes are:
This will provide pre-1990 landowners more flexibility over their land, while maintaining New Zealand's long-term carbon stock. It is particularly important for Māori landowners and farm foresters. These groups hold large areas of pre-1990 forest land which may be suited to another land use.
Current offsetting provisions could be improved, and are rarely used. For example, if any part of an offsetting application fails, the entire application is revoked. If 0.2 hectares of offset forest fails in a 100 hectare application, the applicant becomes liable for all deforestation from their application (roughly $1.3 million for an average 100 hectare block).
The improvements will make offsetting more effective to:
- allow flexible use of pre-1990 forest land
- apply enforcement action only to the areas of forest land that fail to establish.
This decision introduces changes to the CCRA to enable better management of tree weed exemptions.
These changes are intended to support management and removal of tree weeds in compliance with regional pest management plans, without a cost to the landowner under the ETS.
Limiting the spread of tree weed species, and eliminating the seed source, is important for New Zealand as most tree weeds species spread very quickly and cause a range of economic and ecological problems. Wilding conifers are able to modify and rapidly invade New Zealand’s natural ecosystems so that native plants and animals are affected by loss of habitat.
This enables MPI to exclude all future post-1989 and permanent post-1989 forest land registrations for sites that contain predominantly tree weeds, regardless of who applies to register.
So forest land that is already registered in the ETS, and is in a tree weed species, can remain registered as forest land eligible for earning NZUs.
This is because a very small number of participants have registered tree weeds in the ETS and are using the income from their land to pay for management of the tree weeds.
This will enable owners of land, that has multiple owners, to access the same provisions as land with single owners.
It allows an appointed or professional trustee to apply for the exemption (rather than each landowner from 1 September 2007).
Exemptions from all, or proportions of, the emission costs associated with deforesting pre-1990 land are available for landowners under the CCRA to allow some flexibility under unforeseen circumstances.
Currently, landowners with less than 50 hectares of pre-1990 forest land can apply for an exemption from deforestation liabilities. However, it has been difficult to apply this to multiply-owned land in trusts, and Māori freehold land under the Te Ture Whenua Māori Act 1993.
Other ETS improvements
The Government has also announced a number of improvements to the overall ETS and will be considering additional improvements in 2019.
Information on these changes is available on the Ministry for the Environment (MfE) website.
The introduction of an emissions cap will not affect the availability of New Zealand Units for forestry participants with forests registered in the ETS.
As a result of stage II of the New Zealand Emission Trading Scheme (NZ ETS) review, in 2017 the Government made in-principle decisions on a package of 4 proposals to improve the operation of the New Zealand ETS in the 2020s.
The decisions (announced on 26 July 2017) set the direction of how the NZ ETS will operate in the 2020s for all sectors, including forestry.
The 2017 in-principle decisions were to:
- introduce sale of units by auction, to align the NZ ETS to our climate change targets
- limit the number of international units that NZ ETS participants can use when the NZ ETS reopens to international carbon markets
- develop an alternative price ceiling to replace the current $25 fixed price option
- coordinate decisions on the supply settings in the NZ ETS over a rolling 5-year period.
At the same time, for forests and the NZ ETS, the Government decided to consider:
- options for potentially changing the post-1989 accounting approach
- potential operational improvements in 2018 as part of a forestry package.
See more recent updates for progress on these and other changes.
The Climate Change Forestry Reference Group was established in 2016 and completed its work in 2018.
The purpose of the group was to explore and test evidence, analysis, and policy options with experts to inform and support officials undertaking the review of the New Zealand Emissions Trading Scheme. The group did not write policy or make recommendations.
- Download the group's final report, November 2018 [PDF, 133 KB]
- Download the Climate Change Forestry Reference Group Terms of Reference [PDF, 2.5 MB]
Find out more
- Learn more about the Emissions Trading Scheme
- Emissions Trading Scheme public consultation page
- Emissions Trading Scheme public consultation – Ministry for the Environment website
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