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The cost of doing nothing - ETS dates loom for small forest owners

Stuart Orme, New Zealand Tree Grower August 2011.

At the risk of sounding repetitive, owners of pre-1990 forestry land are captured by the legislation whether they look for compensatory credits or not. This extends over pines, willows, poplars, woodlots and homestead plantings. It covers anything that meets the MAF definition of an exotic forest of one hectare in size or more, wider than 30 metres on average and capable of reaching more than five metres in height and 30 per cent canopy cover. That definition includes most hill country planting in New Zealand, the majority of botanical gardens and probably a large percentage of golf courses.

If those trees come down, are not replanted and the land use changes some time in the future – in fact since 1 January 2008 – then the landowner will have to pay a deforestation liability. For a 30-year-old stand of pine trees it will mean obtaining somewhere between 572 and 866 NZ carbon units per hectare, depending on your location in New Zealand, and surrendering them to the crown. Excluding Canterbury the average is close to 800 units a hectare.

If for some reason this is not done voluntarily, the default will be discovered by MAF and the units will need to be surrendered. A ‘not surrendered on time’ fine of $30 a unit could be added to the bill.

Deforestation liability

Let us do the maths. Assume 800 NZ units have to be purchased and surrendered multiplied by $20 purchase plus $30 fine.

800 units times $50 = $40,000 a hectare

This means that for the deforestation liability there is a potential cost of more than $40,000 a hectare at current carbon rates.

Land owners in New Zealand sometimes like to believe they are masters of their own destiny. If you have created a deforestation liability and are happy take the consequence and pay the fine, that is your democratic right – I hope you know what you are doing.

If you have bought land since 1 January 2008 and forest has been removed before you bought it and till now you did not realise a liability might exist – find out. You have less than two months to apply for an exemption to hopefully avoid the consequences.

Worrying land purchases

The majority of land transactions in New Zealand have at least two lawyers and usually an accountant involved. However we are seeing some horrendous deforestation exposures transferring to new land buyers unaware that some time in the future they will be on a first name basis with MAF Compliance.

I helped to co-present a recent road show around New Zealand to professional trustees in an attempt to get the message across. We literally saw the blood drain from some faces as people realised the deforestation liability they had created or inherited from purchasing deforested land.

It is easy for the Crown to audit – all they will do is lay two aerial photographs of different dates over each other and apply a calculation to it saying ‘show the difference’. Up will come all land that has different vegetation cover along with the land owner’s name.

Claim the exemption now

It is not the role of MAF to follow up every eligible landowner. MAF claims to have received pre 1990 applications for 60 per cent of the known planted area but only 27 per cent of known forest owners. Applications are skewed towards large plantation owners.

To be fair MAF has been putting out the message for some time to get involved with the ETS. Yet for a long time media was used by people with other agendas to promote ill-informed or myopic commentary, such that many land owners have not become involved or think they can wait until later.

Woodnet believe the logic is simple. Ask the question − what is my best land use? If it is in growing vegetation versus trying to farm, then claim the compensation or post 1989 annual credits. If the pre 1990 trees were planted on land that now has a better use, or has been deforested since 1 January 2008, then claim the exemption that will allow you to avoid the inevitable penalty.

Note Important dates
Entity to get the pre 1990 allocation of compensation credits Landowner on 20 July 2010
Land ownership to gain 60 units a hectare Land owned on 31 October 2002 or before
Land ownership to gain 39 units a hectare Land owned between 1 November 2002 to 20 July 2010
Exemption to deforest land Applications close 30 September 2011
Allocation of credits for pre 1990 forest Completed applications at MAF by 30 November 2011
Post 1989 ETSA registration Applications must be approved by MAF by the 31 December 2012

Getting out of jail

So, to recap. If you are a pre 1990 forest landowner you have effectively been in jail since the legislation was passed. You can get out of jail by −

  • Claiming an exemption that allows you to deforest if the pre 1990 area owned was less than 50 hectares on the on 1 September 2007
  • Alternatively you can buy your way out of jail by purchasing the required number of credits and surrendering them if you have deforested or want to deforest.
  • Or you can apply and take advantage of the up to 55 million New Zealand units at $20 a unit valued at just over $1 billion tax free available until November this year. The compensation may look large but remember no one is doing you any favours. You can get 60 or 39 units a hectare as compensation depending on when the land last changed hands. But as mentioned above you could be taxed 800 or more units a hectare, plus the $30 a unit fine, if you are found in the future to have deforested illegally. Doing nothing is not a good option.
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