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Is the Doha result a disaster for New Zealand forestry?

Geoff Thompson, New Zealand Tree Grower February 2013.

New Zealand has miscued its international climate change response and the forest industry will suffer. The withdrawal of New Zealand from a second commitment period under the Kyoto Protocol has led to confusion and many unanswered questions about the value and future of carbon units produced in New Zealand, mainly from post-1989 plantation forests.

This article was written before the resumption of Parliament in 2013 and any changes that are expected to happen about that time. There is a major challenge to government leadership in solving the climate change problem and restoring an effective emissions trading scheme. The international obligations we have to reduce carbon emissions, to price carbon effectively to encourage behavioural change, and energise forestry as the major producer of carbon reduction units, is a critical area to be considered by our political leaders.

Current Climate Change Minister Tim Groser is right to note that the international community must respond to the science of atmospheric damage caused by man-made greenhouse gas emissions. However, he is wrong in leading New Zealand out of international commitments represented by Kyoto, and claim that we cannot help having our carbon market decimated because of world prices.

The Minister justifies the withdrawal from Kyoto second commitment period as an opportunity to join the big boys − the nations producing 86 per cent of global emissions − and expecting to favourably influence them in some magical way. It is wishful thinking.

The market place

Many nations have their own mechanisms for earning and dealing in credits. The European Union is the oldest and deepest market and restricts what units can be traded. California, Canada, South Korea and others have systems where internal controls maintain a significant value on units produced locally. Australia currently operates a carbon tax which is recycled as the country moves towards a market-based emissions trading scheme in 2015.

There is no single world price for carbon. There is a value determined by local rules, usually restrictions on what units can be traded. As a result of persuasive business interests in New Zealand, no restrictions have been applied, other than minor controls, to what can be used by New Zealand emitters to meet carbon obligations. New Zealand seems to be the only country in the world which has such unrestricted entry, and because supply and demand applies, the price drops when there is an over-supply.

There are large numbers of surplus units available, particularly from eastern Europe, which New Zealand accepts. The United Nations conference at Doha did not resolve how to deal with these surpluses.

Until the balancing of the carbon books in 2015, New Zealand can have access to all units so our market is likely to remain weak. However, at the Doha meeting, New Zealand was seen as a free rider on the Kyoto system and has lost a great deal of international credibility and persuasive force in the behind the scenes negotiations. A lot of work needs to be done by our officials and leaders to sort out what our medium term position is on importation of units and on their international tradability. At this stage there is no certainty that forestry units will be tradable outside New Zealand. The state of our own market and carbon unit tradability takes on even greater relevance for foresters since the government issued the second tranche of compensation units for pre-1990 foresters in January.

Doha and forestry rules

Followers of the international climate change debate may recall that our negotiators succeeded in securing agreement on some important forestry issues at the 2011 Durban conference. They were particularly pleased at securing acceptance of forestry offset rules. These were promoted by the Ministry for Primary Industries as stimulating opportunities for changing land use – from forestry to higher and better use such as dairying. The initial reaction was positive because the cost of deforestation for such purpose was very high while carbon prices were high. However, it did not take long to realise that the offset rules had very limited practical application because most of the areas that were looking for change had few viable alternatives to forestry.

Calculation change

A more promising long-term proposal was reconsideration of the calculation of carbon loss on forest harvest. It was recognised that not all stored carbon is immediately released to the atmosphere on a tree being felled. Therefore, work was started on calculating what carbon was retained in wood products taken from the tree.

This is a complex subject but has valuable implications for post-1989 foresters. Under current rules they are obliged to return, on harvest, equivalent carbon units to those recovered during the growth of the tree.

However, by opting out of a second Kyoto commitment, New Zealand has lost its international negotiation position. We can have no effect on rules developed for the committed nations, mainly the European Union and Australia, under the second commitment period.

It is rather perverse that we are disconnecting from Australia to the extent now evident. For years, alignment with Australia and its 2015 emissions trading scheme was an important objective of government policy. Australia is our major trading partner, so that was entirely justified. We are now moving in different spaces, which seems very strange. Presumably it is not a reflection on what a future Australian government would do with climate change commitments.

The results for forestry

The position of the emissions trading scheme and forestry is currently in a murky state –

  • The large creaky bureaucracy continues to apply to forestry under current law. It has been estimated that the system is costing about $10 million a year to run, which is not far off the value of the New Zealand carbon surrender responsibilities at the present price.
  • Mandatory emission returns are still required, with the submission date extended from 31 March to 30 June 2013
  • Expensive field measurement rules still apply instead of having the option to use the look-up tables
  • The replanting rules for pre-1990 forests continue, unless bought off, and surrender obligations for clearing any forestry area over two hectares in five years also continue. This is very heavy-handed, but there is a consequence of Doha that could be beneficial. New Zealand can now make its own rules.

Changing the rules

It was always accepted that after the first commitment period of Kyoto, we could introduce rules which suited our forestry specifically. The science of carbon sequestration in our growing plantation forests is not questioned, so the integrity of the carbon capture is secure – as long as the measurement rules are internationally credible.

There now is an opportunity to recalibrate the New Zealand emissions trading scheme with rules which are best for us, if they retain a consistency with international practice. In particular, we could redesign the trading market to give priority to New Zealand produced units and topped up with a system involving government issued units. The government has acknowledged that a local supply arrangement should develop by proposing an auction system to set prices and supply shortfalls.

No new planting

New Zealand needs a fundamental rethink of its approach to emission reductions. It is incomprehensible that the government has legislated against further reviews in the interests of stability and certainty. This result is nonsense in the face of New Zealand having lost its credible place at the international bargaining table.

In the meantime, forestry fails to get any signals to encourage new planting or to prevent deforestation. Currently new planting is expected to be non-existent in 2013. At the current low carbon prices, pre-1990 foresters are being actively pushed to buy the cheap units for surrender and deforesting for an alternative use, or replanting as a post-1989 forest to earn credits. This is quite a perverse result from a scheme which is confused, ineffective and expensive to operate.

Sitting tight

Early clarity is required from the government about unit tradability and the emission reduction targets we are setting for the medium term up to 2020. Foresters need answers to restore confidence and ensure New Zealand has a sustainable harvest, in the longer term. Strong and competent leadership from the government is required to ensure that progress is made.

The answer to the opening question? With imagination, skill and energy from our climate change and forestry officials and leaders, Doha could be presenting an opportunity to chart our own course in emission reductions, using the natural advantage of carbon sequestration from plantation forestry. For the carbon units, my recommendation is to sit tight at the moment and await developments.

Geoff Thompson is a commercial lawyer with Duncan Cotterill Lawyers, with over 40 years of involvement in small-scale forest growing and harvesting, and is currently Chair of the Forest Grower Levy Referendum Board.


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