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Carbon credits - Is New Zealand in surplus or deficit?

Stuart Orme, New Zealand Tree Grower May 2012.

I understand that the government believes the country is in surplus for carbon credits and will meet its Kyoto obligations. This is calculated by the amount of carbon in the New Zealand emission unit registry along with an estimate of what trees are growing on the hillside. We should assume that they are correct.

The carbon credit calculation works out the amount of carbon that emitters must surrender to the government on an annual basis. The estimate is 18 million NZUs a year at the moment, rising to 36 million NZUs a year in 2017. The figure will double if a different government comes into power and includes agriculture.

Assume that an average hectare of post 1989 forest sequestered 30 NZUs over the life of the forest. This would require 600,000 hectares to be both registered and selling all their carbon to fulfil today’s requirement. By 2017 we would need 1,200,000 hectares to achieve the same result.

Off shore supply

Of more importance is what the government might do in restricting the ability of emitters to go offshore and buy cheap credits. These fulfil their responsibility to meet a surrender obligation but have no effect on New Zealand emission behaviour. The Australian ETS proposes that a minimum of 50 per cent of credits surrendered must be generated in Australia.

A similar ruling for New Zealand would seem to make a lot of sense and would help to establish some confidence for forest growers. It would help avoid another major plummet in the carbon price generated by Europe selling credits to New Zealand emitters, credits which could have no value next year if Europe decides they no longer have any credibility.

The government moved to ban ‘grey’ credits from Europe at the end of last year. However New Zealand emitters had already filled up on cheaper units driving the NZU price down. Surrenders for 2013 will not be able to take advantage of these and the market looks more promising for those who choose to trade their NZUs.

Field measurement approach

On the 31 December 2012 the first ETS commitment period finishes. Anyone who is a participant in the ETS or Permanent Forest Sink Initiative must make a mandatory emission return for their forests by 31 March 2013. Anyone who has registered areas of 100 hectares or more must use lookup tables derived from the field measurement approach for this return. The information for this return must be collected by 31 December 2012. If you have entered into the ETS and do not submit a return you are in breach of the Act and could be liable for fine of $8,000.

If the carbon yields determined by the field measurement approach process are lower than the amount you have claimed, you will have 20 working days to surrender the over-allocated carbon to MAF. If the data allocates more carbon than you have received to date, the additional carbon will be calculated back to the beginning of 2008 and transferred to your NZEUR account. If you are not in a position to surrender the over-allocated credits you may face a fine from MAF of $30 for each unit.

At the end of each five year commitment period a compulsory emission return must be submitted. If you have less than 100 hectares registered this is calculated from the MAF lookup tables. MAF changed the way emission returns were carried out two years ago and this is a chance to bring the allocated carbon volume in line with the new tables and rounding rules which are now in place. If you have more than 100 hectares registered then you are part of the field measurement approach and must measure your trees.

The field measurement approach is the first time the level of carbon which your forest is sequestering is physically measured. Until now, if you have been claiming carbon credits on your forest, the levels claimed have been based on national tables that probably under-estimate your carbon stocks. If you have not claimed anything, you still need to submit a return.

What is involved in the field measurement approach?

In its simplest form, the process of submitting a return is to request sample plot locations from MAF. These will be 30 or more GPS coordinates which will be the centre of the plot sites. Sample plots will be in a radius around these coordinates, each big enough to encompass at least 20 trees per plot. The more dense the forest is, the smaller the plot size.

The diameter of these trees will be measured, and the height of at least five trees also measured, including the height of the biggest diameter tree, smallest diameter tree and any trees with broken tops. This data is submitted to MAF who will then produce carbon tables specific to your forest. They will be the basis for any carbon credit allocation in place of the generic tables that have been used to date.

Within this process there are several other factors to consider, such as whether to collect information for shrubs and small trees, and whether to include several species of trees or just one species. All these decisions will affect how many carbon credits are allocated to your forest. Getting this wrong could lead to being allocated less credits than you deserve, or claiming more than you deserve leading to a liability later in the forest’s cycle.

Measuring shrubs is optional. In fast-growing exotic forests the carbon sequestered by shrubs will be small. Any carbon gained while the shrubs are growing will be lost as many of the trees out-compete the shrubs and die. In regenerating native forests, slow growing or widely spaced exotic forests, the shrub component may be significant.

The decision to collect information on small trees is looked at in the same way − a small tree is one which is less than 25 mm diameter. If they are likely to be a major part of the forest in the future, or are very densely populated, it might be worthwhile including them.

Should you collect information on all tree species?

You can nominate one or a few species to collect information for. Having a nominated species list is a way of reducing sampling costs while having little effect on net carbon benefit.

For example, the owner of a managed exotic forest may choose to nominate only the exotic merchantable timber species. In this case, information would not be collected for any regenerating or unwanted species which would be thinned out or suppressed.

In contrast, an owner of an exotic forest which has numerous permanent gaps with regenerating kanuka may choose to include kanuka as well as the exotic species on their nominated species list. In this case information must always be collected for the kanuka. A nominated species list will usually be less suitable for regenerating indigenous forest due to the species diversity, and uncertainty as to which species will dominate along with the different stages of forest growth.

You can choose to assign your forest a designated class as either exotic or indigenous. The main advantage is that if you assign your forest as indigenous you only need to measure half the number of sample plots. If you do not assign forest class, the decisions you make regarding shrubs and small trees will be applied to the whole forest. If your forest is varied it is advantageous to assign class so you can differentiate between the two. If you have an exclusively exotic forest of one species there may be no advantage in assigning class.

What help is out there?

MAF recommends using a professional forestry consultant or forest inventory provider. There is a list of these on the NZ Institute of Forestry website. The options and decisions that need to be made when submitting your return can have a big effect on the number of units you can claim. If you under- estimate you forgo income, if you over-estimate or get it wrong you may be liable for large fines.

Compared to the financial consequences of getting it wrong, and the time associated with trawling through 88 pages of a MAF document to get your head around the options, getting a professional to undertake the site plotting might be relatively cheap. An independent person we spoke to canvassed prices ranging from $250 to $500 a plot for exotic forests, and between $400 and $800 a plot for native forests.

At a minimum of 30 plots for MAF, this along with associated work required to get the data into a MAF friendly format, will probably equate to at least $9,000 to $15,000 for exotic forests. Assuming a minimum of 15 sites for native forests this will be at least $6,000 to $12,000.

The price will vary based on the accessibility to the site, navigation around the site and the size of the site. A lot of the cost in this measuring should be a one-off in setting up and marking the plot sites. If this is done well and sites marked permanently, then in five years’ time when you have to do it again, the plots will be easily identified. There will be less work involved in measuring the plots and therefore should be cheaper.

With a low carbon value the cost to have your site professionally measured may seem high. However it has to be done and it needs to be done properly. There is a big cost to getting these measurements wrong. Think carefully and do the research if you choose to go it alone.

Stuart Orme ofWoodnet is a Registered Forestry Consultant based in Masterton


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