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Select Committee fails to fix ETS Amendment Bill

Stuart Orme, New Zealand Tree Grower November 2012.

The Finance and Expenditure Select Committee released its report on the Climate Change Response Amendment Bill in mid-October. Disappointingly, it remained mainly unchanged from its first reading.

The comments of the Minister in his press release stated that the government was to clarify the use of international units in the Emissions Trading Scheme. However, I see little that will do anything to reduce the cost to the average New Zealander, or allow credit producers to benefit from the average being charged by some businesses in New Zealand.

The Select Committee had the opportunity to do something which would positively affect long term land use at no additional cost. Despite the multiple provision of good sound information, the Committee appears to have ignored it and are rolling out what seems to have become established rhetoric over the last six months.

Worthless credits

Many of my clients have pre-1990 forest land which has devalued, due to the Climate Change Response Act, at $20 a unit. They have been compensated at less than three dollars a unit.

Around 60 per cent of post-1989 land is now registered in the ETS. These landowners have to pay for carbon units at the rate of $20 to $25 for petrol or electricity, yet their credits are almost worthless. Sound decisions made by businesses, on government department advice and expectation, have now incurred significant costs. I struggle to see much out of this review which acknowledges these land owners with anything but disdain.

I appreciate that it might be hard for organisations that cannot see past the next opinion poll to make long term decisions for our nation’s benefit. However, I had expected the Committee to respond to the quality information provided to them by submitters.

Brief summary of the main points

The $25 fixed price option and the one-for-two surrender obligation will be retained until at least 2015. This is when the government has stated it intends to review the continuation of these transitional measures.

The introduction of surrender obligations for biological emissions from agriculture is delayed indefinitely. Offsetting will be introduced as an option for pre-1990 forest landowners. There will be no restriction placed on international units, nor will a minimum surrender requirement be introduced. However, the Committee noted that there is already a power to make regulations which impose qualitative or quantitative restrictions.

The power to allow auctioning within an overall cap on the amount of NZUs will be introduced. There are also many technical amendments, for example the time allocated to submit post-1989 emission returns has been extended from three months to six months

The next stage

I met a forest owner of 40 hectares recently who had budgeted on spending $100,000 of carbon revenues at $20 a unit on forest silviculture. These carbon revenues are units that would not have needed to be paid back as they were sequestered in the first ten years of the forests life. However, with the recent price drop, the owner would now need to find around $84,000 to do that work. The work may now not happen, reflecting both lost wages and lost future value in that forest. This is now a common story, although not for the long term if other party politicians are to be believed.

The Ministry for Primary Industries recently pointed out, at a conference I attended, that forestry is a long term game and that the price of credits will probably come back to where they were. It is unfortunate that this Ministry, whose associate minsters appear to have been very quiet during the ETS review, were not long term thinkers.

Within a decade, much of the post-1989 forest which currently provides New Zealand with its supposed 23 million carbon credit surplus, will be felled. The country will be plunged into a major carbon deficit unless we start planting a lot more trees now.

In time there will be an election and perhaps a change of government which may see ETS policies which reverse the carbon price spiral. The forest owner above may yet get value from the carbon. However, at the moment they are unlikely to consider planting, or allowing more land to revert to native trees, knowing that their investment will be at the mercy of future political opinion polls or swinging votes.

Stuart Orme ofWoodnet is a registered forestry consultant based in Masterton.

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