Forestry group slams ETS reform as ‘vandalism’

The carbon forestry industry takes a dim view of the Government's proposed changes to the Emissions Trading Scheme.

The newly-formed Climate Forestry Association says a proposed revamp of the Emissions Trading scheme (ETS) is already putting tree planting intentions on hold due to the regulatory uncertainty surrounding it.

The association has the country’s biggest carbon forestry planter, NZ Carbon Farming – which has 77 million trees under management – as one of its 15 members.

It also represents Māori carbon farming interests and has Te Kapunga Dewes - chair of Ngā Pou a Tāne - the National Māori Forestry Association – on its board.

Climate Forestry Association chief executive Andrew Cushen said the “wave of potential reform” was “vandalism” to a system that was already working.

He said reform of the system - which allows polluters to purchase carbon credits to offset their emissions - would put at risk the climate change achievements already won.

“What I am hearing is that planting intentions are drying up for the next year,” Cushen told the Herald.

The reforms come at a time when the price of carbon credits - NZ Units (NZUs) - is under sharp downward pressure due to government decisions already made and what may lie in the future. The price recently fell to $38.50 a unit from last November’s high of $88.50.

One NZU represents a tonne of carbon dioxide from industries covered by the NZ ETS. Businesses participating in the scheme must give the Government one NZU for each tonne of emissions they produce.

Westpac chief economist Kelly Eckhold, in an analysis of the four reform options outlined by the Government, said option one aims to reduce the supply of carbon credits available to ETS participants to cover their emissions.

This would increase the price of carbon credits and encourage emitters to reduce emissions, Eckhold said.

Andrew Cushen, chief executive of the Climate Forestry Association.

Option two involves allowing overseas buyers to purchase carbon credits generated from the planting of forests. This would raise the price of carbon and encourage the reduction of emissions at source, he said.

Option three involves reducing incentives to plant trees by restricting the volume of carbon credits that can be generated by forestry or by imposing conditions on how they might be used.

“The likely outcome here is a separation in carbon pricing for forestry and emission reduction activities,” he said.

Option four would create two ETS markets, one for emitters and one for forestry, with the Government acting as the direct participant on the other side of both markets.

“Under this option, the Government could influence both markets by varying both prices and volumes as they would be the key supplier of credits to emitters and buyer of credits from foresters,” Eckhold said.

“This option implies the most comprehensive change to the ETS relative to the other options.

“Westpac Economics’ preliminary view is that it is not clear that any of the options presented in the consultation document are as efficient or desirable as they could be,” Eckhold said.

As for the Climate Forestry Association, none of the options have any attraction, and Cushen thinks options three and four amount to nationalisation of the sector.

“None of them poses as viable a bridge [to decarbonisation] that the ETS does currently,” Cushen told the Herald.

He added that under any of the options, New Zealand would fall well short of its international commitments.

He said the ETS, as it stands, does its job reasonably well.

“Sure, it can be improved, but all the options in this document are too binary, they don’t improve the status quo, and they will cost too much in terms of meeting our climate change commitments.

“If it is broken, I would like to see a more honest case about how it can be improved,” he said.

Eckhold said the Government proposes to adjust the ETS to provide stronger incentives for individuals and businesses to transition away from fossil fuels while retaining some, albeit reduced, role for forestry-related carbon absorption.

Commenting on the fall in the NZU price, Eckhold said the potentially far-reaching consequences of some of the options were undermining market sentiment.

“While options one and two are seen as tinkering at the edges, options three and four imply major changes to the structure of the markets and greater uncertainty for market participants,” he said.

“Significant questions remain for market participants around the NZU-related contractual arrangements they have entered into.

“Westpac’s trading team’s view is that the degree of uncertainty is such that, while the Government is required to make decisions on the next set of ETS auction settings to be in place from 2026-28 by September 30, these decisions are unlikely to have any material effect on NZU prices in general over the balance of this year.”

While uncertainty persists, the NZU price was likely to continue to languish between $35–$55 a tonne, Eckhold said.