Draft Forestry Allocation Plan and the need for pre-1990 foresters to act by mid-2009

The forestry aspects of New Zealand's emissions trading scheme became effective on 1 January 2008 and remain in force. In this article, senior associate Kate Radka provides an outline of the Draft Forestry Allocation Plan (which is currently under consultation) for the allocation of pre-1990 forests and the potential exemptions for such forests under the emissions trading scheme.

Background

As discussed in the article "Labour's ETS still in place but undergoing comprehensive review" in this issue of Commercial Quarterly, the emissions trading scheme (ETS) established under Climate Change Response (Emissions Trading) Amendment Act 2008 (the Act) is still in place despite the perceived "suspension" of the scheme during its review by the Emissions Trading Scheme Review Committee. For foresters the emissions trading scheme's retrospective nature means that they are liable for any deforestation of pre-1990 forest land and (if they opt into the scheme) for any net carbon stock decreases for post-1989 forest land since 1 January 2008.

Draft Forestry Allocation Plan

The "Draft Forestry Allocation Plan" issued by the Minister Responsible for Climate Change Issues, which elaborates on the proposed manner in which allocation will occur for pre-1990 forests, and the potential exemptions for such forests is currently being consulted on. Submissions on the draft Plan were originally due by 28 February 2009 but this date has now been extended to 30 April 2009 to avoid confusion with submissions on the Emissions Trading Scheme Review Committee's review of the ETS.

The Minister of Forestry David Carter has also indicated that the government intends to extend the closing date for when landowners with less that 50 hectares can apply for exemption from the ETS deforestation provisions (subject to the government's consideration of the Emissions Trading Scheme Review Committee's findings which are due to be released in April 2009).

Pre-1990 foresters should be aware of the need to:

• apply by 31 July 2009 (or such other date announced by the government) for a free allocation of New Zealand Units (NZUs) to recognise the loss in value of their land due to the mandatory deforestation liabilities under the emissions trading scheme; or

• if eligible, apply by 30 June 2009 (or such other date announced by the government) to have land permanently exempt from the emissions trading scheme (under the "less than 50 hectare" threshold exemption).

Failure to apply for either an allocation of free NZUs or an exemption from liability would cost foresters significantly. For example:

• an exemption from the ETS of approximately 40 ha of pre-1990 forest land that the owner wishes to deforest, will save the landowner up to $800,000 in ETS deforestation liabilities (assuming a price of carbon of $25 per tonne), save the amount of the value of any free allocation of units that they would otherwise receive; and

• a successful applicant for the allocation of NZUs for their pre-1990 forests would receive:

• 39 NZUs per ha for land bought after October 2002 (so for 500 ha of such land they would receive 19,500 NZUs, worth around $487,500, assuming an average price of $25 per unit);

• Considerably more than 39 NZUs per ha (perhaps around 60 NZUs per ha) for land bought prior to 1 November 2002 (so for 500 ha of such land they would receive potentially 30,000 NZUs, worth around $750,000, again assuming an average price of $25 per unit).

Commentary

In most cases, foresters must choose between an exemption for their land from the ETS or a free allocation of units. In any respect a free allocation and an exemption cannot be applied for in terms of the same area of land. However, in some instances, a forester may be able to apply for an exemption for some of their land holding and a free allocation for other parts.

Given the significant financial benefits available in respect of the free allocation of NZUs for such forests, as well as the potential exemptions available, foresters need to carefully consider their options and ensure that they submit their applications in the form required by the specified deadlines.

If you would like to discuss any aspect of the Draft Forestry Allocation Plan, please contact any of the Bell Gully team listed below. We will keep you updated on further developments.

For further information, please contact:

Simon Watt
Partner

Kate Radka
Senior Associate

Clive Taylor
Partner

Enquiries and information

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