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Carbon Farming Newsletter - ETS Review Report Edition

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Issue 12, September 2011



Welcome to the Carbon Farming Group newsletter.  In this issue we will focus completely on the ETS 2011 Review Report released yesterday.


The Carbon Farming Group would like to congratulate the review panel on producing an excellent and thorough report on the existing and future implications of the NZ Emissions Trading Scheme. For a full copy of the report please click here.

2011 ETS Review Report Summary

In summary the ETS Review Panel recommends:


  • The ETS continue with all sectors remaining in the ETS.
  • Time frames for agriculture are the same but with a more gradual introduction.
  • Obligations for the energy and transport sector have a more gradual approach to full accounting.
  • Forestry offsetting should be considered for pre-1990 forests and averaging harvest liabilities for post-1989 forests.


It should be noted that these are only recommendations to the Government and they may or may not be introduced into ETS legislation or policy after the election.

2011 ETS Review Report Recommendations


Listed below are what we think are the relevant recommendations from the report for the CFG audience.



  • Agriculture remains within the ETS on the timetable that is currently legislated, with mandatory reporting beginning in 2012 and surrender obligations beginning in 2015.
  • The point of obligation for agriculture should be at the farmer level rather than the processor level.


  • The free allocation of NZUs for agriculture should be 90 per cent of a baseline initially, phased out at 1.3 per cent per annum on a straightline basis from 2016.
  • Participants in the agriculture sector should have an onefortwo surrender obligation in 2015 and 2016, a 67 per cent obligation in 2017, and an 83 per cent obligation in 2018, and should assume full surrender obligation from 2019.
  • To support farmers within the ETS, the Government and industry should continue to focus on technology transfer for existing mitigation options and the development of future options, and tools to reduce emissions.




  • The Government should make a hardheaded assessment of the Panel’s recommended changes to the domestic ETS forestry rules after 2012, taking account of the international position, the potential fiscal impact/risk and financial impact/benefit to foresters and other stakeholders, with a view to changing the ETS forestry rules along the lines recommended, if necessary unilaterally.
  • The forest ownership associated persons’ test rules should be reviewed to determine whether the associated persons’ percentage thresholds should be increased or varied, to recognise the situation of related family farming operations.
  • Pre1990 forestry offset planting should be introduced, within the rules for pre1990 forestry from 2012.
  • The Government should introduce a clawback provision for the second tranche of the pre1990 forestry allocation, if offset planting is introduced into the ETS and taken up by a participant.
  • There should be no changes to the twohectare pre1990 deforestation threshold.
  • The Government reviews applications for pre1990 allocations and exemptions in November 2011, and considers whether there is a need to extend the current application timeframes.
  • The Government continues to promote understanding within the forestry and landuse sectors about post1989 harvesting liabilities, and options for managing these.
  • The Government should ask the International Accounting Standards Board and the soontobeestablished New Zealand External Reporting Board to look into the treatment of post1989 forest actual and contingent liabilities (of future harvesting) in financial accounts.
  • The ETS rules in relation to post1989 harvested wood products should be modified to reflect an ‘emissions to atmosphere’ approach if agreement on this has been reached internationally.
  • Averaging should be available as an option from 2012 for post1989 forests. The Government should consider whether a ceiling on the maximum size of forest that could participate in this option would be required.
  • The Government gives consideration to, and consults on the establishment of, a selfinsurance pool of units for post1989 forests, along the lines of that proposed in Australia (5 per cent retention). Such a scheme would have no recourse to the Government and should not result in any further liabilities to the Government.
  • The Panel recommends that owners of less than 100 hectares of forest have the option, at their cost, of undertaking actual measurement.
  • The Panel recommends that the Government consider whether the 100hectare threshold should be increased.
  • The pre1990 tree weed exemption should be available beyond 2012.
  • The Government should consider the appropriateness and means of introducing a voluntary ETS equivalent for pre1990 indigenous forests.



  • No changes should be made at this stage in relation to the administration of the ETS across Government.
  • The Government should urgently consider whether HFC CERs (offshore projects which are created then mitigated to reduce green house gasses, which results in no real reduction) pose a significant risk and whether a time limit should be imposed on their eligibility into the NZETS.
  • The price cap should be retained after 2012, but should increase by $5 per annum from 2013 to 2017, starting at $30 per NZU in 2013 and reaching $50 per NZU in 2017.
  • The next review of the ETS should consider whether a price cap is needed after 2017.
  • For the liquid fossil fuels, stationary energy and industrial processes sectors, the onefortwo surrender obligation should scale up to a full surrender obligation progressively from 2013 to 2015, increasing at equal intervals per annum, that is to 67 per cent in 2013, 83 per cent in 2014, and 100 per cent in 2015 (rounded to the nearest percentage).
  • The price cap should be available to all the new sectors entering the scheme after 2012, including the agriculture, synthetic greenhouse gases and waste sectors.
  • Participants in the synthetic greenhouse gases and waste sectors should have access to a 67 per cent obligation in 2013 and an 83 per cent obligation in 2014, and should assume full surrender obligation from 2015.
  • An ETS price floor should not be introduced.
  • The Government should examine further the potential inclusion of fossil fuel proxies for biofuels and new material proxies for recycled materials, as eligible emission sources for determining eligibility under the Act.
  • The current phaseout rate of 1.3 per cent per annum of the previous year’s allocation should be revised to an annual reduction of 1.3 percentage points, to clarify the exact phaseout rate and the year in which the free allocation of NZUs will cease.

The above recommendations by the review panel have been well thought out and address most of the major concerns of the agriculture and forestry sectors.

The Carbon Farming Group supports the recommendation from the panel that Government continues to focus efforts on developing technologies to reduce on-farm emissions. We are continuing to support this focus by providing the agricultural community with practical advice on likely obligations and how best to mitigate them via our website www.carbonfarming.org.nz.

If you have any questions about climate change and the rural sector, or have ideas/suggestions that you’d like to share please contact us on 0800 123 733 or info@carbonfarming.org.nz.



Best Regards,


Clayton Wallwork


Carbon Farming Group

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