Hawke’s Bay Regional Council has been quite active in the New Zealand carbon market since it was developed in 2008. Here we outline what a carbon market is, how it fits into the New Zealand context, how Hawke’s Bay Regional Council is involved, and how landowners can understand the benefits and risks of carbon forestry on their land.
Hawke’s Bay Regional Council has been quite active in the New Zealand carbon market since it was developed in 2008. This page outlines what a carbon market is, how it fits into the New Zealand context, how Hawke’s Bay Regional Council is involved, and how landowners can understand the benefits and risks of carbon forestry on their land.
A carbon market is a kind of trading scheme where the right to emit greenhouse gas emissions is bought and sold. The aim of a carbon market to reduce greenhouse gas emissions by putting a price on them and requiring polluters to face obligations for them. The buying and selling of carbon units (the right to emit carbon) is known as ‘carbon trading’.
Buyers can ‘offset’ their emissions by buying a carbon unit produced by an activity that reduces emissions. Through this offsetting, carbon emissions are reduced at a potentially lower cost. Some buyers are required to participate in carbon markets because of government obligations. Other buyers may participate in a carbon market voluntarily to meet their consumers, rather than government’s, demands.
In New Zealand, we tend to refer to the Emissions Trading Scheme as our carbon market. The New Zealand Emissions Trading Scheme (NZ ETS) is the Government’s principal policy response to climate change.
Its objective is to support and encourage global efforts to reduce greenhouse gas emissions by:
The NZ ETS puts a price on greenhouse gas emissions. The price that these emissions are sold for depends on what value the market gives them. This price is determined by what emitters are willing to pay as we as settings within the NZ ETS itself.
The NZ ETS requires all sectors of New Zealand’s economy to report on their emissions and, with the exception of biological emissions from the agricultural sectors and industries who receive free allocation of units, to purchase and surrender carbon credits to the Government for those emissions.
The NZ ETS is a regulatory carbon market because select NZ emitters are required to participate. There are other regulatory and ‘voluntary’ carbon markets which operate globally. Both regulatory and voluntary markets can have different standards and rules. Some sectors of the global economy, like aviation, do not face obligations in regulatory markets but have been active in creating voluntary markets. Under the Paris Agreement, there is no global regulatory market but countries are working to set up agreements with one another to increase the pool of emission reduction opportunities and efficiencies.
In theory, a price on emissions creates a financial incentive for businesses to invest in technologies and practices that reduce emissions. This is because they would rather invest in new technology than pay for carbon units to cover the emissions from their current activities. This kind of policy scheme can be described as a ‘polluter pays’ model.
Because there is a requirement for emitters to buy units, there is also a market for people who want to sell units.
In New Zealand, eligible foresters can enter their trees into the scheme and earn carbon credits that can then be sold to emitters in the NZ ETS. This is because forests can earn New Zealand emission Units (NZUs) as trees grow and absorb carbon dioxide. The price that NZUs go for in the NZ ETS can fluctuate over time, depending on what the market value is. The market value can be affected by lots of factors such as regulatory certainty, price limits, or the amount of accessible units.
An emissions unit represents one metric tonne of carbon dioxide, or the carbon dioxide equivalent of any other greenhouse gas. This means that both short and long lived greenhouses gases emissions reductions are interchangeable. Currently, the only eligible emissions unit in the NZ ETS is the New Zealand Unit (NZU).
Some foresters in NZ are required to participate in the NZ ETS while others can voluntarily choose to enter the scheme. Eligible foresters who enter voluntary want to earn money by selling NZUs into the carbon market (the NZ ETS).
There are two main ways that a forester can earn an income from doing this. The first way is to ‘play the market.’ This applies the principle of buying (or gaining) units at a low price and selling them at a higher price. Another way is for foresters to sell their ‘lower risk’ or ‘enduring’ carbon units generated from planting new forests. These units are lower risk because unlike other units foresters who voluntarily participate receive, they are not required to surrender them to the Crown at harvest.
These rules governing how carbon credits from forest growth and decay is accumulated and then surrendered to the Crown may change. Be sure to look at the Ministry for the Environment and Te Uru Rakau website for the most up to date information.
In addition to the NZ ETS, the Permanent Forest Sink is another central government scheme that can encourage carbon reductions through the establishment of forests.
The Hawke’s Bay Regional Council manages a number of forests for soil conservation and production purposes. Learn more about this by checking out our forestry webpage.
As part of our forest estate, HBRC has approximately 110,000 “safe carbon” credits in its carbon portfolio that can be sold without the risk of having to buy them back at a higher price to cover the liability of harvesting activities future years. At $24/tonne this equates to a $2.6million intangible asset.
HBRC has previously looked into creating a ‘Trees-on-farm’ programme which sought to develop the agreements, ventures, and incentives HBRC could provide to encourage tree planting that provided multiple economic, and environmental benefits. This programme stalled in 201_? Due to a decline in carbon price within the NZ ETS market.
However, the economics and other benefits of carbon forestry remain relevant to both HBRC land asset management strategy. HBRC has a strategic goal of covering half of our highly erodible lands in tree cover by _2030?__. This will be done using a mix of mechanisms run by HBRC and in partnership with other entities such as other councils or central government.
The details of these schemes are still being worked out. Keep an eye out for updates in 2019.
On July 17th 2018, Hawke’s Bay Regional Council partnered with CroweHorwath New Zealand Ltd. To host a field day on Nisbett Taumata Estate, about 35min outside of Waipukurau. This field day brought experts from across the North Island to discuss carbon accumulation from on-farm plantings and potential emissions arising from stock.
We went over the basics of the carbon market, how it can fit into in-farm plantings, lessons learned from the experts, and used the farm as a case example. Specifically, we looked at poplar plantings, pines, and native plantings.
Simon Petrie - Te Uru Rakau
Margaret Willis - Woodnet
Ollie Belton - Carbon Forestry Services
Victoria Lamb - Beef+LambNZ
Madeline Hall - Hawke’s Bay Regional Council
Steve Treseder - Nisbett Taumata Estate Farm Manager
Following on from the field day we had a great meeting on Friday the 10th of August for those wanting to dive deeper into the topics from the day. Utilising industry funding available, we have now formed a RMPP Action Network group to look at practical on-farm options around carbon forestry, carbon neutrality and what future sustainable farming systems could look like. There are a couple of spots left in the group for any others that would like to look at these options. Contact Sean for more information.
For those interested in getting more trees/plants on-farm (and their potential eligibility in the scheme).
Hawke's Bay Regional Council have local catchment advisers who can help.
The field day and this footage was supported by Crowe Horwath New Zealand Ltd and the Hawke’s Bay Regional Council. All rights reserved.
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