Hawke’s Bay Regional Council has been quite active in the New Zealand carbon market since it was developed in 2008.
On this page, 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.
We have also included information and video from a carbon forestry field day in July 2018 which covered the basics of the carbon market and how it can fit into in-farm plantings.
A RMPP Action Network group has now been formed to look at practical on-farm options around carbon forestry, carbon neutrality and what future sustainable farming systems could look like.
More information on getting more trees/plants on-farm (and their potential eligibility in the scheme) is available through our local catchment advisers - please contact Madeline Hall.
Quick definition of a carbon market
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.
NZ Carbon Market
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. A more coordinated approach to reducing our emissions and transitioning to a low emissions economy may be provided by the adoption of the Zero Carbon Bill.
The objective of the NZ ETS is to support and encourage global efforts to reduce greenhouse gas emissions by:
- assisting New Zealand to meet its international obligations
- reducing New Zealand’s net emissions below business as usual levels.
Price of Emissions
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 well 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. (Currently, just over half of New Zealand’s greenhouse gas emissions are currently covered by some form of NZ ETS obligations).)
One emissions unit represents one metric tonne of carbon dioxide, or the carbon dioxide equivalent of any other greenhouse gas (such as nitrous oxide). Currently, the only eligible emissions unit in the NZ ETS is the New Zealand Unit (NZU) representing CO2 emissions but not biological emissions like Nitrous Oxide and Methane. The Interim Climate Change Commission is looking into how these two other kinds of greenhouse gas emissions which come from ruminant animal activities can be addressed.
Regulatory and Voluntary markets
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.
Incentive to invest in reducing emissions
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.
Forestry carbon credits
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.
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 can earn money by selling NZUs into the carbon market (the NZ ETS).
Eligibility for the scheme is determined by when the trees/forest were established (before 1990 or not), and how much area the trees cover, how tall they can grow, how large their canopy cover it, and how far apart (on average) they are. Some soil conservation works done previously on farm may be eligible for carbon credits.
Two ways to earn income
There are two main ways that a landowner with forests or trees can earn an income from carbon credits:
- 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.
Keeping up to date
There may be changes to the rules governing how the ETS operates. This includes how carbon credits from forest growth and decay is accumulated and then surrendered to the Crown. You can regularly check for the most up to date information on:
Permanent Forest Sink
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. For this programme, eligible forested land areas must:
- be permanent
- be established after 1 January 1990
- be directly human induced (by planting, seeding, or promotion of natural seed sources)
- not consist of more than 5 hectares of land that was cleared on or after 1 December 2007, which contained naturally occurring indigenous trees.
Full details are on the Te Uru Rakau Forestry NZ (MPI) website.
Hawke’s Bay Regional Council’s Involvement
The Hawke’s Bay Regional Council manages a number of forests for soil conservation and production purposes - more information is here.
As part of our forest estate, HBRC had approximately 110,000 “safe carbon” credits in 2017 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. The development of this programme stalled in 2013 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 2050 and becoming a carbon neutral region by 2040. This will be done using a mix of mechanisms run by HBRC and in partnership with other entities such as central government.
The details of these schemes are still being worked out. Keep an eye out for updates in 2019.
On 17 July 2018, Hawke’s Bay Regional Council partnered with CroweHorwath New Zealand Ltd. To host a field day on Nisbett Taumata Estate, near 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, native plantings, and how these can be used to make the farm ‘carbon neutral’.
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
For the video of the day click here
For the presentations from experts click here
For the Questions and Answers from the day
For calculations on carbon neutrality estimates on-farm click here
The field day and this footage was supported by Crowe Horwath New Zealand Ltd and the Hawke’s Bay Regional Council. All rights reserved.
Following on from the field day we had a meeting on 10 August 2018 for those wanting to dive deeper into the topics from the day. Utilising available industry funding, we have now formed a Red Meat Profit Partnership Action Network group to look at practical on-farm options around carbon forestry, carbon neutrality and what future sustainable farming systems could look like. Contact Sean Bennett of Crowe Horwath for more information.