Wednesday, 19 May 2004
Media Statement

Climate change policy rewards permanent reforestation

The owners of permanent forests established since 1990 will be able to get Kyoto Protocol carbon credits under a new government climate change policy.

"The Future Forests programme has been developed to recognise the long-term value of permanent reforestation, says the Convenor of the Ministerial Group on Climate Change, Pete Hodgson.

Forests absorb carbon dioxide, one of the major greenhouse gases contributing to climate change. The Kyoto Protocol recognises this by allocating 'forest sink' credits for forests planted since its benchmark year of 1990.

For at least the first commitment period of the Protocol [2008-2012] the government is retaining the forest sink credits and associated deforestation liabilities that New Zealand receives for commercial plantation forests established since 1990. However the government recognises that permanent reforestation creates forest sinks of enduring value, without the deforestation liability issues and other policy complexities that accompany regular clear-fell harvesting.

"This programme creates an opportunity for landowners, probably of largely marginal land, to gain financially by re-establishing permanent forests," Mr Hodgson said. "Landowners meeting the requirements of the Future Forests programme will be able to get internationally tradeable carbon credits they can bank or sell."

As a further incentive for reforestation, owners will be able to harvest timber from their forests, but only after 35 years and on a continuous canopy basis. Earlier harvesting or clearfelling of the forest would incur penalty payments.

Mr Hodgson said credits would be allocated through contracts between forest land owners and the Crown, registered against land titles and binding all future landowners.

The Future Forests programme will be administered by the Indigenous Forests Unit of the Ministry of Agriculture and Forestry.

Questions and Answers attached.

The Future Forests programme
An initiative to support reforestation carbon sinks

Questions and Answers

The principles behind the Future Forests programme

Forests contain more carbon for a given area than bare land. This extra carbon comes from removing CO2 from the atmosphere, which in turn reduces human-induced climate change. The Kyoto Protocol recognises this and allows emission units (sometimes referred to as ‘sink credits’) to be generated when new (post-1990) forests are established. The emission units generated are equal to the increase in CO2 stored in a given area of forest between 2008 and 2012. This period is referred to as the first commitment period.

By ratifying the Kyoto Protocol an opportunity has opened up for landowners, particularly of largely marginal land, to re-establish permanent forests and gain Kyoto emission units, assuming the Protocol comes into force.

In return, landowners will have to meet all costs associated with generating the emission units and agree to ‘replace’ any units should the carbon stored in the forest be released back into the atmosphere again.

These rights and obligations will be formalised in a contract between landowners and the Crown. These contracts will be registered against land titles and will bind all future landowners.

What land qualifies?

To enter the Future Forests programme, the land must be eligible to earn emission units under [Article 3.3] of the Kyoto Protocol. Essentially, this means the land must not have been covered in forest as at 31 December 1989. “Forest” is defined under the Protocol. However, in areas of mixed scrub and pasture the boundaries may not be clear and eligibility will have to be determined on a case by case basis.

Mature indigenous forest is not covered by the Future Forests programme.

What activities qualify?

To qualify for emission units the new forest must be “direct human induced …… through planting, seeding and/or the human-induced promotion of natural seed sources.” This means some form of active management will be required in establishing the forest. However, this does not mean landowners would necessarily have to plant or even fence the new forest area.

Landowners will need to consider what actions they plan to take to establish the forest and agree this with the administrators of the Future Forests programme. These actions will be set out in a simple management plan, which will help assure the international community that the forests are indeed “direct human induced”.

What would forest owners actually receive?

Owners who meet the requirements will receive tradable, Kyoto Protocol compliant emission units, which they will be free to sell to whomever they wish. The amount of units received will be equal to the increased CO2 stored in the forest for the period between 2008 and 2012 (the first commitment period of the Kyoto Protocol). Units would not be transferred to landowners until after 2012, following verification of the amount of increased CO2 stored in the forest.

The rules of the Protocol have only been negotiated internationally for the first commitment period. However, landowners will have rights to emission units beyond 2012 also, provided the future Protocol rules allow for this.

Can trees be harvested?

Yes, timber will be able to be removed. However, this will only be after 35 years and on a continuous canopy basis.

Earlier harvesting or clearfelling of the forest will not be permitted and will incur penalty payments.

What is continuous canopy management when harvesting?

Continuous canopy management is an approach that aims to ensure the ground is always covered by a canopy of tree species, even after some harvesting has occurred. The volume of wood that could be removed while maintaining a continuous canopy will depend on a number of factors, including the type of forest being grown and specific site conditions. Officials are still working through a simple and transparent formulation to apply this concept to the Future Forests programme.

Why are clear-fell plantation forests not included in the Future Forests programme?

The Government has decided not to devolve sink credits to normal plantation forests, at least for the first commitment period (2008 – 2012), as this would have had wide ranging consequences for the forest industry and other primary industries in New Zealand.

This Future Forests programme is clearly distinguished from such plantations by allowing only limited timber harvest after a minimum period of 35 years.

Limiting timber harvest also limits the carbon liabilities arising to landowners (and the Crown) when trees are harvested. This helps protect the interest of both parties to the contract.

What are the benefits of the Future Forests programme?

The Future Forests programme is principally designed to allow greater economic benefit to be derived from land, especially marginal land. However, it will deliver many other benefits, including improved biodiversity; soil, water and flood protection; better protection of existing natural forest remnants; diversification of forest timber species; development of a sustainable special purpose timber supply; and funds for natural forest restoration.

What are the costs, risks and liabilities?

Landowners will be required to meet all the costs of entering and administering the Future Forests programme. This will include the costs of ongoing forest monitoring and verification (probably once every five years) as well as ‘replacing’ units from any carbon that is lost from the forest where this results in emission liabilities for New Zealand under the Kyoto Protocol.

What is meant by ‘replacing’ units

Every emission unit generated under the Future Forests programme creates an equal contingent liability which would crystallise if and when the carbon stored in the forest is released back into the atmosphere. If this occurs, any such liabilities will have to be covered by the landowner through ‘replacing’ units equal to the amount of carbon lost.

Arrangements for ‘replacing’ units will need to be agreed as part of the Future Forests programme contract. Options include landowners securing their own units and transferring these to the Crown; landowners paying the Crown for the units based on their current market price, or some combination of the two.

How will landowners’ rights and obligations be specified?

Landowners’ rights and obligations will be specified under contract and registered against land titles.

Is land locked into the Future Forests programme forever?

The contracts will be in perpetuity. However, they will be able to be changed with the mutual consent of the Parties.

If the Kyoto Protocol no longer allows emission units to be generated from the forest, then all harvesting restrictions will be removed – though, to the extent that CO2 emission liabilities remain in respect of units already claimed; these liabilities will need to be met by landowners if the CO2 is released into the atmosphere.

If the Kyoto Protocol does not come into force by 2008, the contracts will become void.

Finally, landowners will be allowed to convert the forest into some other land use at any time. The only restrictions on this will be that trees cut down will not be able to be sold (except those removed in accordance with allowable harvest provisions) and landowners must ‘replace’ emission units for any CO2 re-released back into the atmosphere.

What if the forest burns down or blows over?

Landowners will be required to ‘replace’ emission units for any CO2 released back into the atmosphere for whatever reason.

Is insurance required?

The contracts will need to contain a way of assuring that landowners’ obligations (in particular, the obligation to ‘replace’ units if carbon is lost from the forest) will be met in the event of default of payment. This could be by commercial insurance, however, the Future Forests programme will also allow landowners to come together to develop their own group cover as a way of minimising costs.

What if the harvesting limitations are breached?

Landowners who deliberately breach the harvesting restrictions (that is harvesting for sale outside of the allowable limits) will be required to ‘replace’ emission units for the CO2 released, plus make a penalty payment. The penalty payments will be additional units calculated on the basis of an annual compounding rate of 10 percent applied to each year’s units received, commencing from the earliest year in which the units were generated.

Penalties are only payable for deliberate breaches of the restrictions on harvesting for sale and NOT for CO2 emitted for other reasons such as fire, disease or windthrow.

What if the land is sold?

The rights and obligations run with the land and will bind future owners.

When can landowners get started?

The legal framework to register contracts against land titles needs to be provided for in legislation and regulations. The necessary legislative backing will be included in the Climate Change Response Amendment Bill 2004, due for introduction into the House around the middle of this year. No contracts can be signed or registered before this legal framework is established.

Are other consents needed?

This will depend on the requirements specified by local District and Regional Councils.

How is the carbon storage measured?

The New Zealand Climate Change Office is developing a series of forest growth and carbon accumulation models that will be applicable to many forest types across the country. Some landowners may be able to use these models as the basis for measuring carbon accumulation in their forests.

Other landowners may need or choose to measure carbon accumulation directly for their particular forest or with a group of other owners of similar forests. This too will be accommodated, though some guidance from officials administering the Future Forests programme will be required.

What happens after 2012 (the end of the first commitment period)?

Should the Kyoto Protocol no longer allow emission units to be generated from these forests, then the harvesting restrictions will automatically be removed. However, to the extent that CO2 emission liabilities remain in respect of units already claimed; these liabilities will need to be met by landowners if the CO2 is released into the atmosphere at some future point.

What happens if the Kyoto Protocol does not come into force?

If the Kyoto Protocol is not in force by 1 January 2008, the contracts will be terminated.

Are exotic and indigenous species allowed?

Yes, there are no restrictions on eligible species. In some areas local authorities may impose their own restrictions or controls on the establishment of certain species.

Who will run the Future Forests programme?

The Future Forests programme will be administered by the Ministry of Agriculture and Forestry’s Indigenous Forestry Unit, which has offices in Christchurch and Rotorua.

What other activities can take place in the forest?

Apart from limiting the harvesting of timber for sale, no other restrictions will apply to the use of the forest.

Do these forests get rates relief?

Rates relief is usually provided only where land has no commercial value. The Future Forests programme will allow ongoing income to be generated from the land. Should landowners wish to retire land completely they should discuss their options with their local authorities.

Can emission units be forward sold?

This would be a private matter between the landowner and a third party purchaser of the units.

Nothing in the registered contract will legally prevent landowners from forward selling units at any time.

Who might purchase emission units?

A number of markets are developing for the trading of emission units. It is anticipated that companies or countries with obligations under the Kyoto Protocol may be interested in purchasing emissions units. Third party traders and speculators may also wish to purchase the units.

What are emission units worth?

At this stage it is difficult to say what units are worth. Landowners should seek their own advice on this issue.

Are any mechanisms like this already in operation?

Yes. Landcare Research, as part of its EBEX21 Programme, operates a mechanism where landowners can reserve land in return for ‘certified carbon credits’, though at this stage these credits can not be used by countries to meet their obligations under the Kyoto Protocol.

Where can potential investors go for more information?

In the first instance potential investors may wish to contact:

Indigenous Forestry Unit
Ministry of Agriculture and Forestry
PO Box 25022
138 Victoria Street
Christchurch

Tel: 03 379 1943
Fax: 03 379 1942
Email: ifu@maf.govt.nz

The information contained in this publication is general initial information only. The detail of this initiative is subject to further policy development and to consideration by Parliament. This publication is not produced for the purpose of giving professional advice of any nature. Whilst every effort has been made to ensure the information in this document is accurate the Crown, its employees and consultants do not accept any responsibility or liability whatsoever for any error of fact, omission or opinion which may be present, however it may have occurred, nor for the consequences of any decision based on the information in this publication.

Without in any way limiting the above statement, the Crown, its employees and consultants expressly disclaim all and any liability to any person in respect of anything, and the consequences of anything done or omitted to be done in reliance, whether wholly or partly, upon the whole or any part of the contents of this publication.

ENDS

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