Angus Kebbell reviews the four options offered to rescue the failing Emissions Trading Scheme

The Government has put forward four options for changes in the Emissions Trading Scheme (ETS). It has acknowledged that significantly more offsetting is happening than is needed, and if there are no changes the ETS will likely collapse due to an oversupply of forestry credits.

It’s good to see concrete options on the table, but we need to consider their implications for farmers. This is a complex area but it is important to find a balance where farmers can register trees in the ETS, but ensure carbon farming doesn’t come at the expense of rural communities and food production.

This is the start of what will likely be a long-term process, so industry will have time to work through some of these issues over the coming months in more detail. It is important to note that even though the Government is looking at options to restrict forestry offsetting, it is also clear it sees offsetting as central to New Zealand’s climate change strategy. Current consultation on this is about managing the scale, pace and type of planting.

So what are the 4 options?

Option 1: Reduce the amount of units the Government ‘auctions’ directly to emitters.

• This option would reduce the supply of units into the market but does not limit the amount of forestry units in the NZ ETS. Emitters can still buy offsets directly from forest owners without needing to go through the Government auction.
• This option would limit the income going to the Government from the sale of units, reducing its ability to support emissions reduction programmes outside of the ETS.

Option 2: Increase the demand for emissions units by allowing international buyers into the market and/or having the Government buy forestry units off the market.

• This option would not restrict forestry offsets in the scheme. Opening New Zealand’s ETS to international players could drive greater levels of forestry offsetting domestically as these international players could simply seek to buy more forestry units.
• However, money from international buyers could be used to support emission reductions work in New Zealand.

Option 3: Establish different prices/values for emissions removals (offsetting) and emissions reduction.

• In this option, emissions reductions would have a higher value than emissions offsetting. This could be achieved in a number of ways, one of which could be by limiting the volume of emissions and emitter can offset (as is the case in California).
• This would create a stronger incentive for emitters to reduce, rather than offset their emissions.

Option 4: Redesign the NZ ETS into two schemes: one for forestry offsets and the other for real emission reductions.

• In this option, there would be separate markets for emissions units as compared to forestry offset units. Emitters wouldn’t be able to use forestry offsets to meet their emissions reduction requirements.
• The price for forestry offsets would likely be determined by the Government which would lead to more control over the pace, scale, and type of planting. For example, there could be a greater price paid for offsets coming from native forests than pine forests.
• This is how the majority of other Emissions Trading Schemes in the world work. This option was favoured by officials in the consultation document overall as the best way to meet the stated objectives.

Recognition of on-farm sequestration

The Government is also seeking feedback on expanding the ETS to recognise a greater range of (mainly) on-farm sequestration such as pre-1990 forests, riparian strips and wetlands. They are also seeking feedback on rewarding landowners for the multiple environmental benefits of this vegetation. This could be done using a biodiversity credits for example.

Many groups including industry leaders Beef + Lamb have been advocating for this recognition. This is good to see and further detail on how this recognition could occur and what conditions would be placed on it will be welcomed. Note that the recognition could occur in the NZ ETS or via another programme such as a government supported voluntary carbon market.

In most other countries, sequestration programmes place much greater emphasis on incentivising and rewarding native vegetation and the integration of trees within farms, over plantation forestry.

The IPCC also more strongly supports the reward and recognition of native vegetation and integration of trees on farms as outlined in one of their recent reports.

It is unclear exactly what the impact would be for farmers based on the information provided and how quickly the Government would be able to expand the ETS. However, it seems there is an appetite to expand the opportunities for farmers to be recognised for the additional carbon stored on their farms. There is positive signalling from the current Government, but the devil will be in the detail, so we watch on with interest.

Listen to the podcast to hear the full interview.

Angus Kebbell is the Producer at Tailwind Media. You can contact him here.