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Emissions Trading Scheme
Summary of the Changes Made
Courtesy of the Primary Sector Committee of the New Zealand Institute of Chartered Accountants of New Zealand we are pleased to provide you with a summary of the recent changes to the ETS as passed recently by the Goverment.
The stationary energy, industrial processes and liquid fossil fuels sectors will now enter the ETS on 1 July 2010. Monitoring and reporting requirements for these sectors will start on 1 January 2010.
ETS Changes and the Impact On Forestry
ETS for forestry is a reality and there is now an active market in New Zealand for forestry and land owners.There are over 50,000 hectares of post-1989 forestry which have been registered. Post-1989 forests are eligible to earn carbon credits from 1 January 2008. Between 1 January and 31 March each year anyone registered into the ETS will have the opportunity to put in an emission return and be allocated carbon credits for forestry grown on their land. This is optional until 1 January 2013. It is voluntary before this date and we understand the government will claim any unclaimed credits up to this date.
For land owners to be able to make a claim they must be registered with the New Zealand Emission Trading Unit Register and have completed their ETS application with MAF.
Finalising sector obligations will create a market and income stream and generate interest in further forest plantings (there have been farms specifically purchased recently to be planted entirely in forestry). Foresters will have options to sell units internationally or bank them so will not be overly disadvantaged by the fixed-price option on emission units.
Pre-1990 forests (approximately 1.2 million hectares) incur deforestation liabilities for harvesting and not replanting. These are unaffected by the legislative changes except in having access to a compensatory allocation of Carbon credits for loss of land use rights or the ability to apply for an exemption that allows the forests owner to deforest without liability if they own less than 50 Ha. Sale of these compensatory credits will be at market rates and proceeds are non taxable.
Allocations for these forest owners will proceed in 2010 and units will be bankable and able to be sold both domestically and internationally. Last month 14 parcels of credits were sold to a European government via the GreenAir Group channel to market. This was the first collated sale of forest generated credits out of New Zealand and is proof that there is a market for New Zealand generated vegetation credits.
Minor changes in the Act have been made for tree weeds and some technical aspects of emissions reporting.
ETS application process
There are two steps to this processStep 1 – Registration for ETS for forestry is by way of a “New Zealand Emission Unit Registry Account” with the Ministry of Economic Development.
Step 2 – Completing an Emission Trading Scheme application with the Ministry of Agriculture and Forestry (MAF) (Cost $550 incl GST). There is quite a lot of detailed information required.
Visit the MAF website or phone 0800 008383. Alternatively contact a local forestry consultant who is actively involved in this process.
ETS Changes and the Impact on Fishing
The fishing industry benefits from the 50 per cent obligation that will halve the cost impact of the ETS. The increase in allocation support from 50 per cent to 90 per cent during Commitment Period 1 of the Kyoto Protocol will also aid the transition to paying the full price for carbon emissions.Free allocation will be provided to quota owners in the Quota Management System, rather than registered fishing vessel operators. This will ensure the owners of the assets whose value is being impacted will receive compensation. Quota owners will receive free allocation in proportion to the amount of quota weight equivalent that they own.
The Act also specifies the number of emission units that will be allocated for free to the fishing sector – 700,000 – which will provide clarity to those who will receive assistance.
ETS Changes and the Impact on Agriculture
The entry date for agriculture has been deferred until 1 January 2015.A number of factors influenced this decision. Prominent among these were that introducing agriculture to the ETS poses administrative difficulties because of the complexities of measuring, monitoring and reporting emissions and the large number of industry participants.
Further, the technology available for reducing emissions in the agriculture sector is limited and the Government wants to allow sufficient time for agricultural research to show benefits.
The Government remains of a view that agriculture should be part of an ETS, but is being more realistic about how challenging this job will be. It is also concerned about the costs to the agriculture sector.
The sector entry date has been pushed back by two years and the allocation of emission units will be done on an intensity rather than an absolute basis, both of which will reduce the impacts of the ETS on the agriculture sector. Agriculture will face the impact of increased prices for fuel, industrial processes, electricity and energy from 1 July 2010, but these will be reduced with the changes. The cost of emissions for farmers will depend on a range of factors including the size of the farm, the farm type and the intensity of operations.
As in the original legislation, participants may choose to voluntarily report their emissions from 1 January 2011, and must report their emissions from 1 January 2012.