Understanding the Emissions Trading Scheme (ETS) in New Zealand
The New Zealand Emissions Trading Scheme (NZ ETS) is a critical component in the country’s strategy to address climate change and achieve its emissions reduction targets. Central to this scheme are carbon credits that New Zealand businesses and landowners can utilise to offset their emissions. Here’s an in-depth look at how the ETS operates, its significance in climate change mitigation, carbon trading in New Zealand, and its impact on forest owners.
Basics of the NZ ETS
Purpose and Design: The NZ ETS is designed to reduce greenhouse gas emissions and help New Zealand meet its international obligations under climate-change treaties like the Paris Agreement and the Kyoto Protocol. At the heart of this scheme are carbon credits that New Zealand entities can trade, creating incentives to lower emissions across various sectors of the economy.
Operation: The scheme operates by trading New Zealand Units (NZUs), commonly known as carbon credits that New Zealand businesses must acquire. One NZU represents one tonne of carbon dioxide or equivalent greenhouse gases. Emitters in certain sectors must surrender NZUs to the government to cover their emissions, encouraging them to reduce their footprint and engage in carbon trading in New Zealand. The government controls the number of NZUs in circulation, aligning with New Zealand’s emission reduction goals.
Sector Inclusion: All sectors of New Zealand’s economy, excluding agriculture, are required to comply with their NZ ETS surrender obligations. The agriculture sector reports its emissions but does not have surrender obligations.
Importance in Climate Change Mitigation
The NZ ETS is crucial for:
- Reducing Emissions: By pricing carbon emissions and limiting the number of NZUs, the ETS provides a financial incentive for businesses and sectors to lower their emissions.
- Meeting International Commitments: The scheme is integral in helping New Zealand meet its commitments under international climate agreements, thereby contributing to global efforts in combating climate change.
Impact on Forestry Management
Forestry Inclusion: Forestry is a significant sector within the ETS. The scheme encourages the planting of new forests and the replacement of older forests, integrating forestry into New Zealand’s broader climate change response.
Earning and Paying Units: Forest owners can earn NZUs as their forests grow and absorb carbon dioxide. However, when a forest is harvested or deforested, carbon is released, and the owner may need to surrender units. This creates a balance between forestry development and environmental responsibility.
Eligibility and Registration: To register in the ETS, forest land must be eligible, typically categorized as “post-1989 forest land” (established after 31 December 1989). Criteria include forest size, height, and crown cover. The way units are earned or paid depends on the accounting method under which the forest is registered.
Pre-1990 Forest Land: Forests on pre-1990 land are also covered by the ETS rules. While you cannot earn units from these forests, deforesting them or changing their use can incur obligations to pay units.
Economic Implications: Registering eligible forest land in the ETS can be financially beneficial, as the units earned can be kept as an investment or sold. However, forestry owners must be mindful of the responsibilities and potential liabilities, especially when harvesting or removing land from the ETS.
The NZ ETS is a vital tool in New Zealand’s climate change strategy, especially regarding forestry management. It not only incentivizes the reduction of greenhouse gas emissions but also integrates forestry into the nation’s broader environmental goals, balancing economic development with ecological sustainability.
