Forestry's temporary adverse event exemption

New ability to offset deforestation liabilities

If the post-1989 forest land has been registered under the NZ ETS as an “averaging accounting” forest, the landowner may choose to establish a forest elsewhere rather than replant the affected forest. The new forest must be equivalent in carbon stock as the original forest, and must be actively established rather than left to regenerate naturally. This new offsetting regime is not available for post-1989 forest land which has been registered under the NZ ETS as a “carbon stock accounting” forest.

No change for pre-1990 forest land

These changes do not affect owners of pre-1990 forests. In general terms, under the CCRA an owner of pre-1990 forest land:

• was awarded a free allocation of NZUs for their pre-1990 forest land; and

• is only liable to surrender NZUs to the Crown if the owner “deforests” the pre1990 forest land.

The loss of trees on pre-1990 forest land caused by temporary adverse events is not in itself “deforestation”, provided that the land is replanted or allowed to regenerate to specified levels within certain required timeframes.

More changes ahead?

The amendments to the NZ ETS introduced by these regulations will likely soften the effects on participants in the NZ ETS who lose trees as a result of climate change – whether due to rising sea levels, erosion, or storms – by giving those participants the ability to re-establish their forests without facing potentially significant liabilities to return NZUs under the NZ ETS and allow for more flexible land use.

If New Zealand continues to suffer more severe and/or regular adverse events, there also remains a risk of significant impact on foresters despite these changes. Affected carbon foresters will have to either:

• pause their accounting and NZU issuance until their forests have recovered – which may take longer with the adverse events being more severe and/or regular. If that occurs, there may still be a need for authorities to consider extending the prescribed timeframe and period of suspension under the new exemption / offsetting regime; or

• develop new forests elsewhere within New Zealand. If there are fewer suitable alternative areas, greater competition for those areas, and therefore higher prices to acquire those areas, will inevitably result. This may incentivise yet more farm to forestry conversions - which itself may require further adjustments to policy settings in order to ensure the right level of afforestation for New Zealand.