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  • CarbonCrop Team

ETS, WTF?! Getting to grips with Emissions Trading Scheme uncertainty

CarbonCrop CTO & Co-founder, Nick Butcher, joins CarbonCrop's Carbon Forestry Specialist, Rowan Sprague, to help you find the best path forward for your forest in the Emissions Trading Scheme (ETS) with uncertainty.

There's been a lot of change with the ETS in the last 6 months, and we know there’s even more change coming up later this year. It can feel overwhelming, but that’s why we created our ETS, WTF?! Series. We’re here to help you get to grips with these changes, and help you in your decisions around the best route forward for your land.

Realistically what we’re discussing is only a subset of the changes, and we recommend keeping up to date with the news. An easy way to do this is by signing up to our quarterly CarbonCopy newsletter and by registering for our monthly CarbonCurious webinars.

We're in turbulent times.

There’s three key aspects to consider when thinking about the uncertainty surrounding the ETS currently:

1. Timeframes

You may have seen discussion around long registration delays. There's a very long timeframe for registration in the ETS, for our customers this has been an average 5.5 months waiting for their registration to be processed.

We have a few customers who we submitted applications for to register in the ETS in May / June last year, and they still haven't been assessed by MPI yet. We've heard from MPI that they have not yet started processing applications this year (as at May 2023), and they likely won't start until June or July 2023. So, there's another delay in registration and we're not really sure how long it will take for MPI to process applications.

2. Carbon Price & Auction Failure

You also may have seen the changing price of carbon or NZUs. The price has been falling since the start of the year. Last year it was, the carbon price peaked around $88 per NZU and now it's around $55 (may 2023). You may have seen as well that in March and June this year, the ETS auctions, the government auction failed or at least the bids failed to meet the reserve price.

3. Negativity around forestry and the ETS

In general forestry and/or the ETS coming up in the news quite a lot. Forestry in relation to the cyclone or the ministerial inquiry into forestry and land use, but also generally the ETS and many of the changes.

Some of the triggers

To highlight how much has been happening and how that's all flowed through, it’s important to share key announcements and stats. There's really two main things that are affected.

  • Future policy indications throughput like capacity i.e. how long does it take to get your forest registered?

  • The price of the units that you're going to get once you get your forest registered is what's happening to the market. You go through this process often for a reason. The reason is to create a way to have a financial incentive to restore your forest, and that financial incentive is sensitive to the NZU price. If it goes up, that's great. Incentives go up. If it falls, it's very unpredictable and it can create uncertainty.

Pre October 2022

Permanent category exotics, and their ability to be registered in the permanent category of the ETS, got a last minute reprieve. The intention was that they would be excluded and that was revised quite late in the game, meaning that exotics can still be registered as permanent forest in the ETS.

There's a lot of indications that it probably won't remain the case. We don't have any special insight here. We're just drawing our own conclusions from discussion that's going around the place. But if you read the latest advice from the Climate Change Commission and the forestry slash inquiry, it's likely on borrowed time.

October 2022

In October, the agricultural pricing proposal was announced. This is particularly relevant for all sorts of categories of carbon removals, which in some cases aren't currently registered in the ETS and this especially includes pre-1990 regenerated native forest. There are some very positive indications there that those forests could be fully recognised in the ETS moving forward, and at least recognised within a He Waka Eke Noa scheme in the short term.

December 2022

The Climate Change Commission provided guidance on what the price settings should be for the ETS. Shortly after that, the price of the NZUs dropped significantly, and it's been in continued decline since. Correlation does not necessarily imply causation, but the timing was exact, and it's pretty safe to assume that this is because the government did not accept the Climate Change Commission’s, or the climate minister's, advice on how to set these price settings and the price fell.

Also around this time, MPI we're in the process of registering almost 150,000 hectares of new ETS registrations. That's 2022 alone, that’s approximately a 60% increase in the total area, registered in the ETS. At that stage they had at least a six month backlog, and it's now up to closer to a year in effect.

January 2023

We had a number of changes to the categories. You can no longer register a forest under the Stock Change methodology within the ETS, and the new permanent category has come into effect. This changes things for people and this is already a done deal. There is now limited opportunity for the registration of secondary rotation production forest in the ETS. With the permanent category you're a lot more tied in and this can complicate the decision to proceed.

Another important change was MPI launched a new portal, Tupu Ake, which everybody's managing their registration through. This is part of why it's still not possible to register new forest in the ETS yet, that is being built out and still has limitations and they're working on it.

March, 2023 The Ministry for the Environment (MfE) announced a review of the ETS and the feature of that review was the role of forests. It’s not clear what the outcome will be, but there are implications of having forests treated as they are within the ETS, and that's leading to some dynamics within the market. At the very least, we can say there's concern about any conclusions on the changes.

The auction did not clear in March. This isn’t something to view as a failure for the ETS, forests, the climate, or even for the climate response fund because there are actually too many units in the ETS available at the moment. It helps us meet our climate targets.

Finally, another bomb shell for March, MPI proposed a bunch of new fees that would result in a backtrack on the free, permanent forests registration and ongoing reporting. Especially concerning was an ongoing annual fee proposal for locked in land owners. Anybody who registers on the scheme and chooses to stay in the scheme, they'll have to pay. What was proposed was on the order of $30 per hectare per year. Despite not really having an alternative, and this is concerning both because of the absolute figure, especially for Native Forest owners is quite high.

“The precedent it sets is you're stuck. You can't practically leave. A new arbitrary fee can suddenly be imposed on you, which can significantly impact your business case. That's a concern for us. It shakes confidence in the scheme and it will overall reduce people's response to the incentives.” - Nick Butcher, CarbonCrop CTO & Co-Founder

May 2023

We've got a second emissions reduction plan from the Climate Change Commission. It proposes some dramatic changes in relation to forestry, at least as options, including what amounts to a separate ETS or different earning rules or variations on that theme.

There was a ministerial inquiry into land use released in, in follow up to all of the huge destruction that we saw in relation to Cyclone Gabrielle which, among other things, advocated that pre-1990 regenerating native forests should be recognised within the ETS to help incentivise this restorative land use.

There was an Ag pricing proposal back in October last year, which you can read about here. Decisions were supposed to be taken on this early in 2023. It could be that decisions have been taken and haven't been made public, but we're still waiting to see what the conclusion is, and this has impacts for landholders.

June 2023

Following the trend of the first, the ETS auction which happened on the 14th June ‘failed to clear’, which means there were not enough bids above the confidential reserve price. This is a great result for forest owners and the climate.

What’s coming up?

A review of the ETS, which we understand is going be released sometime around midyear, the government response to the climate change commission's advice on the ETS price settings.

We expect a decision around exotic forest in the permanent category, though there's nothing concrete there yet. It may just, the status quo is that it's there, but it's clearly been signalled for review.

If you want to be eligible for credits within 2024, so sometime within the filing window between January and June of 2024, you actually want to be able to receive carbon and sell it and get a source of money to help restore your forest. Really, you need to be looking at getting your registration prepared now, cause the backlog is currently close to a year it could be that that gets improved. But if, you wait until December. My guess would be that you won't get registered before June the following year, which means that you won't get any money that year.

Finally we're waiting for an agricultural pricing review decision.

“We've had a lot of change behind us. It's not over yet. There's still a lot ahead of us.” - Nick Butcher, CarbonCrop CTO & Co-Founder

If I’m a landowner what should I do?

In short, we don't know what’s going to happen, as some of this stuff is unpredictable. It's all happening within government general policy guidelines.

The good news is there's some working principles that we've been recommending people adopt, to look at the past and learn from what happened there and do things that maximise your options for the future. Unfortunately, a lot of the people who've lost out historically, they've lost out because they acted late.

The options remaining to them were very limited and generally not the most attractive ones. So maximise your options. Learn from the past and once you're ready, act, don't wait.

How can I get in the best position?

It's important to look at the past and also you probably don't want to just 'wait and see' because there's all these changes going on. You wan to get ready, and maximise your options.

Putting yourself in a good position requires you to have a good understanding of what your options actually are, otherwise you don't even know what position you might like to be in. Getting started doesn't mean getting stuck.

You can get started with this process without locking yourself into a particular path. With CarbonCrop, you can apply for a free land assessment to get to grips with what you've got and what it might be worth. The whole reason that we're doing this is that we realise that the decision here is super personal for a lot of different people.

“The last thing that we want to do is introduce yet another economic barrier to you restoring your native forest.” - Nick Butcher, CarbonCrop CTO & Co-Founder

Get to the point that you know what your options are for your land based on what you have and what you could have.

If you sign on with CarbonCrop, we'll take you right through to the point of having an application completed and ready to submit to MPI, and then if you want to pause, you can. Even if you proceed to register, it’s likely that you’ll have to wait six to 12 months, it doesn’t happen the next day.

Breaking down your options:

If you know you want to register

your exotic forest

Apply now.

If you think you want to register your native forest

Apply now, get your registration prepared so it's ready when you want to press go.

If you are unsure about registering your exotic forest

Apply now. If ETS policies change you can consider cancelling your application.

If you are unsure about registering your native forest and want to watch developments

Apply now. Get your registration ready. Make a decision when it suits you.

Don't get stuck. Get started. Get a free Land Assessment today to find out what you’ve got, and what it’s worth.

How CarbonCrop Works

We offer no upfront fees, we work with you through a free land assessment all the way through to register in your forest, and then helping you earn carbon credits, selling carbon credits. Once you’re all registered we help you look after ongoing compliance and reporting.

We know forests. We’ve assessed over 1.9 million hectares, or about 7% of the land area of New Zealand. We have over 300 landholders who have signed up and their forests have removed over 350,000 tons of carbon. That represents over 20 million of carbon credits earned. We’re native forest specialists with over 80% of the forests that we register are native forests.

So if you want to know what you’ve got and what it’s worth, get your free land assessment.

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