Learn more about the accounting methods in the NZ Emissions Trading Scheme and make the best decision for your land.
Accounting isn’t the most exciting topic for most people, but when looking into entering your forest into the Emissions Trading Scheme (NZ ETS) for carbon credits it is an important consideration. Knowing which Carbon Accounting Method you want your forest registered under can help you understand how much you could earn, and your obligations and costs prior to entering the NZ ETS.
This post will introduce you to the different accounting methods available to you under the NZ ETS, and provide a brief overview of obligations.
We’ll talk about:
Carbon accounting methods
Every forest entered into the NZ ETS is registered using carbon accounting models, which inform how your carbon credits (NZUs) are calculated.
To keep things simple, we’ll remind you how carbon credits work in the NZ ETS. When trees grow they take carbon from the air and store it in their wood, effectively removing that carbon from the atmosphere. By registering your forest in the NZ ETS, you can earn credits for the carbon stored in your trees. The carbon accounting model helps you figure out how many credits you earn, by calculating how much carbon your forest has removed, which affects your income.
As of 2023, there are only two accounting models available to register your forest under in the NZ ETS:
Starting in 2023, forests in the NZ ETS can no longer use the original carbon accounting method (Stock Change). If your forest was already registered before 2023, you can keep using the Stock Change method. If your forest was registered after 2019, and you believe stock change is not the right method for your forest, you can choose to switch to a different accounting system.
NOTE: it is your responsibility to understand the obligations for the accounting method your forest is registered under and ensure that if you change you fulfil the requirements of the new accounting method.
Averaging Accounting
With Averaging, land owners can earn credits for the carbon stored in their trees, but only up to a certain age. This model was introduced by the New Zealand government to make it easier for production forests to earn carbon credits. Doing what it says on the tin, in this accounting method the forest owner gets an average of the carbon stored in their trees based on multiple rotations of their forest. As long as they keep replanting and growing their trees, they can keep harvesting and without the need to surrender credits.
Averaging can be used for both exotic and indigenous forests. For indigenous forests, Averaging gives the freedom to decide if they want to make their forest permanent at a later date.
Here’s what a typical production forest may earn under a production forest:
The table below shows the average ages used for tree species in the NZ ETS:
Douglas fir | 26 years |
Indigenous forest | 23 years |
Exotic softwoods | 22 years |
Radiata pine | 16 years |
Exotic hardwoods | 12 years |
So what does this actually mean? These are currently the designated ages that your forest will earn credits up to, as you can see indigenous forests earn credits for longer than Radiata pine forests. You would only earn credits on first rotation production forestry under averaging and you are obligated to replant if the forest is cut down.
Obligations
Your obligations under averaging are similar to those under permanent with the difference that:
You can harvest as long as you replant to the same forest definition (it doesn't necessarily have to be to the same density or the same species).
If the forest is cleared permanently you must pay back the units and deregister your forest from the ETS.
To learn more about your obligations check out our post here.
Pros of Averaging
You can harvest the forest (if you replant), meaning you can earn income from both forestry and carbon credits
As long as you replant, you don’t have to pay back the NZUs awarded for the forest if you cut it down
This system encourages people to plant new forests instead of just earning money from already established ones.
If you change your mind and don't want to harvest, you can switch from Averaging to permanent.
Cons of Averaging
Under Averaging, only first rotation forests that haven't reached the average age can earn credits
Forests in the second or third rotation won't earn carbon credits. There’s minimal incentive to register your forest in averaging if this is the case.
If you switch to Permanent accounting for your mature forest which is past the average age, you can still earn carbon credits in the future, but you won't receive any credits for the time before the switch.
It can be expensive to register and make adjustments to the forest entered (e.g. adding or removing areas) - you can read more on the 2023 fee changes in this post
Permanent Accounting
Permanent means permanent. Your forest will be protected, earning carbon credits as long as it keeps growing and removing carbon.
Under the permanent category, you'll receive carbon credits as the carbon stock of your forest increases until it reaches a stable level (as determined by ETS policies). You are not allowed to harvest permanent forest, and you are obligated to keep it standing for a minimum of fifty years.
The chart below shows how you might earn credits under permanent accounting:
While you continue to earn credits, you’re also obligated to make sure it keeps growing.
Obligations
Your obligations under the permanent category include:
Your forest must remain for at least 50 years, continuing to grow and store carbon.
Your forest must be healthy enough to grow - this may require pest control and fencing to exclude stock from the area.
You cannot harvest your forest - you make a commitment to keep the forest on that land permanently.
To learn more about your obligations check out our post.
Pros of Permanent Accounting
Clear-cut, no room for confusion. Permanent forests are there for good.
Wider range of forests are eligible. As long as the ETS criteria are met it can be entered into this category.
Long-term carbon sequestration and the preservation of forests are incentivised.
It's free to register and add areas of permanent forest into the NZ ETS with the 2023 pricing update (read more about this here)
Cons of Permanent Accounting
The land is locked-up, offering less flexibility for current and future landholders.
Responsibility for consistent forest maintenance ensuring forest is compliant with ETS regulations - you are penalised for forest loss if re-establishment doesn’t occur.
Conflicting views on permanent exotic forests, and their benefit to biodiversity and adverse events.
Let’s summarise
Averaging allows harvesting but restricts how long you will be able to earn carbon credits for. There is more flexibility under this method, and you can switch from averaging to permanent if you decide this is a better option for your forest.
Permanent allows you to earn credits as long as the forest is sequestering carbon (based on ETS criteria), but it cannot be harvested. Your forest is required to remain for a minimum of 50 years.
Your obligations are similar for both categories and you can learn more about them in this post.
How to register your forest
Apply for your free land assessment.
Decide on the best route for your land.
Our team does the rest.
Apply for a land assessment today to see what your forest is worth, for free.