ETS Forestry Package Consultation: forestry accounting Public - PowerPoint PPT Presentation

ETS Forestry Package Consultation: forestry accounting Public Information Sessions 31 August - 31 September 2018

ETS forestry accounting proposals Averaging design settings Averaging accounting  Accounting for ‘new’ forests  Average carbon stock and age  Accounting for ‘existing’ forests  Less ongoing reporting Harvested Wood Products Complementary proposals proposals  Remove temporary adverse  Harvested Wood Products event liabilities value in ETS averaging   Extend offsetting planting to post- Harvested Wood products “industry good” fund 1989 forests 2

ETS Review Findings for forestry from the review:  Current ETS accounting barrier to participation  Major issues for participants with post- 89 forests  Averaging accounting opportunity  Harvested Wood Products opportunity

Current ETS Accounting Storage of carbon assumed under different accounting Current carbon accounting 1200 approaches  “ Carbon stock- change” accounting 1000 tCO2/ha (NZU/ha)  Production forest “saw tooth” 800 600 Carbon stock-change issues 400  Accounting for harvest liabilities: 200 Safe carbon o Reduces participation and 0 afforestation incentive 1 3 5 7 9 111315171921232527293133353739414345474951535557596163 Forest Age o Requires ongoing reporting Current Accounting Decay Growth 4

Averaging accounting proposal Rotation Cycle under averaging Storage of carbon assumed under different accounting 1200 approaches  Establishment/Planting 1000  Growth up to the average tCO2/ha (NZU/ha) 800  Long term average 600  Less ongoing reporting 400 200  Harvesting (no liabilities) 0  Deforestation/Deregistration 1 3 5 7 9 111315171921232527293133353739414345474951535557596163 Forest Age Averaging Current Accounting Decay Growth 5

Averaging accounting proposal Units received and surrendered under different Proposal to use averaging in the accounting approaches 1200 ETS: 1000  Participants only receive units on tCO2/ha (NZU/ha) 800 their forests first harvest rotation 600  No units received or surrendered 400 for harvesting/regrowth past forests “long term average” 200 safe carbon  0 Still surrender units for 1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52 55 58 61 64 Forest Age deforestation Averaging Current Accounting 6

Questions? 7

‘ New’ and ‘existing’ forests

Averaging accounting for ‘new’ forests Proposal for all people that register ‘new’ forests in the ETS to use averaging accounting Increased Afforestation Reduced Liability Financial Boost Incentive 9

‘ New’ and ‘Existing’ Forest ‘New’ forest ‘Existing’ forest  Post-89 forests which are not  Newly established forests (i.e. ‘new’ from 1 January 2020)  Post-89 forests established before  Planted on bare land/not “ forest defined date for ‘new’ forests (i.e. land” (post -89 land)  Determined by date of before 1 Jan 2020)  Existing forests are defined by establishment, not date of registration in ETS date of establishment, not date of  To be finalised after consultation registration in ETS 10

Accounting for ‘existing’ forests Proposal to have one of three accounting options for people with existing forests in the ETS:  the current accounting approach  averaging accounting  a one-off, one-way option for current or averaging 11

Accounting for ‘existing’ forests Existing forests use current accounting:  Business continuity  Short term fiscally positive; long term international misalignment  Two classes of post-89 forests (new + existing) Existing forests use averaging accounting:  Lower harvest liabilities  One simple accounting approach  Short term unit supply impact/long term international alignment Existing forests one-off, one-way accounting choice:  Ability to decide best approach  Short term uncertain unit supply impact; long term more internationally aligned  Mix of accounting approaches (two classes of forest) 12

Averaging transition for ‘ e xisting’ forests Examples of transition unit flow 1200 tCO2/ha (NZU/ha) 1000 Transition proposal for participants with 800 “existing” forests: 600 400  Transition at end of a MERP 200 0 Repay “above average” NZUs  1200 1 6 11162126 1 6 11162126 1 6 11162126 1 tCO2/ha (NZU/ha) 1000 Current Accounting 800 Slower NZU repayment proposal: 600 400  Repay NZUs over two MERP 200 0 1 6 11162126 1 6 11162126 1 6 11162126 1 Current Accounting Average 13

Questions? 14

Averaging accounting design proposals

How to calculate the average age? Design details to consider:  Measurement/Tables  Carbon stock as (or at) an age  Forestry types/species  Rotation age bands 16

Changes to the average age Design details to consider:  Average age set in regulations  Preferred - Government changes to regulations not retrospective 17

Ongoing reporting Current ETS reporting requirement:  Detailed reporting each MERP Averaging reporting proposals for participants:  Detailed reporting until forests’ average age  Less detailed reporting after forests’ average age i.e.: o Confirm continued management each MERP o Detailed reporting for significant changes 18

Questions? 19

Complementary Proposals

Temporary adverse event proposal Indicative carbon storage 800 700 Re-start Average No longer require participants using Adverse earning 600 Event averaging to surrender NZUs for 500 t CO2/ha temporary forest carbon reductions: 400  de-risks forestry investment 300  200 better reflects Crown impact under 100 Paris Agreement 0 0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 40 21

Post-89 offset planting proposal ETS participants can offset deforestation emissions liabilities – by planting a carbon equivalent forest:  increases land use flexibility, which could: o increase ETS participation; o assist economic development and environmental planning  Apply pre-1990 offsetting rules (later in presentation) 22

Questions? 23

Harvested Wood Products

Harvested Wood Products (HWP) Current international accounting  Instant oxidisation – assumes all emissions released at harvest What is harvested wood products accounting? Slow decay – recognises wood products release carbon at different  rates: o longer lived-wood products release carbon slowly o Short-lived wood products release carbon quickly 25

HWP proposals 800 700 tCO2/ha (NZU/ha) 600 Provide NZUs to ETS participants through 500 400 averaging: 300 200  Increases afforestation incentive: 100 0 o The average would be higher, which 1 6 11 16 21 26 31 36 41 46 51 56 61 66 71 76 81 86 91 Forest Age increases financial return from carbon Averaging with HWP Averaging without HWP forestry OR Set up a longer- lived HWP “industry good” fund:  Increases incentive to create longer-lived wood products: o Could increase Crown value/climate change mitigation 26