The government is reviewing the Emissions Trading Scheme [ETS] and has floated four options for reforming the system.
The review of the ETS comes at a time when Wairarapa locals have been raising concerns about what could be a large-scale conversion of local farms to carbon forestry.
The ETS is a government-run market from which polluting businesses buy credits – often from ETS-registered forestry – to emit greenhouse gasses. It aims to disincentivise high-emitting activities by making them cost more.
In December 2022, Masterton District Councillor David Holmes said up to 23 more farms could become permanent carbon forests.
Now he says the current number of carbon forests in the region is unknown, but he believes that the demand for hill country farms has “eased off” while investors have been uncertain of government rules and regulations.
Forestry returns are “very poor at the moment”, Holmes added.
The most recent local land sale listed by the OIO was in March to Ingka Investments Forest Assets NZ Limited and Ingka Investments Management NZ Limited – both owned by Ingka Investments BV, the investment arm of Ingka Group, which is the largest franchisee of IKEA stores in the world.
The Dutch company purchased 379.7 hectares of existing forestry in Tinui for $2.8 million.
The current rules for overseas investment in forestry mean that offshore investors cannot purchase land for the explicit purpose of carbon forestry.
Climate Change Minister James Shaw and Forestry Minister Peeni Henare launched the consultation on changes to the ETS on Monday.
Options include making changes to the existing ETS, with actions like restricting the number of units available; allowing the government or foreigners to buy credits; and creating two prices – one for reducing emissions and one for removals like tree planting.
The biggest change, and the final option, would be establishing a new ETS market for “removals” from the likes of tree planting – the current ETS would focus on reductions.
Shaw said the ETS has been New Zealand’s main tool for tackling climate change for more than a decade, responsible for about a third of the emissions reductions expected to be needed to meet targets.
“Although, for most of that time, it simply was not allowed to do that job properly,” Shaw said, noting that the problem with ETS is that it allows unlimited forestry as an offset to companies’ emissions, which could lead to a drop in the price of credits – affecting forestry owners and potentially making the scheme unworkable.
“The Climate Change Commission has become increasingly alarmed that it will stop working sometime in the early to mid-2030s under the current settings,” Shaw said.
“In our view, new forests cannot be at the expense of gross emissions reductions. It is not an either-or situation – we need both – and this review will help us get there.”
Shaw added that forestry is not a permanent solution to climate change: “We need to make sure we’re reducing the amount of pollution we produce in the first place.”
Shaw said he is not taking a position on what of the four options was best.
Not everyone has greeted the proposed changes with enthusiasm – Climate Forestry Association chief executive Andrew Cushen, for example, has said it will force a wide range of companies, from power generators to food processors, to pay higher costs for their emissions.
“This will see a massive increase in household costs for everything from electricity and petrol to food.”
