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NZ ETS Review Modelling Reveals No Reason Why Existing Forests Should Not Be Grandfathered

In a recent open letter to Minister Shaw (Scoop,12 July), we pointed out fundamental flaws in the NZ ETS Review as it relates to existing forests.

Our particular concern was that NZUs from existing forests, most of which won't be available to be purchased by emitters on the market, are included in the forestry NZU supply which the Review concludes will lead to oversupply and falling NZU prices.

Since then, Government officials have hastily disclosed the modelling used in the Review and hosted a webinar on less than 48 hours’ notice.

We have studied the Government's Summary of Modelling and market model spreadsheets.

MPI projects that around 80% of existing post-1989 forests will be harvested over the next decade para 5.3 the Elvidge paper).

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If correct, this would leave less than 140,000 hectares of post-1989 forests as of 2033.

Of course, new forests will be established, but like all afforestation since the start of 2023, these will not be stock change accounting forests like those registered in the NZ ETS prior to 2023.

It is these post-1989 stock change accounting forests (and the NZUs they generate) which are the primary focus of the Halt NZU Grab Campaign.

According to the EPA, the stockpile of NZUs from existing post-1989 forests as of 31 December 2021 comprised 75.8 million units.

The Ministry for the Environment expects that 300 million NZUs will be allocated to the then remaining post-1989 forests over the 29-year period between 2022 and 2050 (inclusive), while 209 million NZUs will be surrendered during that period, primarily because of harvest liabilities (page 16, Summary of Modelling).

That represents a net gain of 91 million NZUs, which would take the forestry NZU stockpile from 75.8 million to 166.8 million.

Using the same methodology as that used by the Climate Change Commission in 2022 to analyse the components of the total NZU stockpile in order to determine the “surplus” available to be purchased by emitters, we calculate that around 78% of that 166.8 million stockpile would not be part of the "surplus".

That would leave 22% or around 36.7 million post-1989 forest NZUs which could possibly be available to emitters on the market (i.e. “surplus”) over a 29-year period.

That averages out to around 1.3 million NZUs per annum. As the Summary of Modelling concedes, sales of “surplus” NZUs over time will reflect economic decisions, such as perceptions of future price rises.

Even if the apportionment figure was to be, say 33%, instead of 22%, the “surplus” available on the market to emitters would on average be just 1.9 million NZUs per annum until 2050.

Admittedly, an amount of 1.2 million to 1.9 million NZUs per year is not de minimis, but it is not by itself enough to overwhelm the NZU market and collapse prices and materially impact gross emissions reductions.

Even when this 1.3 to 1.9 million NZU “surplus” is aggregated over 29 years, it's a lot less than the "hot air" NZUs which Government auctions can be expected to inject into the market over just the next decade.

Nor is this “surplus” sufficient to justify the Government reneging on the inducement it gave foresters to make long term commitments based on the continued availability of NZUs.

And the possibility of a couple of million “surplus” NZUs coming to the market on average each year is certainly insufficient to condone forcing existing foresters out of the NZ ETS and into an inferior scheme, where they will receive "removal units" which will only be able to be sold to the Government at prices and at times and on conditions which it dictates.

And it's no reason for the Government not to confirm that existing forests will be grandfathered from the ETS changes contemplated by the Review and thus give certainty back to the NZU market.

And finally, small annual “surplus” NZU sales cannot begin to justify the delay and the cost the Government will suffer, and the damage that will be done to the relationship between the Crown and Māori, and the avalanche of litigation and Treaty of Waitangi claims that will inexorably flow if the Government proceeds with a huge expropriation of private property rights as contemplated by option 4 of the Review.

For further information see our website: www.haltnzugrab.org.nz

Halt NZU Grab

Campaign Co-convenors: H. Bradbury and S. Thomson

Email: halt.nzu.grab@gmail.com

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