Introduction

The Government recently released a discussion document on options for a Plan of Action for Sustainable Land Management and Climate Change. That document discusses a number of policy options for the forestry and agriculture sectors which are designed to:

  • help New Zealand adapt to the changing climate;
  • reduce emissions and create carbon sinks;
  • capitalise on the business opportunities from climate change; and
  • encourage the land management sectors and government to work more closely together.

A copy of that document can be found at www.maf.govt.nz/climatechange or by contacting MAF’s head office.

One of the options raised in the discussion document is to introduce a tradeable permit regime for deforestation (see Deforestation Option 2 – pg 64).

The purpose of this paper is to discuss in more detail how such a tradeable permit regime might be designed and implemented. This more detailed, technical information should help those parties with a particular interest in this option to form a better view about its desirability. A number of additional questions are asked in this document which readers can answer as part of their submission in response to the broader discussion document.

It should be stressed, however, that this paper does not address the full range of technical issues that would need to be resolved before a tradeable permit scheme for deforestation could be introduced. If the government ultimately decides to introduce such a scheme, further consultation will be undertaken on the detail of how it should be designed and operated.

Submissions on the primary discussion document are due by 30 March 2007. Stakeholders with a particular interest in the option of a tradeable permit regime for deforestation are invited to respond to the questions raised in this paper as part of their general submission. Any stakeholder that has filed a response to the main discussion document before becoming aware of this paper is invited to add to, or replace, their original submission.

Overview of tradeable permit option

The discussion document provides only a relatively brief description of a deforestation tradeable permit regime. That description is repeated here for convenience.

Under a tradeable permit approach any party that deforested a sufficiently large area of non-Kyoto (pre-1990) forest would incur a financial liability. The size of that liability would be based on the amount of carbon assessed to have been released. The person deforesting would be able to meet that liability by:

  • relinquishing an appropriate number of general (Kyoto compliant) emission units; and/or
  • relinquishing an appropriate number of NZ deforestation-specific emission permits; and/or
  • making a cash payment (based on the international price of carbon at the time of deforestation).

Deforestation of small areas of land could be exempted from these arrangements; parties could be allowed to deforest up to a threshold level of emissions in each commitment period (assuming there is more than one) without incurring any deforestation liabilities.

The government could carry a portion of the deforestation costs incurred in CP1 by:

  • meeting the cost associated with the deforestation of small areas of land that fall under an agreed threshold; and
  • grandparenting (allocating) – for free or at a subsidised rate – a certain level of deforestation permits to the owners of land under non-Kyoto forests.

Any landowner wishing to deforest a greater area of land than that covered by the deforestation-specific permits allocated to them would be required to cover their additional emissions by: purchasing additional deforestation permits; purchasing additional Kyoto emission units, or making a cash payment. The possibility of allowing emitters to make a cash payment, rather than relinquishing permits or Kyoto units, has been included to reduce the transaction costs faced by small emitters that might not wish to take the steps necessary to buy permits or units themselves. However, there are potential risks in this option for the Crown, as the international price of carbon is likely to fluctuate on a daily basis. Mechanisms for managing this risk would need to be developed.

These arrangements would apply only to the deforestation of non-Kyoto (pre-1990) forests. No liability would be incurred:

  • for any Kyoto forest in respect of which the government has retained forest sink credits;
  • where a non-Kyoto forest was harvested and then re-planted; or
  • where a non-Kyoto forest was left to revert to forest after harvesting.

Content of this paper

This paper has two halves. The first half raises a number of more detailed design questions the government will need to decide on if it chooses to introduce a tradeable permit regime for deforestation. The second half then addresses the issue of permit allocation in more detail.

Contact for Enquiries

Sustainable Land Management and Climate Change
MAF
Pastoral House
25 The Terrace
PO Box 2526, Wellington
Tel: 0800 CLIMATE (254 628)
Contact this person