Mechanisms for recognising rights to carbon sequestered by land-based activities in New Zealand
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1. Executive summary
1.1 Addressing climate change offers commercial opportunities for New Zealanders, with the primary sector particularly well placed to take advantage of the opportunities that exist. People undertaking land-based carbon sequestration activities in New Zealand, including those covered by Article 3.4 of the Kyoto Protocol,1 have the opportunity to generate voluntary offsets, which represent the carbon sequestered through those activities.
1.2 The buying and selling of voluntary offsets2 is dependent on the tradability of the carbon represented by those offsets. The seller must be able to demonstrate ownership of the carbon and their ability to transfer it, or the rights to it, to the purchaser.
1.3 Unlike several states in Australia, there is no such thing as a “carbon sequestration right” under New Zealand law that can be bought and sold as a discrete right. Nonetheless, the general law does contain mechanisms that can be used to recognise and define rights to sequestered carbon. Alternatively, new legislation could be passed to provide for a discrete right under New Zealand law.
1.4 This report identifies the following mechanisms that are capable of recognising and defining rights to the benefit of land-based sequestered carbon:
- existing legal instruments (contract, encumbrances, easements, profit a prendres, covenants, caveats, and/or forestry rights);
- a discrete carbon sequestration right created under new legislation; and (c) including Article 3.4 and other carbon sequestration activities in the New Zealand Emissions Trading Scheme (NZ ETS) (but only eligible to earn voluntary units).
1.5 Having assessed the strengths and weaknesses of each mechanism against nine criteria (scope, legal certainty, enduring right, transferability, permanence, severability, simplicity, flexibility and applicability to Maori land), this report concludes that the best nonlegislative mechanism to recognise rights to land-based carbon sequestration in New Zealand is an encumbrance instrument.
1.6 In terms of a legislative solution, including the activities in the NZ ETS with an ability to earn only voluntary units would provide a comprehensive and robust solution, but would be complex and time-consuming to implement. Accordingly, the report concludes that a legislative carbon sequestration right, designed appropriately, would be simpler, more transparent and more flexible than either an encumbrance instrument or including the activities in the NZ ETS.
1.7 The report also considers the implications for each option in paragraph 1.4 if Article 3.4 and other carbon sequestration activities were to generate compliance units under the NZ ETS in the future. While the implications will largely depend on the proposed design of the scheme, including the activities would not fundamentally alter the ability of each mechanism to confer the same legal rights and obligations as prior to the activities entering the scheme. It may, however, impact on whether the mechanisms continue to be used or not.
1 The Article 3.4 activities are defined in para 3.6 below: forest management (on forests established prior to 1990), revegetation, cropland management, and grazing-land management.
2 In 2007, the international voluntary carbon market was worth US$331M, up 240% from 2006. This type of growth has continued into 2008 and is expected to continue to trend upwards: see Ecosystem Marketplace and New Carbon Finance, State of the Voluntary Carbon Markets 2008: Forging a Frontier, 8 May 2008.
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