The legal nature of emission units derived from sinks
Emission units would be generated or created by eligible sink activities e.g. planting and replanting in Kyoto forests.5 Emission units would be created by statute, enabling them to be traded independently from the trees or land from which they were derived.
An emission unit would represent one unit of greenhouse gas emissions sequestered in a Kyoto forest, and would be denominated as one tonne of CO2 equivalent. Each emission unit would exist electronically and have a unique serial number. Emission units would be able to be used to offset an equivalent amount of emissions, and would remain valid during the commitment period until used. Emission units unused at the end of the first period could be held or "banked" for use in subsequent commitment periods.
It may be necessary to make application for emission units voluntary, because the compliance and administrative costs for small forestry blocks could be greater than the benefits provided by emission units (this will be dependent on the level of costs, and the international price for a unit of carbon). However, obligations to hold emission units for harvesting and deforestation would presumably be mandatory.
In order to be tradable, emission units may have certain characteristics. In particular, an emission unit may be proprietary in nature, so that a holder can have ownership over it. The general law relating to commerce and trade could apply, including the Fair Trading Act 1986 and the Commerce Act 1986.
The taxation implications for the allocation and trading of emission units derived from sinks are being examined by the Government.
5 See the glossary section for definitions of forest, afforestation, reforestation and deforestation.
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