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A Guide to Forestry in the Emissions Trading Scheme

22 October 2009

3 Pre-1990 Forest Land

Owners of pre-1990 forest land will automatically become Participants in the ETS if they deforest more than 2 hectares of non-exempt forest land in any five year period, starting 1 January 2008. As Participants, they will have to calculate and report their deforestation emissions and surrender emissions units equal to those reported emissions.

It is generally the landowner who assumes a liability for deforesting. This is because, in the vast majority of cases, it is the forest landowner who will make the decision whether or not to deforest. However, there may be some circumstances where the right to change land use has been formally vested in a third party, and the forest landowner does not have control over that decision. In such circumstances, the third party will be the person obliged to register as the ETS Participant.

There are no fees or charges payable for any transaction or reporting relating to pre-1990 forest land.

If pre-1990 forest landowners do not deforest any land covered by the ETS, they will not become a Participant in the ETS. In particular, normal harvesting followed by replanting (or regeneration) does not carry any requirement to join the ETS.

Note that the Act also makes provision for exemptions from deforestation liabilities in some circumstances; and for the allocation of NZUs under a Forestry Allocation Plan.

Deforestation of 2 hectares or less of a person’s total pre-1990 landholding(s) in the five year period from 2008–2012, or in each subsequent five year period, is automatically excluded from the ETS.

This section covers:

• your obligations when deforesting non-exempt pre-1990 forest land, and the processes you must follow;
• exemptions from deforestation liabilities
• entitlements to an allocation of NZUs under a Forestry Allocation Plan.

Participant Obligations

The following section outlines the steps a forest landowner needs to take if they deforest more than 2 hectares of non-exempt pre-1990 forest land.

Step 1: Notify MAF That You Have Become a Participant in the ETS

Pre-1990 forest landowners who deforested in 2008 and/or 2009 must notify MAF of this deforestation on or before 31 January 2010. Forest landowners who deforest after 31 December 2009 are required to notify MAF within 20 working days of commencing deforestation.

The notification form will require information, such as:

• your name;
• your holding account number;
• details of the pre-1990 forest land.

The notification can be made online at http://www.maf.govt.nz/sustainable-forestry/ets/ets-transactions.htm, or by downloading and completing a paper-based notification form available at the same site.

Step 2: Obtain a Holding Account from the NZEUR

A Participant in the ETS must have a holding account from which to surrender emissions units to meet their deforestation liability. A holding account is obtained from the NZEUR (at www.eur.govt.nz).

If you have questions about the holding account application process, please contact 0800 CLIMATE (254 628).

Step 3: Calculate the Emissions Associated with Deforestation

The Regulations contain the Look-Up Tables for determining carbon stock decreases (emissions) from the deforestation of the pre-1990 forest land. ETS Participants are required to use these Look-Up Tables to assess any deforestation emissions liability to be included in an emissions return. There is no provision for calculating carbon stocks in pre-1990 forests using any other method.

Refer to A Guide to Look-Up Tables for Forestry in the Emissions Trading Scheme at http://www.maf.govt.nz/sustainable-forestry/ets/guide/lookup-table-guide.pdf for further information.

Step 4: File an Emissions Return

For deforestation of pre-1990 forest land, the emissions return comprises an assessment of the Participant’s liability to surrender units equal to the calculated CO₂ emissions arising from the deforestation (1 unit for each tonne of emissions of CO₂). The return requires only a single value for forest carbon stocks: those in the year that the forest clearing, associated with the deforestation, occurred.

An emissions return must be filed by, or on behalf of, a person who has undertaken deforestation of pre-1990 forest land since 1 January 2008. Emissions returns relating to deforestation of pre-1990 forest land cannot be filed before 1 January 2010.

Note that:

• For deforestation undertaken in 2008 and/or 2009, a pre-1990 Participant must submit an emissions return after 1 January 2010 and no later than 30 March 2010.
• For deforestation undertaken during 2010, a pre-1990 Participant must submit an emissions return after 1 January 2011 and no later than 30 March 2011.

ETS Participants that are part of a corporate group may form a consolidated group in order to file a single emissions return covering all Participants in that group.

ETS Participants can file an emissions return online at http://www.maf.govt.nz/sustainable-forestry/ets/ets-transactions.htm. The website also provides downloadable forms for making paper-based emissions returns, and instructions for submission of completed forms. An emissions return will require information such as:

• land ownership details of the deforested pre-1990 forest land;
• a shapefile delineating the area of deforested land;
• the emissions resulting from the deforestation during the calendar year(s) covered by the return, and hence the Participant’s liability to surrender units.

Step 5: Surrender Units to Meet Emissions Liabilities

In general, ETS Participants who have submitted an emissions return before 31 March of a particular calendar year are required to surrender units by 30 April of the same year to meet any emissions liability reported in that return. However for deforestation in 2008 and 2009, pre-1990 participants must surrender units no later than 30 April 2011. Units will be surrendered by transfer to a surrender account in the NZEUR.

Step 6: Ceasing to be a Participant

Once a Participant has completed deforesting they must notify MAF as soon as practicable that they have ceased to be a Participant in the ETS. The notification may be submitted online at: http://www.maf.govt.nz/sustainable-forestry/ets/ets-transactions.htm, or by downloading and completing a paper-based application form available at the same site.

If the same forest landowner subsequently decides to deforest another area of pre-1990 forest land, they will have to follow the same notification process again. Even without such notification, the owner of pre-1990 forest land is technically an ETS Participant from the moment they deforest until such time as they cease deforesting.

Pre-1990 Exemptions from the ETS

Exemptions from the ETS are not automatic and must be applied for by the forest landowner (or those with a liability for deforestation). The Act provides for two types of exemption for pre-1990 forest land:

• Less than 50 hectares exemption.
• Deforestation of tree weeds exemption.

When applying for less than 50 hectare exemption, the applicant will need to provide a statutory declaration from each person who owned the land on 1 September 2007 that they owned in total, on that date, less than 50 hectares of pre-1990 forest land.

Where pre-1990 forest land was jointly owned as at 1 September 2007, none of the joint owners (except for a professional trustee) at that time is permitted to own more than 50 hectares of pre-1990 forest land in association with any other person if the exemption is to apply. Similarly, if the land was owned by tenants in common, none of the tenants at that time is permitted to own more than 50 hectares of pre-1990 forest land in association with any other person if the exemption is to apply. Each tenant in common’s interest in the land at that time is to be treated as a divided interest for the purpose of determining their total pre-1990 forest land ownership. These criteria are restricted to legal ownership and not beneficial interests.

Owners of exempt pre-1990 forest land are not eligible for an allocation of New Zealand Units (NZUs) in respect of the exempt land through a Forestry Allocation Plan. Before applying for an exemption, landowners should therefore carefully consider whether or not they wish to forgo any entitlement they may have to an allocation of NZUs.

Exemptions for Forest Land Less than 50 hectares

There are two circumstances that determine eligibility under the “less than 50 hectares” category, depending on whether or not a final Forestry Allocation Plan has been issued.

When a final Forestry Allocation Plan HAS NOT been issued:

• If pre-1990 forest land has been deforested since 1 January 2008 the current landowner(s) may apply for a less than 50 hectare exemption if on 1 September 2007 the deforested land was owned by a person or persons that owned in total less than 50 hectares of pre-1990 forest land (together with any associated persons).
• The pre-1990 forest land must have been deforested to qualify for an exemption in this case.
• Applications for an exemption in this case may be made until such time as a Forestry Allocation Plan is issued.

When a final Forestry Allocation Plan HAS been issued:

• The landowner(s) of pre-1990 forest land as at the date the final Forestry Allocation Plan is issued may apply for an exemption if on 1 September 2007 the forest land was owned by a person or persons that owned in total less than 50 hectares of pre-1990 forest land (together with any associated persons).
• The pre-1990 forest land must not have been deforested to qualify for an exemption in this case, and it is irrelevant whether or not the current land owner(s) intends to deforest it in the future.
• Applications for an exemption in this case cannot be accepted until a final Forestry Allocation Plan has been issued. Applications for an exemption can be accepted from the date the final Forestry Allocation Plan is issued until a closing deadline which will be advised by public notice. The closing deadline will be no later than 1 July 2010.

In some instances , where a Forestry Allocation Plan has been issued, the owner of pre-1990 forest land will be able to apply for an exemption for parts of their land holdings and an allocation for other parts. For example:

• If land was bought on or after 1 September 2007 (and up until the date a final Forestry Allocation Plan is issued) that qualifies for the “less than 50 hectares” exemption; and other forest land is also owned (that may or may not qualify for an exemption) an application for exemption for the qualifying parts of the forest landholdings can be made, in addition to an application to receive an allocation for the remaining parts.
• If land is owned that qualifies for the “less than 50 hectares” exemption, applications can be made for part of it to be exempt and part of it to receive an allocation.

Where land is sold after the date of issue of a final Forestry Allocation Plan, it is possible that the person who has the right to apply for an exemption (or an allocation) will be different from the landowner at the time the actual application is made. In such circumstances, buyers and sellers of land should address how to handle these issues within their sale and purchase agreements.

Exemptions for Deforestation of Tree Weeds

The Government does not wish the ETS to restrict the removal of tree weeds (that is, self-sown exotic forest species that can overtake land). Wilding pines are one class of tree weed of current concern.

Under certain circumstances it will therefore be possible to deforest areas of pre-1990 forest land comprising forest species designated as tree weeds without incurring a deforestation emissions liability. The emissions liability arising from deforestation of tree weeds will be met by the Government up to a certain limit, because the environmental benefit of high-priority weed control outweighs the economic cost of deforestation liabilities to the Crown.

Most control of tree weeds does not constitute deforestation because it is carried out on scattered trees in grassland that do not meet the definition of a forest. Similarly, removal of scattered wilding pines from indigenous forest established before 1 January 1990 would generally not require an exemption for a deforestation liability since, in most cases, the area would not be considered pre-1990 forest land (that is, would not comprise predominantly exotic forest species) and selective removal of trees would not constitute deforestation under the Act.

Definitions of what constitutes a tree weed and how the exemptions are to be applied have not yet been finalised. As soon as this has been finalised, MAF will give public notice of the availability of exemption(s) for tree weeds on pre-1990 forest land.

Criteria for tree weed exemptions may include priorities for exemptions to be given to particular species or locations.

Applying for a “Less than 50 hectares” Exemption

Applications for an exemption in the ‘less than 50 hectares’ category may be submitted online at http://www.maf.govt.nz/sustainable-forestry/ets/ets-transactions.htm, or by downloading and completing a paper-based application form available at that site.

Information required to apply for an exemption includes:

• the name of the person who is applying for the exemption;
• evidence of ownership of the land on the date that the deforestation occurred, or date the final Forestry Allocation Plan was issued (as applicable), in the form of computer freehold registers (titles) from Land Information NZ (LINZ), or other relevant records (such as Māori Land Court records) that pertain to the application;
• the total area of pre-1990 forest land for which the exemption is sought and evidence the land is pre-1990 forest land and has been deforested (as applicable);
• a shapefile that includes all pre-1990 forest land for which the exemption is being applied. MAF provides an online tool for applicants to use to create a shapefile. Alternatively, applicants may upload their own shapefile from existing spatial data, so long as it complies with the format prescribed in the Geospatial Mapping Information Standard available. The online tool, the Standard and A Guide to Mapping Forest Land for the Emissions Trading Scheme are available at: http://www.maf.govt.nz/sustainable-forestry/ets-mapping-guide.pdf;
• a statutory declaration that each person that owned the land on 1 September 2007 (other than a joint tenant who is a professional trustee) owned (with any associated persons) less than 50 hectares of pre-1990 forest land on 1 September 2007.

If MAF is satisfied that:

• the land to which the exemption application relates is pre-1990 forest land;
• the land to which the application relates is eligible to qualify for an exemption ; and
• each of the requirements listed above has been met.

Then:

• the land will be declared exempt;
• the applicant will be notified that the land has been declared exempt;
• a notice will be sent to the Registrar of the Māori Land Court (in whose jurisdiction the land is located), the Registrar-General of Land, or the Registrar of Deeds (as applicable) that the land is exempt land under the Act;
• the relevant Registrar receiving the notice will record it in the appropriate record relating to the exempt land.

Exemptions remain with that land even if it is subsequently sold.

Allocation of NZUs Under the Forestry Allocation Plan

It is proposed that the Government will allocate NZUs to owners of lands covered by pre-1990 forests under a Forestry Allocation Plan. These forest landowners will be free to hold or sell the units. Landowners who receive an allocation of NZUs for a particular area of land will still be able to deforest up to 2 hectares (over their total forest landholdings) in any five year period without liability.

The Draft Forestry Allocation Plan (and Information Document) is available at http://www.maf.govt.nz/sustainable-forestry/ets/allocation.htm. It reflects the allocation requirements set out in the Act and the proposed process for making the allocation. Public consultation and submissions on the Draft Forestry Allocation Plan closed on 30 April 2009. Once a final Forestry Allocation Plan is issued, MAF will publicly advise the application process and timetable.

How Many NZUs will be Allocated in Total?

The Act specifies that a total of 55 million NZUs will be available to be allocated to pre-1990 forest landowners, less the number expected to be required to meet the cost of deforestation of land that has either been declared exempt or falls below the 2 hectares deforestation exclusion from the Act.

The 55 million units will be divided into:

21 million units: allocated to owners of lands covered by pre-1990 forests during the first commitment period (2008 to 2012), and able to be used immediately by any Participant in the ETS to meet emissions obligations, or to be converted into emissions units internationally-tradeable under the Kyoto Protocol and sold offshore.

34 million units: allocated at the same time, but post-dated so that they cannot be used to meet national emissions obligations, until a specified date after 2013. The proposed post-dating mechanism is described in detail in the Draft Forestry Allocation Plan.

How Many Units will be Allocated to Each Applicant?

The number of units provided per hectare will vary depending on the date that the land was purchased, and whether it is Crown forest licence (CFL) land that has yet to be transferred to Iwi under a Treaty settlement after 1 January 2008.

The approach to forestry allocation is set out in the Act, and will be:

• An allocation of an estimated 60 NZUs per hectare to owners of land covered by pre-1990 forests that was acquired by the landowner prior to 31 October 2002 (the date the Government confirmed its intention to introduce deforestation controls under certain circumstances). Different rules will apply when eligible forest land was acquired prior to 31 October 2002 by a body corporate. Details can be found in the draft Forestry Allocation Plan (available online at: www.maf.govt.nz/sustainable-forestry).
• An allocation of 39 NZUs per hectare to owners of land covered by pre-1990 forest that was transferred to the landowner after 31 October 2002.
• An allocation of 18 units per hectare for Crown forest licence land transferred on or after 1 January 2008.

The highest level of allocation of an estimated 60 units per hectare reflects the fact that when the owners acquired their forest land they would have been unaware of the Government’s intention to introduce deforestation controls under certain circumstances.

How to Apply for an Allocation

Details of the application process, timelines, and information required to receive an allocation of NZUs under a Forestry Allocation Plan will be made available once public consultation is complete and a Plan is finalised. At that time, details will be made available online at: www.maf.govt.nz/sustainable-forestry.

Indigenous Forest Land

Indigenous forests established before 1 January 1990 are not included in the ETS and not eligible to receive an allocation.

Related Information

Register of ETS Participants

Participants who notify MAF that they have deforested will be entered into a publicly available Register of Participants. The Register will show:

• the Participant’s name;
• the ETS-related activity they undertake (in this case deforesting pre-1990 forest land).

The Participant will be advised that they have been entered in the Register of Participants. Their name will be removed from the Register once they have advised MAF that they have ceased deforesting.

Details about a Participant’s pre-1990 forest land are not available to the public from the Register of Participants.

Deforestation of Young Trees

Harvesting mature trees and replanting the land, or allowing it to regenerate, is not considered deforestation. However, to prevent landowners replanting and then deforesting young trees to reduce their liability, the ETS requires an owner to either:

• pay the full liability for the mature trees that were recently harvested; or
• allow the newly planted trees to grow for nine years before deforesting.

Thus, if pre-1990 forest land is deforested, and the trees on the land are less than nine years old, the emissions liability is calculated based on the age and species of the oldest trees cleared from the pre-1990 forest land during the previous nine years.

Replanted or Regenerated Forest That Does Not Survive

If a pre-1990 forest is harvested but for some reason the replanting or regeneration does not survive, then, in some circumstances, deforestation is considered to have occurred. The deforestation will be treated as having occurred either four, 10 or 20 years after the harvesting of the pre-1990 forest, depending on the following criteria:

• Four years after harvesting, if a given hectare has not:
  • been replanted with at least 500 stems of forest species; or
  • naturally regenerated to at least 500 stems of forest species.
• 10 years after harvesting, if predominantly exotic forest species are growing, but a given hectare does not have crown cover of at least 30 percent of trees that have reached 5 metres in height.
• 20 years after harvesting, if predominantly indigenous forest species are growing, but a given hectare does not have crown cover of at least 30 percent of trees that have reached 5 metres in height.

The liability for the deforestation will be calculated by reference to the age and forest species of the trees that were harvested four, 10 or 20 years earlier, as the case may be.

Compensation for Deforestation Required by Third Parties

If the owner of pre-1990 forest land becomes a Participant in the ETS because they are required to deforest to allow public works (such as construction of a road or transmission lines), the landowner is liable for the deforestation liability. However, the person who required the works must compensate the landowner if they are not compensated under any other Act – such as the Public Works Act 1981.

Rejoining the ETS as Post-1989 Forest Land

Exempt pre-1990 forest land that is deforested, and subsequently replanted or allowed to regenerate, can be brought into the ETS as post-1989 forest land, provided the emissions units that would have had to be surrendered if the deforested land had not been exempt, have been surrendered. Once this has occurred, the owner of the post-1989 forest may apply to become a Participant in the ETS. There are some special rules around filing an emissions return, and surrendering emissions units, before an application to join the ETS with this land may be approved (refer to the Act for such details).

Deforestation for Investment Projects

The obligation under the ETS to surrender units to meet emissions liabilities arising from any non-exempt deforestation of pre-1990 forest land applies regardless of the nature of the reasons for the deforestation. For example, deforesting as part of a renewable energy project still requires the emissions liability to be met, and there are no exemptions for “investment projects”. The project is thus required to take account of the full cost of the deforestation.

Tax Treatment of Pre-1990 Forestry

This section sets out the tax and GST treatment of units in relation to pre-1990 forest land under the ETS.

This guide does not deal with tax treatment related to complex transactions such as contracts for forward sale or purchase of units, put and call options, or derivative financial instruments involving units etc.

The tax rules set out below apply in the same way to:

• New Zealand Units (NZUs);
• Kyoto units;
• approved overseas units.

Most transactions in emissions units which relate to pre-1990 forest land are treated as being on capital account for tax purposes, and so are not subject to income tax.

A small number of forest landowners (such as land developers) may hold pre-1990 forest land on revenue account. Their income tax position is not considered in this guide.

Forestry Allocation NZUs

Owners of pre-1990 forest land may be allocated NZUs free of charge under a Forestry Allocation Plan. No income tax is payable either on receipt of these units, or at tax year end if they are still held. No tax is payable on any increase in the market value of the NZUs during the time they are held.

Sale of Forestry Allocation NZUs

No tax is payable if NZUs, awarded under a Forestry Allocation Plan, are sold. Thus holding gains and losses are not in the tax net.

Surrender of emissions units when pre-1990 forest land is deforested

A liability to surrender emissions units arises when pre-1990 forest land is deforested – unless the deforestation occurs on exempt land, or if 2 hectares or less has been deforested in any five year period beginning 1 January 2008. The surrender of emissions units to meet this liability has no tax consequences that is, effectively, no deduction arises.

Purchase of additional emissions units

A forest owner who does not hold enough emissions units to meet the liability to surrender emissions units on deforestation will need to acquire more on the market. In keeping with the capital treatment of pre-1990 forest land, effectively no deduction is available for any purchased emissions units.

GST

All transactions in emissions units (including surrender) are treated as being zero-rated for GST purposes. When supplies (such as the sale of emissions units) are made, GST invoices should record GST at zero percent. This means that no GST will be charged. There is no restriction on the ability to claim GST on costs related to dealing with emissions units.

Contact for Enquiries

Emissions Trading Scheme
Ministry of Agriculture and Forestry
PO Box 1127
Wellington

Contact us

Or call us on 0800 CLIMATE (254 628)