Information document: New Zealand Emissions Trading Scheme Draft Forestry Allocation Plan and Deforestation Exemption Policies for Pre-1990 Forest Land
Forestry Allocation issues
Total Quantity of NZUs to be Allocated
As required under the Act, the Draft Forestry Allocation Plan provides for a total of
55 million NZUs for allocation. The Act specifies that the total number of NZUs allocated must be reduced by one NZU for each tonne of emissions the Minister estimates is likely to result from:
• deforestation on land that has been exempted; or
• deforestation by each forest landowner of 2 ha or less in each 5 year period.
More detail on the pre-1990 forest exemptions, and how to apply, is provided in the section of this report called Outline of NZ ETS Exemptions for Pre-1990 Forest Land.
Eligibility to Receive an Allocation of NZUs
Land Eligible to Receive an Allocation of NZUs
Unless it has been declared exempt under the 50 ha threshold or tree weed exemption, all owners of exotic pre-1990 forest land will be eligible to receive an allocation of NZUs free of charge.
The number of NZUs provided per hectare will vary depending on the date that the land was purchased or otherwise transferred, and whether it is Crown forest licence land that has been, or will be, transferred to an iwi under a Treaty of Waitangi Settlement on or after 1 January 2008.
To be eligible to receive an allocation of NZUs, the land in question must meet the definition of pre-1990 forest land under the Act (see Annex 3). The interaction of the different definitions and rules for determining whether an area of land is eligible to receive an allocation is shown in Figure 1 below.
Figure 1 – Land eligibility for an allocation
Any owner that is not clear whether their land is eligible to receive an allocation can contact MAF’s Climate Change contact centre on 0800 CLIMATE (254 628) or seek independent advice from a forestry consultant or other expert.
Landowner Eligible to Receive an Allocation
Pre-1990 forest land is relatively frequently bought and sold. Rules are therefore needed to determine who is eligible to apply for and receive NZUs allocated under the Forestry Allocation Plan where the land in question has changed ownership.
These rules vary depending on whether the land has been deforested between 1 January 2008 and the date that the finalised Forestry Allocation Plan is issued by Order in Council (the date the Plan is issued is expected to occur in early to mid-2009):
• Where the land in question remains pre-1990 forest land on the date the Forestry Allocation Plan is issued, the landowner on that date is responsible for submitting the application and entitled to receive any NZUs allocated. That landowner will also have the choice of applying for the land to be exempted from the NZ ETS, should it be eligible. The landowner will retain that right and responsibility even if they sell the land in question between the date the Forestry Allocation Plan is issued and the closing date for allocation or exemption applications.
• Where the land in question has been deforested at some point between 1 January 2008 and the date the Forestry Allocation Plan is issued, the landowner at the time that the deforestation occurred is responsible for submitting the allocation or exemption application and is entitled to receive any NZUs allocated.
These rules will apply even where a landowner’s obligations under the Act have been transferred to a third party (such as a forestry right holder) that has the right to decide to deforest. The landowner will remain eligible to receive any NZUs even where this clause applies, because it is the landowner that will bear the impact of the deforestation requirements of the NZ ETS on land value.
Quantity of NZUs to be Allocated to Each Landowner
As required under the Act, the total pool of 55 million NZUs will be allocated to the following categories of landowners in the following amounts:
1. 18 NZUs for each hectare of eligible Crown forest licence land that was, or will be, transferred to an iwi under a Treaty of Waitangi settlement after 1 January 2008.
2. 39 NZUs for each hectare of eligible land that was:
• transferred to an eligible landowner on or after 1 November 2002;
• transferred to a body corporate prior to 1 November 2002 but where the changes in ownership since that date are greater than 51% as described in the “Changes in Shareholdings” section below.
3. All of the remaining NZUs from the 55 million forestry pool (i.e. those not allocated to landowners in I and II above, or set aside to meet the cost of emissions from the deforestation of exempt land) will be distributed equally on a per hectare basis across all other eligible landowners. The allocation is expected to be approximately 60 NZUs per hectare. However this number cannot be confirmed until the Minister releases the Final Forestry Allocation Determination in late 2009. See below for more information about the “Draft Determination” and ”Final Determination” processes.
The landowners that will receive the higher level of allocation under III above are:
• any body corporate that was transferred land prior to 1 November 2002 and where the changes in ownership since that date are 51% or less, as described in the “Changes in Shareholdings” section below; or
• any other eligible landowner that was transferred eligible land prior to 1 November 2002.
The scheme provides a higher level of allocation to these landowners because the Government first announced its intention to introduce deforestation controls in October 2002. Owners that acquired eligible land after that announcement could reasonably have been expected to take the impact of those future deforestation controls into account when determining the price they paid for the land. This rule only applies to land that has been purchased; other forms of transfer, such as under a Will, are not affected.
The Government intends to use the “settlement date” agreed by the seller and purchaser of a piece of pre-1990 forest land as the date that ownership transferred. This is effectively the date that a buyer paid the remaining balance to the seller and all documents enabling transfer of the property were exchanged.
This settlement date may differ slightly from the registration date shown on your computer freehold register (title). If you are unclear of the exact date that you settled, but believe that it may be close to 1 November 2002, you may need to contact the lawyer who acted on your behalf during the transaction.
As required by the Act, one exception will be made in applying the cut-off purchase date of 1 November 2002: namely, the Crown forest licence land transferred under the Te Uri o Hau Claims Settlement Act 2002. This land will receive the higher allocation of an estimated 60 NZUs per hectare in recognition that the negotiations underpinning the settlement, and related valuation of the land, occurred well before 1 November 2002.
Changes in Shareholdings
Where eligible forest land was bought prior to 1 November 2002 by a body corporate (such as a company), it will only be eligible to receive the higher rate of allocation of an estimated 60 units per hectare if:
• ownership of the body corporate has changed by 51% or less between 1 November 2002 and the date the Allocation Plan is issued. Where there is a lower level of commonality of ownership, the company will be allocated 39 units per hectare.
The principal reason for not providing the higher level of allocation for body corporates whose ownership changed by more than 51% is that any shareholder that purchased shares after that date could reasonably have been expected to recognise the likelihood of deforestation controls being introduced, and taken some consideration of this when determining the price they were willing to pay for them.
The 51% ownership change threshold mirrors existing tax laws that require 49% commonality of shareholding for the carry forward of tax losses.
Note that this rule only applies to body corporates (such as companies) and not to jointly owned land (including jointly owned Maori land).
When will I know how many NZUs I will receive?
After the Government issues the finalised Forestry Allocation Plan and receives applications for allocations, the Minister will create a Draft Determination. The Draft Determination will identity each eligible landowner and the total number of NZUs each landowner will be allocated. Eligible landowners, and anyone else who applied, will have 20 working days to identify any errors, after which the Minister will publish a Final Determination and arrange for the transfer of the NZUs. More details on the full process for finalising the Forestry Allocation Plan, and subsequently making the Draft and Final Determinations under it, are set out in the “Application and Determination Process and Timelines” section below.
If you already own the land in question, and the land is eligible for an allocation of either 18 or 39 NZUs per hectare under the rules outlined above, it should be straightforward for you to calculate how many NZUs you will receive. However, you should not count on receiving those NZUs until your eligibility and land area have been confirmed.
If your land is eligible for the higher allocation of an estimated 60 NZUs per hectare, you will not know exactly how many NZUs you will receive per hectare or in total, until the Minister releases the Final Determination in late-2009. This delay is unavoidable, as the Government cannot calculate the number of NZUs per hectare until it has assessed how many hectares of exempt land are likely to be deforested and processed applications for allocations of 18 and 39 units.
Post-Dating of Some NZUs
The first 21 million of the 55 million unit allocation pool, which relate to the period 1 January 2008 to 31 December 2012, will be able to be immediately surrendered to cover emissions under the NZ ETS. In contrast, the Act prevents the surrender of the 34 million units (relating to the period 1 January 2013 to 31 December 2021) before 1 January 2013 and allows the Forestry Allocation Plan to specify dates after 1 January 2013 before which some or all of the 34 million New Zealand Units cannot be surrendered or converted3.
With the exception of a small pool of NZUs for managing the impact of any errors (see “Transfer of 95% of NZUs in Year One” section) the Minister has chosen to allocate and transfer the majority of the 55 million NZUs on the same date in late 2009 or early 2010. However, the 34 million NZUs relating to the period after 2013 will be “post-dated”.
It is proposed the pool of 55 million NZUs will be allocated in the following three tranches:
1. the first tranche of 21 million NZUs will immediately be able to be surrendered or converted (i.e. 38% of the total allocation);
2. a second tranche of 21 million NZUs will only be able to be surrendered or converted on or after 1 January 2013 (i.e. another 38% of the total allocation);
3. a third tranche of the remaining 13 million4 NZUs will only be able to be surrendered or converted on or after 1 January 2018 (i.e. the remaining 24% of the total allocation).
The tranche from which you receive your NZUs, and therefore the date from which the NZUs can be surrendered or converted, will depend on the age of your trees. The rationale for this is that the majority of landowners who wish to deforest will do so when the trees have reached maturity, so that is when they will need the units for surrendering. Thus:
• owners of trees that are close to harvesting age will receive NZUs from the first tranche;
• owners of trees that are close to the average age of New Zealand’s overall pre-1990 estate will receive NZUs from the second tranche;
• owners of relatively young trees that are not likely to be harvested for 1-2 decades will receive NZUs from the third tranche.
To apply for an allocation of NZUs, you will therefore be required to provide information on the age of your trees (see ‘Information Required with Applications for an Allocation’ section for more information).
The exact cut-off ages for each tranche of NZUs will only be finalised when the Final Determination is released in late-2009 or early-2010. However, it is currently estimated that the cut-off ages should be in the order of:
| Estimated age of trees on the date the Plan is issued | Tranche | Date of NZUs |
|---|---|---|
| 24 years and older | 1 | current |
| 11 – 23 years old | 2 | post-dated from 1 January 2013 |
| Up to 10 years old | 3 | post-dated from 1 January 2018 |
Post-dating 34 million of the total 55 million NZU forestry allocation pool in this way will give all owners certainty over the number of NZUs they will receive, while ensuring that owners with trees closest to harvest receive NZUs that can be immediately surrendered to cover emissions. Post-dated NZUs will be able to be traded before they become “active”, however it is expected that they may trade at a discounted price.
Another reason for post-dating these NZUs is that negotiations are underway on the international framework that will apply post-2012, including the rules for the second commitment period of the Kyoto Protocol. If the rules change, for example if restrictions on the deforestation of pre-1990 forests are removed, the Government will wish to review its intention to allow the post-dated 34 million NZUs to be surrendered or converted. The Act allows the post-dated NZUs to be cancelled if there are no longer any controls on deforestation under the NZ ETS.
Transfer of 95% of NZUs in Year One
For owners eligible to receive the higher allocation of an estimated 60 NZUs per hectare, the Government proposes to transfer 95% of these NZUs in year one and the remaining 5% in year three.
This gives the Government the ability to address issues which cannot be foreseen, or any errors that may be identified in the allocation process (for example, errors resulting from inaccurate information being provided in applications). Landowners will receive the remaining 5% in year three unless a new determination is made by the Minister.
The proposal to initially retain 5% of NZUs will not apply to owners receiving either 39 or 18 NZUs per hectare; only those entitled to the higher allocation.
Entity to Hold NZUs Allocated to Crown Forest Licence Land
The Act allows for the NZUs allocated to land that was Crown forest licence land on 1 January 2008 but has not been transferred to an iwi as part of a Treaty of Waitangi settlement on the date the allocation is issued, to be transferred to an entity that will hold the NZUs in trust for the future owners. The Minister will appoint this entity prior to the transfer of NZUs and the Government will hold additional discussions with iwi on its establishment.
Information Required with Application for an Allocation
Any landowner that chooses to apply for an allocation of NZUs will be required to provide the following information to support their application. All information provided must be consistent with the relevant definitions in the Act (the key ones being repeated in Annex 3). Where an application involves multiple properties, those elements of the information that vary between properties, such as the settlement date, must be provided for each property:
a. the name of the landowner who is applying for the allocation;
b. evidence of ownership of the land on the date the Forestry Allocation Plan was issued, or date that the deforestation occurred (as applicable), in the form of all the computer freehold registers (titles) from LINZ, or other relevant records (such as Māori Land Court records) that pertain to the application;
c. where the higher rate of allocation is being sought:
• proof of the settlement date that the current landowner purchased the property
• where the current land owner is a body corporate, and where the date of purchase of the land was before 1 November 2002, evidence the ownership interests in the body corporate have changed by less than 51% between the dates of 1 November 2002 and the date the Forestry Allocation Plan is issued
d. the total area in hectares of pre-1990 forest land on the property as at 1 January 2008 (rounded to the nearest hectare);
e. the landowner’s holding account number in the New Zealand Emissions Unit Registry (which any NZUs will ultimately be transferred into);
f. a shapefile, including a schedule of eligible pre-1990 forest area by age (see ‘Allocation Application Shapefile Requirements’ section below);
g. a statement that land is not exempt land and/or an application has not been made for the land to be exempted.
Each applicant will be required to provide a declaration stating that all of the information that has been provided is true and accurate.
There will be no fee to apply for an allocation of NZUs.
The information provided must be consistent with the relevant definitions provided in the Act (reproduced in Annex 3).
How to tell if a forest is pre-1990 or post-1989 forest
Most exotic forest owners will know the year in which their forest was established. However, this will not always be clear for regenerating forests. The Forestry in the Emissions Trading Scheme Guide provides more information on the steps you can take to determine this.
Allocation Application Shapefile Requirements
Applicants must provide:
1. a shapefile (for an explanation of this term refer to Annex 4 – definitions) that includes all pre-1990 forest land for which units are being applied. To minimise the mapping effort required, the shapefile may include some areas of ineligible land (such as indigenous forest and non-forest land). However, it must not include post-1989 land; and
2. for each shapefile, a schedule of eligible pre-1990 forest area by age (measured in years since planting or regeneration) as at 1 January 2008.
Boundaries included in the shapefile may be defined at the level of pre-1990 forest management units (e.g. stands, compartments), or at the entire pre-1990 forest level. Shapefile attribute data is not required.
MAF will provide an on-line tool for applicants to use to create a shapefile. Alternatively, applicants may upload their own shapefile from existing spatial data, so long as they comply with the format prescribed in a standard that will be published on MAF’s website soon.
The schedule of pre-1990 forest area by age is a summary table only, for the applicant’s total forest land holding broken down by each shapefile. However, all intermediate calculations used to arrive at the data summary in the schedule must be available for audit, if required.
Application and Determination Process and Timelines
The Minister must follow a number of steps before publishing the Forestry Determination in accordance with the finalised Forestry Allocation Plan, and transferring NZUs to eligible landowners.
As soon as practicable after the Forestry Allocation Plan is issued, the Minister will give public notice inviting applications for allocations. Upon receiving applications, the Minister will apply the criteria and methodologies in the Allocation Plan to make a Draft Determination. The Draft Determination will specify the total number of NZUs available for allocation, the identity of each eligible landowner, the total number of NZUs allocated to each eligible landowner and the year or years in which eligible landowners will receive their NZUs.
The key steps in the process the Minister will follow are:
• Minister gives public notice of the Draft Forestry Allocation Plan (done);
• public submissions on the Draft Forestry Allocation Plan (due by 28 February 2009);
• report and recommendations in respect of submissions;
• Minister considers the report and makes changes (if any) to the Plan;
• Allocation Plan issued by Order in Council;
• Minister invites people to apply for an allocation;
• persons who consider themselves eligible apply and supply information within 40 working days;
• Minister makes the Draft Determination and notifies each eligible person specified in it, and every person who made an application for an allocation;
• these notified persons may supply further information within 20 working days to identify any errors or miscalculations that have been made in the Draft Determination;
• Minister makes Final Determination and it is published;
• transfer of NZUs to eligible persons.
There is a very tight timeframe up to the intended point of transferring NZUs some time between December 2009 (at the earliest) and April 2010. The timeframe will be reassessed in April 2009 when the finalised Allocation Plan is issued. Unless specified, the indicative dates given below are therefore all subject to review:
| Indicative Dates | Activity |
|---|---|
| 28 February 2009 (this date is fixed in the Act) | Close of submissions on the Draft Forestry Allocation Plan. |
| April 2009 | Order In Council issuing the finalised Forestry Allocation Plan. |
| 30 June 2009 (this date is fixed in the Act) | Closing date for applications for exemptions under the 50 ha threshold. |
| 31 July 2009 | Closing date for applications for an allocation. |
| August 2009 | Release of Draft Determination. |
| October 2009 | Deadline for any party that applied for an allocation to notify the Minister where they consider that there is an error in the Draft Determination. |
| Between December 2009 – April 2010 | Final Determination published and NZUs transferred. |
3 NZUs can only be converted for sale overseas, and this entails changing them into Assigned Amount NZUs (AAUs) which must be deposited straight into the overseas registry that you are selling to.
4 As noted earlier, each of these three tranches of NZUs will be reduced by an amount necessary to meet emissions resulting from deforestation on land that has been exempted under the 50ha, tree weed or 2ha thresholds.
Contact for Enquiries
Emissions Trading Scheme
Ministry of Agriculture and Forestry
PO Box 1127
Wellington
Or call us on 0800 CLIMATE (254 628)
