Response 775394295

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Chapter 2: Expected impact of current NZ ETS

2.1. Do you agree with the assessment of reductions and removals that the NZ ETS is expected to drive in the short, medium and long term?

Please select one item
Radio button: Unticked Yes
Radio button: Ticked No
Radio button: Unticked Unsure
Please explain your answer here
The assessments used in this consultation document are based on survey data from November-December 2021. At this time the ETS and the price of carbon was relatively stable, although slowly increasing, and working to market conditions. However, since this time, there has been serious undermining of the ETS through various potential Government policy change announcements, international pressures through the war in Ukraine, the new redesigning of the carbon accounting categories (averaging and permanent forest categories), etc. This has created a lot of uncertainty around the ETS, the value of carbon credits in the short to medium term and uncertainty in investing in the ETS.

Due to this uncertainty, which may continue in the foreseeable future, the assessment of reductions and removals used in this discussion document does not fairly represent the current market conditions and is not a reliable source of information to use for assessing how the NZ ETS will drive reductions and removals in the short, medium and long term. The presentation on modeling for the Review of the ETS noted that modeling ETS supply and demand was very uncertain and complicated. As such using this data to form permanent policy change is not ideal.

There are also questions around the actual rate of afforestation that has occurred over the last few years. The Climate Change Commission has estimated that 85,000ha was planted over the last 3 years, while an independent Beef and lamb report suggests only 35,00ha was planted. Discrepancies in data need to be investigated to ensure the correct figures are being used to accurately reflect what is actually happening before any analysis can be done and changes made.

2.2. Do you have any evidence you can share about gross emitter behaviour (sector specific, if possible) in response to NZU prices?

Please write your answer here
No

2.3. Do you have any evidence you can share about land owner and forest investment behaviour in response to NZU prices?

Please write your answer here
Forest investment in new afforestation (both through the purchase of suitable land and the planting of new forest areas) has decreased over the last year or so due largely to the uncertainty around proposed Government changes that have been indicated at regular intervals over the last 12-18 months These include changes to the permanent category (particularly around exotic vs radiata pine only and then no change in the short term), proposed redesign changes to the ETS, climate change recommendations not being adopted, confusion around the form He Waka Eke Noa will take, etc. It is largely this uncertainty about government direction and possible changes in policy and regulations that has driven away investment into forestry – not the price of NZU’s.

2.4. Do you agree with the summary of the impacts of exotic afforestation?

Please select one item
Radio button: Unticked Yes
Radio button: Ticked No
Radio button: Unticked Unsure
Please explain your answer here
Land-use flexibility - It is a legal requirement under the NES Freshwater that only 10ha of plantation forest can be converted to pasture (reg 16(3) and (4)). Therefore the reduction in flexibility of land use is not driven by the use of the land as plantation forest, but by the Government requirement that plantation forest can not be converted back to pasture on scale.

Permanence - Carbon is stored in all vegetation. All primary crops are therefore vulnerable to fire, wind, storms droughts, pests and pathogens. Forests have a greater fuel loading in terms of fire, but a larger area of New Zealand is covered by pasture, scrub and non-forest vegetation and this would release proportionally more carbon into the atmosphere if lost particularly through fire and erosion. According to Te Uru Rākau quarterly statistics (as at 22 December 2022), of New Zealand’s 10.1 million ha of forest, only 2.1 million ha is deemed to be forest land in terms of the ETS definition (both pre-1990 and post-1989 land). Of this, only 0.7 million ha is eligible to be entered into the ETS and of this, only 0.54 million ha has actually been entered. Therefore, a vast percentage of non-ETS forest in New Zealand is more vulnerable to destruction due to climate change than that in the ETS. Recognition of the other sources of carbon loss and how to replace that has to be considered without relying on ETS settings to counteract climate change.

Land-use change – we are in agreement with the comments made under this challenge of forestry providing a return to land-owners for otherwise unproductive land and the ability for forestry to assist in the preservation of erodible land (through conservation plantings as well as space planting to also provide improved animal welfare). However, while unmanaged forests may provide fewer export opportunities, the Forestry Industry Transformation Plan (ITP) has set out objectives to reduce exports and process more wood products onshore. While unmanaged permanent forests may generate fewer export opportunities in terms of quality logs, they could provide vast opportunities for alternative wood uses eg fuel sources (bio-fuel), pulp and chip for paper and building products, and other domestic processing opportunities (if investment in onshore processing facilities is made).

Chapter 3: Driving gross emissions reductions through the NZ ETS

3.1. Do you agree with the case for driving gross emissions reductions through the NZ ETS?

Please select one item
Radio button: Ticked Yes
Radio button: Unticked No
Radio button: Unticked Unsure
Please explain your answer here - In your answer, please provide information on the costs of emissions reductions.
However, the mechanism of using the price of carbon is just one way of driving the reduction of gross emissions. However, the statements and modelling around the rate of afforestation need to be carefully looked at as there have been other drivers that have resulted in the increase in afforestation in the last year. With the changes to the ETS that came into force in January 2023 with the permanent and averaging categories, there was a lot of afforestation that was undertaken in 2021 and 2022 to ensure the plantings fell into the previous stock change model of carbon accounting to make use of the ability to earn carbon credits over multiple rotations. Once the changes in categories were implemented, coupled with the severe uncertainty around the proposed changes to the ETS, has severely reduced the amount of afforestation currently being undertaken. Further modelling to reflect this would give a better understanding of when the net 0 targets will be reached. This could indicate that the rate of afforestation is actually on course with the Commission's initial assumption of 0.6 million ha /year. This more targeted modelling would confirm if there is, in fact, an oversupply of credits on the market, or whether this has now leveled off due to the recent uncertainty that has been created about the market.

Also, consideration of the length of time that it takes to implement gross emissions needs to be considered. It takes time to invest and implement new operating systems and then for the effects of the new systems to have an impact on gross reductions. Allowance for this needs to be considered.

As mentioned, the price of carbon is only one way of driving down gross emissions. Other ways also need to be considered and used in conjunction with the NZ ETS to reduce gross emissions including financial incentives to convert to alternative energy uses, investment in alternative infrastructure projects, etc. Reliance on one entity (the NZ ETS) as the sole driver for gross emissions is very risky as it is subject due to market (and Government) driven forces.

3.2. Do you agree with our assessment of the cost impacts of a higher emissions price?

Please select one item
Radio button: Unticked Yes
Radio button: Ticked No
Radio button: Unticked Unsure
Please explain your answer here
. At the recent decision by the Government to accept the Climate Change Commissions recommendations for price settings in the New Zealand carbon market, it was announced by Hon James Shaw on 18th July 2023, that the “cost-of-living impacts were expected to be minimal – a $10 rise in the price of carbon would only add $167 to the average households weekly income” This would equate to an annual increase in household costs of $86 as opposed to the $500 reported in the discussion document. There is a vast difference between these two figures and so further, robust modelling of the financial impacts is needed to determine what the actual financial impact on households will actually be.

3.3. How important do you think it is that we maintain incentives for removals?

Please write your answer here
The assessment is heavily weighted toward electricity as an alternative fuel source. A total reliance on electricity could drive up the price for the commodity, especially if it becomes in short supply due to climate change (eg through the lowering of hydro levels, flooding of infrastructure, etc.). Modelling for other, alternative fuel sources should also be considered especially around bio-fuel and potentially bio-char. Diversifying the fuel source available to individuals, industry, and businesses may not result in a higher price to consumers. However, in order to invest in these other fuel and energy sources, incentives must be given to allow businesses to make the relevant changes. This could be achieved through monetary incentives rather than the current industry allocation of credits approach.

Chapter 4: Changes to the NZ ETS would be significant for Māori

4.1. Do you agree with the description of the different interests Māori have in the NZ ETS review?

Please select one item
Radio button: Ticked Yes
Radio button: Unticked No
Radio button: Unticked Unsure
Please explain your answer here
The NZETS has provided economic opportunities to Māori on land which was previously marginal and unproductive. Carbon credits have provided an income source as well as the forest providing employment opportunities. This is an important income source to iwi and hapu and provides opportunities for communities to invest in improvements for local communities.

Outside Māori land, the employment opportunities the forestry sector provides to Māori are very important. The forestry sector provides important opportunities directly to rural Māori communities and allows for whanau to stay connected to their whenua. This is through all aspects of forest management from afforestation through to the harvesting and the management of permanent forests (through fencing and ongoing pest control). It also provides indirect opportunities through opportunities available to truck drivers, sawmill and wood processing workers, whanau and community support workers, schools, etc.

4.2. What other interests do you think are important? What has been missed?

Please write your answer here
Developing the economic potential of indigenous vegetation is also another opportunity available to Māori. Through the encouragement of indigenous vegetation planting (either directly or through the use of an exotic tree species acting as a nursery for the natives) the opportunities to grow and manage indigenous vegetation for commercial purposes through essential oils, nectars, and other non-wood forest products could provide further income opportunities. The development of these opportunities can be funded through the economic opportunities carbon credits and the ETS provide.

4.3. How should these interests be balanced against one another or prioritised, or both?

Please explain your answer here
As Māori have a strong kaitiaki and rangatiratanga role and responsibility for the environment all interests should be considered equally as they are all reliant on the balanced interaction of each other. No one interest has priority over another in te ao Māori.

4.4. What opportunities for Māori do you see in the NZ ETS review?

Please write your answer here
With 3 of the 4 options of the review suggesting the price of NZU’s will be predominantly driven by Government intervention on price, any opportunities for Māori to benefit may be limited depending on the Government's priorities at the time. An example of this has recently occurred when the Government ignored the Climate Change Commissions' advice to raise the cost containment reserve as they believed this would add to the cost of living crisis. This in turn prompted the sharp decline in the price of an NZU which was detrimental to all forest investors including Māori.

For opportunities for Māori interests to be realised, there must be confidence within the carbon market. Stabilisation of the carbon market would allow for further investment into their forest asset through developing these other forest products will help to create a more consistent income stream over and above that provided by the NZ ETS.

Chapter 5: Objectives and assessment criteria

5.1. Do you agree with the Government’s primary objective for the NZ ETS review to consider whether to prioritise gross emissions reductions in the NZ ETS, while maintaining support for removals?

Please select one item
Radio button: Ticked Agree
Radio button: Unticked Disagree
Radio button: Unticked Unsure
Please explain your answer here
Prioritising and incentivising gross emissions reductions will result in the up-take of, and investment in, low-emissions technology as this will ensure better profitability in the long run.

However, consideration must be made to allow time for the effect of gross emission reductions to be felt. As mentioned earlier in this submission, consideration of the length of time that it takes to implement gross emissions needs to be considered. It takes time to invest and implement new operating systems and then for the effects of the new systems to have an impact on gross reductions. Allowance for this needs to be considered.

The NZ ETS should not be considered the sole mechanism to prioritise gross emissions. Investment in new technologies, alternative fuel sources, etc. must also be undertaken in conjunction with the NZ ETS.

5.2. Do you agree that the NZ ETS should support more gross emissions reductions by incentivising the uptake of low-emissions technology, energy efficiency measures, and other abatement opportunities as quickly as real-world supply constraints allow?

Please select one item
Radio button: Ticked Agree
Radio button: Unticked Disagree
Radio button: Unticked Unsure
Please explain your answer here
See above

5.3. Do you agree that the NZ ETS should drive levels of emissions removals that are sufficient to help meet Aotearoa New Zealand’s climate change goals in the short to medium term and provide a sink for hard-to-abate emissions in the longer term?

Please select one item
Radio button: Ticked Agree
Radio button: Unticked Disagree
Radio button: Unticked Unsure
Please explain your answer here
As the NZ ETS is the main driver within New Zealand to meet international climate change obligations, incentivising the uptake of low emissions technology to reduce the financial burden and change habits is best done through the market constraints of the NZ ETS in the short term.

However, other drivers must also be considered. Investment in time and infrastructure/technology is needed as well in the medium term to also help meet the climate change goals.

Reliance on the NZ ETS should not be the sole driver.

5.4. Do you agree with the primary assessment criteria and key considerations used to assess options in this consultation?

Please select one item
Radio button: Unticked Agree
Radio button: Ticked Disagree
Radio button: Unticked Unsure
Are there any you consider more important and why? Please provide any evidence you have
The level of Government intervention and/or control should be a key consideration. As evidenced by recent Governmental intervention, the market can be severely impacted by policy. The NZETS should be allowed to function in an open market with little or no Government intervention. Market supply and demand and financial pressures will accordingly ensure the market will drive emissions reductions and pricing.

Operating the NZ ETS through the Climate Change Commission without government control in a similar way to the role of the Reserve Bank in providing stability to New Zealand's financial sector should be a serious consideration in providing neutral stability and certainty within the carbon market and not exposing it to pressures of Government policy.

5.5. Are there any additional criteria or considerations that should be taken into account?

Please write your answer here
Further modelling is required before any of the options mentioned in Chapter 6 can be realistically commented on. There is an obvious discrepancy in the effect of an increasing carbon price on household incomes (as discussed in question 3.2). There is also a discrepancy in some of the data used in the discussion document (eg the actual reason and amount of increased afforestation in 2022). No cost/benefit analyses have been provided for any of the options either. In order for an unbiased, fair, and considered recommendation on proposals to be made, more accurate data needs to be supplied.

Chapter 6: Options identification and analysis

6.1. Which option do you believe aligns the best with the primary objectives to prioritise gross emissions reductions while maintaining support for removals outlined in chapter 5?

Please select one item
Radio button: Unticked Option 1
Radio button: Ticked Option 2
Radio button: Unticked Option 3
Radio button: Unticked Option 4

6.2. Do you agree with how the options have been assessed with respect to the key considerations outlined in chapter 5?

Please select one item
Radio button: Unticked Agree
Radio button: Ticked Disagree
Radio button: Unticked Unsure
Please explain your answer here and provide any evidence you have
As mentioned in questions 5.5 the data used to form this discussion document appears to be flawed. While 4 options have been presented for comment, there has been no evidence provided that shows that any of these 4 options would be better than the status quo of keeping the current system.

While issues around the level of carbon reductions and the possible rate of afforestation have been identified, as not all criteria to determine the reasons for these issues have been looked at, it is hard to determine that the status quo needs adjusting.

6.3. Of the four options proposed, which one do you prefer?

Please select one item
Radio button: Unticked Option 1
Radio button: Ticked Option 2
Radio button: Unticked Option 3
Radio button: Unticked Option 4
Please explain your answer here
As this could enable increased investment/pricing for credits obtained from indigenous/restorative forests.

However, it is identified in this option that the Government is not sure what the demand from off-shore buyers will be. As this is an unknown, to make the statement ‘this option is only expected to be marginally more effective than the status quo’ is not a reason to reject this option. To be able to make a full and informed choice on this option, however, more data needs to be provided around the costs and benefits of Option 2.

With the recent announcement from the EU about limiting the issuing of their carbon certificates, more demand from overseas markets may well be quite high.

Option 2, as it stands, also allows for the development of a voluntary market. This could be a lucrative option especially for the holders of credits from indigenous forests. A national voluntary carbon market standard could be developed as part of this option to allow for more investment in long-term, indigenous carbon credits.

6.4. Are there any additional options that you believe the review should consider? Why?

Please write your answer here
No. The other options rely on a large degree of Government intervention which, given recent Governmental decisions on accepting expert recommendations, would create uncertainty within the market and it may not achieve its full potential, to the detriment of all New Zealanders.

6.5. Based on your preferred option(s), what other policies do you believe are required to manage any impacts of the proposal?

Please write your answer here
The development of a voluntary carbon market standard is required to ensure that trading in this market is recognised and meets international standards. This will allow those operating in this space to be complying with a standardised set of rules and expectations in this market that are clearly defined for all participants.

6.6. Do you agree with the assessment of how the different options might impact Māori?

Please select one item
Radio button: Ticked Agree
Radio button: Unticked Disagree
Radio button: Unticked Unsure
Which are the most important? Write your answer here
Option 2 provides the best outcome for the owners of Māori land. The statement that the increased price will impact on Māori households through an increase in household cost is not an argument to dismiss this option. As outlined in question 3.2 the estimated rise in household expenses as a result of the increase in carbon price is vastly different to that provided by Minister Shaw in July. Further analysis as to the actual impact of the rise in carbon price on household expenses needs to the thoroughly investigated and determined.

Chapter 7: Broader environmental outcomes and removal activities

7.1. Should the incentives in the NZ ETS be changed to prioritise removals with environmental co-benefits such as indigenous afforestation?

Please select one item
Radio button: Ticked Yes
Radio button: Unticked No
Radio button: Unticked Unsure
Please explain your answer here
Incentivising environmentally beneficial activities would encourage more to occur. This would encourage more long-term carbon storage in indigenous forests and would offer opportunities to land owners who currently have areas of reverting indigenous vegetation, those that want to establish new native forests, and offer opportunities to those that have to set aside land for regulatory purposes (riparian planting, Significant Natural Area designations, etc.)

However, it should not be limited to just indigenous afforestation. The co-benefits of stabilisation planting of exotics as well as the planting of exotics with a view to transitioning to indigenous over time should also be included.

7.2. If the NZ ETS is used to support wider co-benefits, which of the options outlined in chapter 6 do you think would provide the greatest opportunity to achieve this?

Please write your answer here
Option 2 as this provides for more free-market-driven opportunities from within New Zealand and Overseas. Other options offered are more government-controlled and rely on government decisions for setting prices. As past history has shown, the government of the day can choose not to accept recommendations and make decisions based on outside/short-term political pressures. This would cause some uncertainty within the market and may not realise the full potential of opportunities.

Option 2 allows for the development of a voluntary carbon market which could attract greater interest and investment from overseas.

7.3. Should a wider range of removals be included in the NZ ETS?

Please select one item
Radio button: Ticked Yes
Radio button: Unticked No
Radio button: Unticked Unsure
Please explain your answer here
but only in specific circumstances eg. Wetland restoration, pre-1990 additionality on native forests, etc. However, if these are included in the ETS, but do not contribute to New Zealand’s NDC, then this could have a negative impact on our ability to meet international targets set and our Climate Change obligations under the Net Zero Act.

However, while the inclusion of a wider range of removals may be beneficial to land owners until there are clear and recognised measurement tools and criteria developed it should not be considered. If once these are developed, and if they meet recognised international standards, then further investigation into incorporating them into the NZ ETS can be undertaken.

7.4. What other mechanisms do you consider could be effective in rewarding co-benefits or recognising other sources of removals? Why?

Please write your answer here
The development of a voluntary market standard and the recognition of additionality could be effective in rewarding co-benefits.

The development of a biodiversity credit system could also provide rewards.
However, in the development of any other mechanism thorough, robust, and unbiased research must be undertaken in order for it to be effective. The mechanism must be put in place for the right reason, in the right place for the right outcome.