Annex 1: Preliminary assessment of potential offset options

Plantation of exotic tree species such as pinus radiata

• Afforestation of sites in grassland as at 31 Dec 1989 will help to meet Kyoto commitments
• Exotics characteristically grow fast (early and high rates of sequestration, although they can be lower on low quality, dry sites)
• Some environmental co-benefits (e.g. soil erosion and flood risk control)
• Establishment costs, management costs and sequestration rates are well known
• The option is likely to be relatively cheap per tonne CO2-e sequestered
• Nursery and seed considerations suggest exotic afforestation is the only “planted forest” option likely to be feasible on any scale in 2008
• Joint venture arrangements may be possible to manage risks and costs

• Unsuitable for use on some sites due to landscape considerations and public perception
• Lesser biodiversity gain than indigenous afforestation
• Can have wilding potential on some sites
• Exotics are generally planted for harvest, and need infrastructure
• Harvesting creates liabilities that will need to be managed
• Ongoing forest management costs

Indigenous trees are raised in a nursery and then planted out. Depending on the site, weed control may be needed, as well as exclusion of livestock through fencing and pest control.

• Afforestation of sites in grassland as at 31 Dec 1989 will help to meet Kyoto commitments
• Environmental co-benefits (e.g. biodiversity, flood control, erosion control)
• Existing knowledge of establishment techniques and measuring carbon sequestration
• Suitable for DOC land and other sensitive sites
• Planting projects often have a high public profile and will attract support from local conservation groups

• Likely to be relatively expensive because of nursery stock considerations, and the need to plant trees at high densities (compared to exotics) to achieve transition to forest.
• As a consequence of high establishment costs, including intensive weed control during the establishment phase, the method is normally only applied at a small scale (less than 10 hectares).
• The amount of carbon that will be sequestered by 2012 is too small to contribute significantly to the required offset

Given certain management parameters, grassland sites will “revert” to indigenous forest through succession processes. Interventions may include fencing to exclude livestock, adequate pest control, and, in some areas, strategic planting to ensure the succession.

• Afforestation of sites in grassland as at 31 Dec 1989 will help to meet Kyoto commitments
• Environmental co-benefits (e.g. biodiversity, flood control, erosion control)
• Suitable for DOC land and other sensitive sites
• Existing knowledge of establishment techniques and measuring carbon sequestration
• Harvesting is not intended and so carbon store management is not needed

• Potential for difficulties in determining whether some land is Kyoto compliant
• Possible criticism that reversion would have happened anyway (i.e. no ‘additionality’)
• Rates of sequestration for indigenous species over a 30-year period will be lower than exotics on a good site
• Rates of sequestration over the short term can be highly variable and may be slow

Existing forests (production or indigenous) are managed to sequester more carbon. For example, in (exotic) planted production forests, the length of the rotation could be increased. In conservation forests, an increased level of pest control could mean an increase in biomass in the forest.

• May be cheaper than some Kyoto-compliant options
• Environmental co-benefits
• Has some public credibility - the private sector has already approached DOC with proposals to improve the health of indigenous forest in return for branding opportunities.
• NGOs are also likely to be supportive of measures in indigenous forest.
• Some approaches bring about significant improvement in forest health at a relatively low cost per tonne sequestered

• Will not count towards lowering our Kyoto liability
• Could lead to criticism if broader climate change policy does not recognise or allow for use of non-Kyoto options to offset emissions
• Difficult to verify – there are still scientific uncertainties, and it is not yet certain that an improvement in forest health would translate to a measurable increase in sequestered carbon by 2012

Options 1-4 above, outside the Crown estate

May include use of commercial carbon-neutral schemes (e.g. CarboNZero)

• As above, depending on option chosen
• Environmental co-benefits – initiative funding could be used to acquire and retire marginal farmland for reversion to indigenous forest etc.
• CarboNZero or similar programmes could provide immediate offsets

• As above, depending on option chosen
• Potentially higher costs
• Not all commercial carbon neutral schemes use Kyoto-compliant offsets

6. Purchase of forestry credits created under the Permanent Forest Sink Initiative (PFSI)

The PFSI allows landowners to establish permanent forest sinks (on sites not forested at 31 Dec 1989) and get tradable Kyoto-compliant credits for the carbon sequestered in their forests.

• Would be purchasing Kyoto-compliant credits that will assist with Kyoto commitments
• Forestry-related environmental co-benefits
• PFSI participants, not government, bear the risks and costs associated with forest establishment
• May assist in creating climate change business opportunities

• Policy not being implemented until 2008, so units may need to be purchased on a forward sale basis
• Uncertainties regarding the potential quantity of units likely to be available to be purchased

Still only a policy proposal in the climate change consultation documents.

• Likely to be Kyoto-compliant
• Forestry-based option with related environmental co-benefits

• The Crown would already own any credits generated under the AGS – may be difficult to clearly distinguish projects funded via this initiative from projects funded from core AGS funding
• Policy may not be progressed
• Option not available until at least 2008

The PRE programme awarded carbon credits to energy initiatives that will reduce emissions in New Zealand in 2008-2012 beyond the reductions that would have occurred without the project. Most of these initiatives are renewable energy projects, such as wind farms.

• Would be purchasing Kyoto-compliant credits that will assist with Kyoto commitments
• Projects have passed an additionality test
• Consistent with international practice where energy and industrial projects are more commonly used for offsets
• Relatively simple to account for emissions reductions and verify
• No need to account for forestry growth
• On-going management not necessary
• A very large volume of credits is available

• This option cannot be pursued until Cabinet makes further decisions in June 2007
• Credits not available until 2009, so units may need to be purchased on a forward sale basis

These could include energy efficiency or other industrial and commercial projects. The offsets could be obtained either through direct investment or via a mechanism that provided for the transfer of credits, similar to the PRE programme above.

• Builds capacity for energy reduction projects in the non forestry sector
• Consistent with international practice where energy and industrial projects are more commonly used for offsets
• Relatively simple to account for emissions reductions and verify
• No need to account for forestry growth
• On-going management not necessary

• Additionality tests will need to be developed and implemented
• Policy for credits not developed and depends on the details of future climate change policy.
• Overlaps with existing energy efficiency policies