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Annex 1: Background on forestry and rules

RELEASED UNDER THE OFFICIAL INFORMATION ACT

Forestry in New Zealand

Production forestry

  • New Zealand has a forest resource that is a crop rather than a product of a natural ecosystem. This provides flexibility to manipulate the crop through management. Productivity and quality gains have also resulted from New Zealand's strongly developed forestry research and development capability. New Zealand recognises the important role that forests play as sinks and reservoirs of greenhouse gases. As at 1 April 2004, there were 1.82 million ha of sustainably-managed planted forest in New Zealand. The predominant species is Pinus radiata.
  • More recently, there has been a decline in commercial forestry plantings, which has been driven by a combination of factors. These include: a relatively strong New Zealand dollar; substantial increases in shipping costs; negative sentiment attached to Government policy; tough international market conditions; and competition for land from alternative uses (which have pushed up land prices). There are no indications that the level of new planting will increase under current market conditions.

Indigenous forestry

  • New Zealand indigenous forests represent a considerable reservoir of carbon. It is not known whether this reservoir is expanding or shrinking, but work is under way to monitor changes in indigenous forests (see the material on the Carbon Monitoring System below).
  • Indigenous forests occupy 6.256 million ha, of which 5.187 million ha is owned by the Crown. The vast bulk of the Crown resource is managed for its conservation values. A further 1.069 million ha of natural forest is privately owned; half by Maori, with 124,000ha of this considered commercially viable for wood production under current market conditions. Less than 0.005% of New Zealand's total commercial wood production is from indigenous forests.

Climate change forestry policy for New Zealand: further detail

The significant policy areas that have been developed since the announcement of this policy package have included the PFSI and the FIFA. Work has also commenced on implementing the NZCAS to ensure New Zealand's ability to claim sink credits and account for deforestation.

Permanent Forest Sinks Initiative

The PFSI enables forest owners to receive carbon credits in proportion to the carbon sequestered by a given stand, in return for covenanting (registered against the land title) and managing the land to create a continuous canopy forest. Under the contract, the Crown agrees to provide an amount of tradable carbon credits equal to the amount of carbon sequestered by new forest stand over CP1. Forest owners would receive "returns" only after the amount of carbon sequestered has been measured and verified. All costs and risks associated with the release of the carbon from a stand would be borne by the forest owner. Forest owners would also be liable for ongoing monitoring, verification and administrative costs.

The mechanism is voluntary. The only forests that will be eligible to earn carbon credits over CP1 are Kyoto forests. No restrictions are placed on the selection of species that may be planted under the mechanism.

The mechanism has wide-ranging benefits beyond climate change, including retiring marginal land, bringing benefits through biodiversity enhancement, soil and water conservation, and improved flood protection. Legislation is currently before the House of Representatives to establish the Permanent Forest Sinks Initiative.

Forest industry initiatives

The Government noted that without measures additional to the above policy package, the decision to retain sink credits and liabilities, including capped deforestation liabilities, would have the following consequences:

  • New Zealand generally under-investing in new forest planting, leading to forgone economic benefit from additional carbon sequestration
  • higher levels of agricultural emissions than would otherwise be the case, as new forests tend to displace agriculture
  • fewer sink credits being generated in the future, perhaps limiting the Government's ability to utilise forest sinks to manage future risks and liabilities and protect New Zealand's competitive position
  • increasing emission liabilities as a result of relatively higher rates of deforestation during CP1.

To address these issues, the Government agreed to assign a proportion of the credits (or an equivalent value) to provide incentives to retain and enhance forest sinks. The only implementation of this policy to date has been a package of measures intended to enhance the general profitability of forestry and wood processing through the FIFA. The FIFA measures were not directly tied to planting or replanting behaviour; therefore, any incentive effects for retaining or enhancing forest sinks is minimal. Initiatives under this package included market access, bioenergy, labour and skills, alternative species promotion, and market development.

Monitoring carbon stocks and stock changes

Under the UNFCCC and the Kyoto Protocol, New Zealand is obliged to report greenhouse gas emissions and removals arising from LULUCF activities.

We have not yet fully defined "forest" in relation to Kyoto accounting but our definition is likely to differ from how we have previously reported vegetative cover and land use. Production forestry will certainly be included, as will exotic and native trees planted for soil and water protection and biodiversity enhancement.

The overall aim of the NZCAS is to provide a robust and comprehensive accounting and reporting system that meets the IPCC's Good Practice Guidance and:

  • is appropriate for UNFCCC LULUCF sector reporting
  • enables reporting under Article 3.3 of the Kyoto Protocol in the first (and subsequent) commitment periods
  • ensures New Zealand's eligibility to participate in international carbon trading
  • supports and underpins New Zealand climate change policy development through to 2012 and beyond.

The NZCAS comprises five modules: natural forests (indigenous forest and scrublands); planted forests (both pre- and post-1990 plantings); a soil carbon monitoring system; land-use monitoring; and a database to store all point and spatial data and provide an accounting and reporting function.

The Carbon Monitoring System for indigenous forest and scrublands will be fully in place by May 2007. Some 1400 grid point locations meeting the land-cover criteria have been identified and randomly allocated to a five-year cycle to install the permanent plots. The system is expected to also consolidate and standardise existing forest information currently held by various agencies.

The United Nations Framework Convention on Climate Change and the Kyoto Protocol

Convention and Protocol articles

Article 4.1 (d) of the UNFCCC calls on all signatories to the Convention to:

"promote sustainable management, and promote and cooperate in the conservation and enhancement, as appropriate, of sinks and reservoirs... including biomass, [and] forests..."

The UNFCCC defines a "sink" as "any process, activity or mechanism which removes a greenhouse gas, an aerosol or a precursor of a greenhouse gas from the atmosphere". A growing forest is a sink. A "reservoir" is a component or components of the climate system where a greenhouse gas or a precursor of a greenhouse gas is stored. Forests can also be "reservoirs" for carbon dioxide.

The development of the international agreement on "sinks" has evolved to cover emissions and removals of greenhouse gases resulting from LULUCF. Activities in the LULUCF sector can mitigate and/or contribute to climate change. The relevant Kyoto Protocol Articles with respect to LULUCF are:

Article 3.3 of the Kyoto Protocol

The net changes in greenhouse gas emissions by sources and removals by sinks resulting from direct human-induced land-use change and forestry activities, limited to afforestation, reforestation and deforestation since 1990, measured as verifiable changes in carbon stocks in each commitment period, shall be used to meet the commitments under this Article of each Party included in Annex I. The greenhouse gas emissions by sources and removals by sinks associated with those activities shall be reported in a transparent and verifiable manner and reviewed in accordance with Articles 7 and 8.

Article 3.4 of the Kyoto Protocol

Prior to the first session of the Conference of the Parties serving as the meeting of the Parties to this Protocol, each Party included in Annex I shall provide, for consideration by the Subsidiary Body for Scientific and Technological Advice, data to establish its level of carbon stocks in 1990 and to enable an estimate to be made of its changes in carbon stocks in subsequent years. The Conference of the Parties serving as the meeting of the Parties to this Protocol shall, at its first session or as soon as practicable thereafter, decide upon modalities, rules and guidelines as to how, and which, additional human-induced activities related to changes in greenhouse gas emissions by sources and removals by sinks in the agricultural soils and the land-use change and forestry categories shall be added to, or subtracted from, the assigned amounts for Parties included in Annex I, taking into account uncertainties, transparency in reporting, verifiability, the methodological work of the Intergovernmental Panel on Climate Change, the advice provided by the Subsidiary Body for Scientific and Technological Advice in accordance with Article 5 and the decisions of the Conference of the Parties. Such a decision shall apply in the second and subsequent commitment periods. A Party may choose to apply such a decision on these additional human-induced activities for its first commitment period, provided that these activities have taken place since 1990.

Under Article 3.3 of the Kyoto Protocol, parties have decided that greenhouse gas removals and emissions through certain activities — namely, afforestationand reforestationsince 1990 — can be used to meet a country's emission targets. Conversely, activities that deplete forests, namely deforestation, are to be subtracted from the amount of emissions that an Annex I Party may emit over the commitment period. Article 3.4 of the Protocol enables parties to elect additional land-use activities.

The Marrakech Accords [See <www.unfccc.int/resource/docs/cop7/13a01.pdf#page=54>] provide additional detail to the Kyoto Protocol text. They elaborate definitions and the accounting for the activities described in Table 31 below.

Table 31 - Summary of LULUCF Activities

Activity Kyoto Protocol Article Start Accounting Base year Cap
Afforestation 3.3 "to have begun on or after 1 January 1990" Mandatory Gross-net  
Reforestation  
Deforestation  
Forest management 3.4 "to have occurred since 1 January 1990" Voluntary Cap per country
Revegetation Net-net No cap
Cropland management
Grazing-land management

Source: Marrakech Accords

Article 3.3 of the Protocol - Kyoto forests

Under Article 3.3, it is mandatory for New Zealand to account for greenhouse gas emissions and removals as a result of new forest planting since 1990. New forests planted since 1990 are commonly referred to as Kyoto forests. Deforestation can occur on any forest land regardless of when that forest was first established. Non-Kyoto forests refer to forests established prior to 1990 and subsequently replanted following harvest post-1990.

The harvesting of Pinus radiata production forest planted post-1990 would not normally occur until 2020 at the earliest. So, to a large extent, the harvesting rules are only hypothetical at this stage.

"Forest" is defined under the Marrakech Accords, which provide additional detail to the Kyoto Protocol text. New Zealand's elected choice of parameters is bolded within the following definition. "Forest" is a minimum area of land of 0.05 to 1.0ha with tree crown cover (or equivalent stocking level) of more than 10 to 30%, with trees with the potential to reach a minimum height of 2 to 5 metres at maturity in situ. A forest may consist either of closed forest formations where trees of various storeys and undergrowth cover a high proportion of the ground or open forest. Young natural stands and all plantations that have yet to reach a crown density of 10 to 30% or tree height of 2 to 5 metres are included under forest, as are areas normally forming part of the forest area which are temporarily unstocked as a result of human intervention such as harvesting or natural causes but which are expected to revert to forest.

The activities of afforestation, reforestation and deforestation are further defined as follows.

"Afforestation" is the direct human-induced conversion of land that has not been forested for a period of at least 50 years to forested land through planting, seeding and/or the human-induced promotion of natural seed sources.

"Reforestation" is the direct human-induced conversion of non-forested land to forested land through planting, seeding and/or the human-induced promotion of natural seed sources, on land that was forested but that has been converted to non-forested land. For CP1, reforestation activities will be limited to reforestation occurring on those lands that did not contain forest on 31 December 1989.

"Deforestation" is the direct human-induced conversion of forested land to non-forested land.

Article 3.4 of the Kyoto Protocol - forest management

Under Article 3.4 of the Kyoto Protocol, New Zealand can elect which additional Article 3.4 LULUCF activities, if any, it wishes to account for in CP1. The election of these activities is voluntary for Annex I Parties such as New Zealand.

Benefits and liabilities under the Kyoto Protocol

As well as providing benefits, the Protocol also imposes a number of liabilities and obligations on New Zealand. In the first instance, all benefits, liabilities and obligations under the Protocol arise to the Crown.

Table 32 below indicates the benefits and liabilities for New Zealand's forest sinks under current Kyoto rules.

Table 32 - Kyoto and non-Kyoto Forest Sink Credits and Liabilities

Sink Credits and Harvesting/Deforestation Liabilities (CP1) for Kyoto and non-Kyoto Forests

  Sink Credit Benefits Emissions Liability upon Harvest Emissions Liability Upon Deforestation
Kyoto forest (forest planted on land since 1990 that was in some other land use on 31 December 1989) Yes. Equal to the carbon sequestered over CP1 on eligible lands Yes. Equal to the carbon released through harvesting but not more than the sink credits received over the same period Yes. Equal to the carbon released at harvest
Non-Kyoto forest (established pre-1990 - also applies to forest that has been replanted following harvest after 1990) Yes, if this activity is elected under Article 3.4 ("forest management"). However, this is subject to a cap (NZ - 1 MtC over CP1) Yes, if this activity is elected under Article 3.4 ("forest management") and equal to the change in carbon stocks on the land accounted for over the CP1No, if this activity is not elected under Article 3.4 ('forest management') and forest is replanted Yes, whether or not "forest management" is elected and equal to the carbon released at harvest

Slightly anomalous rules exist within the Kyoto Protocol in terms of the way Kyoto forests and non-Kyoto forests are treated. This distinction is, to some extent, artificial.

These rules mean that New Zealand faces the liability associated with the deforestation (felling and not replanting) of non-Kyoto forests but does not face any liability associated with harvesting (felling and replanting) non-Kyoto forests. In contrast, however, New Zealand faces a liability associated with both the deforestation and harvesting of Kyoto forests.

There is one further major difference between the treatment of Kyoto forests and non-Kyoto forests in terms of treatment under the Protocol. The liability faced by New Zealand on the harvesting of Kyoto forests is limited to the amount of carbon claimed previously from that forest. This does not apply to non-Kyoto forests.

On deforestation of a non-Kyoto forest, the entire carbon liability in the forest is faced by New Zealand. If a non-Kyoto forest is deforested prior to 2008, however, New Zealand does not face any liability (although New Zealand is liable for any resulting emissions from agriculture on that land).

In general, the number of credits (or debits) generated under Article 3.3 is equal to:

carbon in Kyoto Forests as at 31 December 2012 minus

carbon in Kyoto Forests as at 1 January 2008 minus

(carbon as at 1 January 2008 in lands deforested between 1 January 1990 and 31 December 2012 minus carbon as at 31 December 2012 in lands deforested between 1 January 1990 and 31 December 2012).

Note that deforestation requires both the harvesting of trees and a conversion in land use. If the forest is harvested and replanted or even left to naturally regenerate, it does not create a deforestation liability because there has been no land-use change.