Storm Damage to Forests and Carbon Liabilties

2013 has been a bad year for NZ forests and storm damage. Canterbury has been particularly hit, with four major wind events since June and the storms in September the worst in 40 years with up to 1 million cubic metres of wood potentially flattened. As well as shelterbelts, plantation forests and small stands have also been hit hard.

While the first and most important post storm response is the clean up and log recovery, affected owners should also think about their responsibilities under the Emissions Trading Scheme and how to best navigate their obligations. If the estimates of affected logs are correct this could translate to around 1.2 million tonnes of carbon dioxide emissions, some of which will have incurred liabilities for land owners.

Owners of forests planted before 1990 have obligations to repay to the Crown up to 800 carbon units per hectare for stands that are not re-established after being destroyed. While the owner has 4 years to re-establish the forest, now presents a good time to think about possible land use changes because of low carbon prices. At the peak of $21 per unit in 2011, deforesting and changing the land use of a pre-1990 forest would cost a landowner over $16,000 per hectare in buying replacement units. This cost was largely prohibitive for owners looking at forest conversion into uses such as dairy.

At present with foreign credits priced at less than 30c the same exercise would cost just $240 per hectare. However the opportunity is limited because the cheap international credits will be banned from NZ sometime early 2015. If the flattened forest has not been re-established within 4 years then it will incur the deforestation carbon obligation in 2017/2018, by which time the only eligible unit will be our domestic NZU, and the price may well have increased.

Owners of forests planted after 1989 have to account for carbon loss due to windthrow damage regardless of whether the forest is replanted or not. Reporting can be delayed until June 2018 at the latest which is when the next mandatory emissions return is due to be filed to MPI. 

Key points:

• The ETS Emissions Trading Scheme (ETS) applies to all exotic forests planted before 1990
• The ETS only applies to forests established after 1989 that have been voluntarily registered under the Scheme
• The ETS does not apply to forests less than 1ha in area and less than 30m in width (i.e. most shelterbelts are excluded)
•  Significant windthrow damage incurs an obligation to pay units to the Crown for pre-1990 forests that are not replanted within 4 years of the event
•  Significant windthrow damage incurs an obligation to repay units in ETS registered post-1989 forests whether or not they are replanted
•  Liabilities for post-1989 forests are capped at the amount of credits they have been issued
• Unit surrender obligations can be met using foreign credits which are currently less than 30c each.
• Foreign credits will be banned from early 2015 onwards so now is a good time for forest owners to consider their land use options
•  In 2011 converting a pre-1990 forest to pasture cost $16,000/ha. Today it costs approx $240/ha

However, for the reasons explained above right now there is an opportunity to repay decreases in carbon inexpensively using foreign credits. To account for carbon losses sooner than 2018, post-1989 forest owners can either remove the affected forest stands from the NZ Emissions Trading Scheme, or file a voluntary carbon emissions return with MPI before May 2014. This would trigger repayment of units for the storm damaged area.

The Ministry of Primary industries have indicated they will be releasing more information about storm damage and forestry under the ETS in their next Sustainable Forestry Bulletin.