NZ establishes body to revitalize Forestry ETS, address operational costs

New Zealand Forestry Minister Todd McClay instituted a Forestry Sector Reference Group Oct. 14 that aims to restore confidence in its forestry emissions trading scheme and provide certainty for the sector by cutting redundant operational costs and regulatory duplication.

This comes after an independent review into the costs of the country's Forestry Emissions Trading Scheme Register was announced in early 2024 after forest owners flagged that excessive costs were imposed by the previous Labour government at an annual rate of NZ$30.25/hectare ($18.42/hectare) for participation in the registry.

The current National Party-led coalition government canceled this 2023-24 annual fee and established the reference group as its response to lower operational costs for a more efficient forestry ETS registry. A new levy for the 2024-25 financial year, running from July to June, is in review.

Landowners in New Zealand can register their forestry land in the country’s ETS and earn carbon allowances known as New Zealand Units, or NZUs. These NZUs can be sold in the spot market to the emitters participating in the ETS, which covers nearly half of the country’s total emissions.

Platts, part of S&P Global Commodity Insights, assessed NZUs at NZ$63/mtCO2e on Oct. 14, stable on the day.

A New Zealand-based broker said forest developers were encouraged by the high return on investment on forestry products such as selling timber, as compared to selling sheep and beef from agriculture land, which resulted in higher rates of farmland being converted for forestry use.

Excess supply of New Zealand units in the market, mainly from the forestry sector, has weighed on buying interest among emitters as there was no rush among them to purchase, sources said.

The New Zealand government in its action plan for the fourth quarter released Sept. 30 said they were working on a policy to reduce the conversion of high-quality farmland into forests as it was looking at limiting the conversion to ensure food security and protect food production in the country.

Market participants will look at the last quarterly carbon allowance auction Dec. 4 to get a sense of market direction for prices and fundamentals for 2025.

Auctions under the New Zealand ETS are held on a quarterly basis in which the bids have to be equal to or above the auction floor price set at NZ$64/mtCO2e for 2024 as well as the confidential reserve price. The CRP is set by the government to prevent the sale of units significantly below spot market prices.