In this list
Energy Transition

Carbon forestry attracts interest in Australia as policy uncertainty racks New Zealand

Energy | Energy Transition

Platts Custom Analytics

Energy Transition | Carbon | Emissions | Renewables

COP28: The Challenge

Oil | Energy Transition | Energy

APPEC 2024

Energy Transition | Metals | Emissions | Carbon | Non-Ferrous

VCMI releases 'ready to use' guidance for buyers of carbon credits

Energy | Energy Transition

Platts CARBEX Carbon Credit Indices (powered by Viridios AI)

Metals | Energy Transition | Coal | Natural Gas | LNG | Shipping | Electric Power | Ferrous | Hydrogen | Metallurgical Coal | Steel | Non-Ferrous | Electric Power Electricity | Renewables | Emissions

Commodity Tracker: 5 charts to watch this week

For full access to real-time updates, breaking news, analysis, pricing and data visualization subscribe today.

Subscribe Now

Carbon forestry attracts interest in Australia as policy uncertainty racks New Zealand


Australia loosens rules for carbon-based plantations

New Zealand forestry consultation creates uncertainty

New projects need ACCU price of A$60-A$70: source

  • Author
  • Kshitiz Goliya
  • Editor
  • Ankit Rathore
  • Commodity
  • Energy Transition

Carbon forestry market is attracting interest in Australia as its government implements policy changes and provides financial grants, but there is uncertainty in New Zealand amid its decision to redesign rules for forestry projects in the country's emissions trading scheme, sources told S&P Global Commodity Insights.

Not registered?

Receive daily email alerts, subscriber notes & personalize your experience.

Register Now

This comes as the Australian government has been taking some measures, such as revoking water-related regulations that placed additional barriers on the registration of plantation-based carbon projects in high-rainfall locations, to encourage the entry of plantation projects in the Australian Carbon Credit Units scheme.

The government also allocated A$73.76 million in June to help establish new long-rotation plantation forests in Australia.

According to an Australian plantation-based carbon project developer, the current government is more supportive of the plantation methodology as it expects increased tree planting to benefit Australia's 2030 and 2050 targets.

New Zealand and Australia both allow plantation forestry projects to earn carbon credits by either planting new forests or changing harvesting patterns for existing plantations.

New Zealand's policy uncertainty

Meanwhile, the growing carbon forestry sector in New Zealand has run into policy uncertainty.

The New Zealand government in June opened a consultation to redesign the ETS to reduce reliance on offsets, in addition to framing a new policy for the registration of exotic forests, which account for the majority of carbon forestry projects.

This followed the cabinet's decision in December to implement weaker price settings for ETS auctions against the advice of its national climate body, which recommended a steep increase.

"The decisions made by cabinet and proposals for changes to ETS rules by officials have destroyed a market which was starting to work," said James Treadwell, president of the New Zealand Institute of Forestry.

The uncertainty around policy led to a steep fall in NZU prices, which tumbled to a multiyear low of NZ$35/mtCO2e on July 5.

"There is definitely that feel in the market that capital investment is currently being impacted in New Zealand due to the uncertainty," said Amy Smith, team leader for land use and ETS at Forest360, a forestry consultant.

"Investment has dried up [in New Zealand] or even reversed in the form of capital flight, and yes Australia is looking far more attractive," said Treadwell.

Established players in New Zealand, who are familiar with plantation forestry and generating NZUs, are already looking at Australia for plantation forestry, the Australian project developer added.

"The Australians seem to be doing it right and appears that they genuinely realize the scale of the issue in taking such an approach," said Blair Jamieson, CEO of Tamata Hauha, a New Zealand-based carbon forestry developer.

Forestry projects

A high price for New Zealand Units, or NZUs, has led to a rise in the entry of forestry projects in its ETS, with exotic forests accounting for most registrations.

At the same time, onerous regulation and relatively lower prices of Australian carbon credit units, or ACCUs, have stalled the participation of the country's plantations in the carbon market.

Platts, part of S&P Global Commodity Insights, assessed the price of Generic ACCUs at A$32/mtCO2e ($21.05/mtCO2e) on Aug. 10, and the Human-Induced Regeneration, or HIR, ACCUs at A$36.75/mtCO2e. The NZU price was assessed at NZ$60/mtCO2e ($36.48/mtCO2e) Aug. 10.

As a result, just 79 plantation-based carbon projects have been registered in Australia, with nearly 99,000 ACCUs issued in the fiscal year 2022-23 (July-June).

This compares with around 3,855 forestry participants in New Zealand's ETS scheme in 2022 and 12.4 million NZUs forecast to be issued to such projects in 2023, according to government data.

Price barriers

While policy changes have been helpful, lower returns and poor economics are still holding back the forestry sector in Australia.

"I think the issue at the moment, given where the ACCU prices are and land prices are, is that it is not a very good return on investment," the Australian developer said.

The ACCUs generated by plantation projects are priced at A$40/mtCO2e, which is at a premium to the Generic and HIR ACCUs, but below the levels attracted by other methods such as environmental planting and savanna fire burning.

"For new projects, given where land prices are and the high cost of saplings and labor and the rest of what you need in a project in Australia, we have heard that you need a A$60- A$70/mtCO2e ACCU price to support those projects," the developer added.

As a result, while the policy changes in Australia have increased interest, the current uncertainty in New Zealand will not be enough to usher in a significant change in the market scenario.

"Yes, Australia has loosened its rules and there is a little bit of increase in interest but ultimately they can't grow trees like we can in New Zealand," Smith said.

New Zealand also saw a positive development in July after the government made an about-turn following a court reprimand and accepted the national climate body's higher price settings for its ETS.

"The price jump, after the government admitted their activity was illegal, went some way to calm markets," Treadwell said.

The NZU price jumped 31.6% on the day to NZ$64.5/mtCO2e July 26 following the government's reversal on ETS price settings.

"However, there are still too many consultation documents out which may affect the market and confidence in further investment still at an all-time low," Treadwell added.