MPI has proposed to scrap ‘fees free’ for forests registered in the permanent category, effective 1 October.
At the start of this year, the latest update to ETS fee changes took effect waiving fees for the new permanent forest category. 72 days later, these fees were proposed to be reintroduced, as well as adding an annual administrative fee for all forests registered in the ETS. These fees will disproportionately affect native and small forest participants, and are inequitable.
Native forests are under-represented in the ETS at 17% of all hectares registered. They face numerous obstacles to access carbon markets already and we’re disappointed to see further obstacles to native forest restoration in place. The introduction of fees for permanent post-1989 forestry will disproportionately impact native forest registrants and small registrants. We need to encourage, not discourage, native afforestation.
Summary of the proposed fees
MPI has proposed 22 new service fees, including:
Fees for registering permanent forests, adding new areas of permanent forests, and filing emissions returns.
New fees for FMA participants - those who have over 100 ha registered.
A fee for deregistering from the ETS.
An annual charge for all forests registered in the ETS of $30.25 + GST / ha.
Scrapping of ‘fees free’ for Permanent
There are three main impacts of the reintroduction of fees for permanent forests:
Smaller and/ or native forests will be penalised disproportionately. Although the pricing for new registrations and other fees are tiered, it does not scale linearly with size. We need more tiers at the lower end, especially if effort is proportional to area.
Annual carbon cash flow may be at risk for smaller participants and recent plantings. Although the proposed fee for filing emissions returns for participants with permanent forestry is relatively small ($165), for some participants, it may no longer be financially worthwhile to file a return every year, meaning they will have to wait longer until they are issued credits. Many native forest landholders in the ETS use carbon credit revenue to fund restoration projects and delaying their access to finance could delay restoration action. The price of adding new areas to a registration is set to increase massively ($0 -> $1,815 for areas between 10- 49ha), which means some may delay adding new areas, reducing the incentive and impact for restoration projects.
Increased uncertainty in the ETS ETS participants are already uncertain due to recent announcements on auction settings, ETS reviews and NZU price drops. Landowners are understandably reluctant to register new forests and these proposed fees only add to the uncertainty, especially since the proposal comes less than four months after making the same category largely ‘fees free’.
Why did Te Uru Rākau announce that fees are waived for permanent forests, only to introduce a proposal for fees four months later?
The new annual charge for administration
The new annual charge will further disincentivise native registrations as well as new plantings by affecting annual cash flow. Although small in relation to the carbon credits earned (the proposed charge is $30.25 + GST /ha), it is a significant proportion for native forests and new plantings, who earn very few units in the early years. Fees for the ETS could outweigh any carbon credit earnings.
MPI should cover the administrative costs for native forest in recognition of the broader unrecognised and uncompensated biodiversity benefits that on-farm native forest brings for all of NZ. It's more than reasonable considering the higher established costs, lower returns, and increased environmental benefits.
Once again, inequity for native forests
These proposed changes are not equitable and will limit the participation of native forests in the ETS, hindering meeting our climate change goals. They will disproportionately affect the class of forest which is most in need of incentives and identified as most desirable in policy. The benefits of native afforestation and restoration (biodiversity, water quality and flood management) go beyond the forest boundaries. Keep the fees in place for exotics, but make them free for natives.
So what does all this mean for you?
If you are already registered in the ETS, you’ll have an annual charge based on the number of hectares you have registered. You also might face more fees for ETS activities, such as adding new areas of forest or applying to pause carbon accounting due to an adverse event.
If you have submitted an application to the ETS but it hasn’t yet been processed by MPI, then you won’t have to pay the new registration fees. However, once your forest is registered, you will have to pay the annual charge and fees for other ETS activities.
If you are not registered in the ETS but you are thinking about it, now is the time to apply. Submit your application before 1 October to avoid the new registration fees for permanent forests.
MPI has a public consultation on these proposed fees, with submissions due by 3 May. CarbonCrop will make a submission, and we encourage you to do so too!
Submissions should be emailed to costrecovery@mpi.govt.nz