The use of market mechanisms to bolster forest carbon: A critical analysis Faculty of Law, University of Sydney, Australia Celeste M Black, Senior Lecturer

Forest Carbon ›Role of forestry in reducing levels of atmospheric carbon The bathtub analogy ›Emissions: deforestation and forest degradation ›Removals: forest carbon – afforestation and reforestation ›Sustainability Institute and Schlumberger Ltd ›Climate Bathtub 2 Introduction

Forest Carbon Reducing deforestation ›REDD ›Domestic measures: emissions liability upon deforestation Establishing new forests ›CDM ›Domestic forest offsets ›Voluntary/regulatory markets 3 Role of Market Incentives

Forest Carbon ›Natural sequestration of carbon -Soil Carbon -Forest Carbon -Ocean uptake ›Growth of forest: net carbon sink ›Carbon saturation point at forest maturity? ›Monitoring and measurement ›Permanence – natural risks ›Small scale harvesting 4 Forests as a Carbon Sink

Forest Carbon ›Creating a commercially viable alternative to other land use options ›Direct incentives -Grants programs -Concessional tax treatment of expenses ›Indirect incentives -Issuing carbon offsets ›Including both large and small land-holders 5 Creating positive incentives for forestry

Forest Carbon: Australia ›Several regimes to encourage forestry at state and federal levels ›Federal level -Tax concessions -Generation of units under deferred ETS (the Carbon Pollution Reduction Scheme) ›NSW State level: Generation of units under emissions trading scheme – the NSW Greenhouse Gas Abatement Scheme (GGAS) ›New initiatives: Victorian Carbon Exchange for carbon offsets 6 Forest incentives in Australia

Forest Carbon: Australia ›Establishment costs deductible -Until June 2012, fully deductible in year incurred -After June 2012, deductible at 7% pa (over 14 yrs, 105 days) ›Must notify relevant authority and satisfy criteria ›Commissioner of Taxation may deny deduction for non-compliance ›Suggestion of annual monitoring? ›Compare favourable tax treatment of forestry managed investment schemes (plantation forestry) 7 Federal tax incentives for carbon sink forests

Forest Carbon: Australia ›Indefinite deferral of CPRS ›For reforestation ›Qualification requirements similar to regime for carbon sink forests ›Approach to crediting units ›5 year reporting cycle ›Treatment of harvested forest stands ›Risk of reversal buffer ›Projects to be revoked and units relinquished if non-compliant ›Liability capped 8 Federal incentive: Generation of units under CPRS

Forest Carbon: Australia 9 CPRS Discussion Paper: short rotation harvest – unit limit in red

Forest Carbon: Australia ›GGAS covers NSW electricity sector ›For project-based increase in carbon stocks in an eligible forest, generate NSW Greenhouse Abatement Certificates (“NGACs”) ›Accreditation and project registration ›Approach to issuing abatement certificates -Sequestration pools -Permanent carbon storage plus rotational harvesting ›100 year requirement ›Non-compliance produces emissions liability 10 Generating NGACs under NSW GGAS

11 NSW GGAS sequestration pool management

Forest Carbon: New Zealand ›3 main regimes to encourage forestry ›National level: generation of units under 2 regimes: -Permanent Forest Sink Initiative (PFSI) -NZ Emissions Trading Scheme (NZ ETS) ›Local/Federal level -Cash grants under Afforestation Grant Scheme (AGS) 12 Forestry incentives in New Zealand

Forest Carbon: New Zealand ›Provides for generation of Assigned Amount Units ›For carbon sequestered in a permanent forest on previously unforested land (1989/90 rule) ›99 year covenant with NZ Government ›Limited harvesting allowed ›Landowners required to return AAUs and pay penalty in the event of non- compliance 13 National Incentives: Permanent Forest Sink Initiative

Forest Carbon: New Zealand ›NZ units issues for increases in carbon stock from afforestation and reforestation ›Delineation between pre-1990 and post Pre-1990 forests must participate upon deforestation -Post-1989 forests: voluntary participation -One-off allocation for pre-1990 forests & limited exemptions ›Approach to issuing NZUs ›Units must be surrendered if carbon stocks decrease ›Measurement -Look-up tables: forest age and type -New measurement-based approach (proposed) based on field data 14 National Incentives: NZ ETS

Forest Carbon: New Zealand ›Competitive cash grant scheme jointly funded by NZ Govt and regional councils ›Complements PFSI and NZ ETS ›Simpler option to obtain benefits from establishing a new Kyoto-compliant forest ›Grant agreement with Minister for Agriculture ›Term of 10 years ›Crown owns any units generated 15 Afforestation Grants Scheme

Forest Carbon: A comparison ›Shortcomings of Australian approach -Lack of coherence between current measures -Issues around design of tax concession and monitoring -NSW GGAS a useful model - pooling ›NZ approach -More thorough/detailed -Inclusive of both holders of small parcels of land and larger scale forestry operators -Inclusion of deforestation 16 Comparison of approaches in Australia and NZ