What the hell did the forestry sector ever do to the National Party? I know one thing they did – they ensured that at the end of the first Kyoto commitment period New Zealand was in the black despite ever increasing gross greenhouse gas emissions. It was only the fact that we planted enough trees to offset those emissions that taxpayers didn’t end up with a massive bill given the National Government’s winding back of low-carbon policies, gutting of the emissions trading scheme (ETS), and active promotion of carbon intensive industries and practices. The National party should be thanking forestry for digging them out of a hole.
Instead you could be forgiven for thinking that the National Party has some kind of vendetta against the forestry sector.
Since 2011 National has sat on its hands as a flood of cheap international units (“Kyoto units”) – units which are banned or restricted in every other scheme around the world – has collapsed the price of the New Zealand Unit (NZU). The impact on the post-1989 forestry sector has been enormous. Foresters have exited the ETS and replanting has all but dried up. And all this before we even consider the “wall of wood” due to come on-stream in the next few years.
It’s been an issue that the Labour party has raised consistently over the last few years – in the House, in select committee, and through SOPs during the committee stages of the last ETS bill. I also have a members bill in the ballot to restrict these cheap units. This is hardly a new issue.
So when we were presented with an omnibus bill during Budget urgency which included what was described to us as a “non-controversial” change to the Climate Change Response Act we thought at first blush it sounded pretty reasonable. As Minister Craig Foss said in his first reading speech:
Part 2 of this bill corrects an unintended consequence in the operation of the New Zealand emissions trading scheme. It stops reregistration arbitrage, which arises from the price difference between international Kyoto units and New Zealand Units. Urgent intervention is required to prevent the significant reputational and integrity risks and fiscal cost to the Crown that this may create.
Basically the change was purported to stop foresters registering their forests with the ETS (and collecting NZUs for the carbon their forest sequesters), de-registering (and surrendering much cheaper Kyoto units to meet the de-forestation liability thereby pocketing the difference), then re-registering and playing the whole game over and over. This re-registration arbitrage was exploiting a loophole and it definitely needed to be fixed.
However that’s not what the Bill actually did. It could have simply stopped a forester from being able to register more than once. Simple. Or the Government could have done what the forestry sector has been calling on them to do since 2011 – restrict these cheap Kyoto units across the board – which would have solved this and many other problems.
Instead what the bill did was stop post-1989 foresters from being able to access Kyoto units to meet their de-registration liability at all. This applies not only to the foresters who were gaming the system by engaging in re-registration arbitrage; it also captures those who are exiting the scheme for genuine reasons with no intention of re-registering. It doesn’t stop re-registration arbitrage; it stops all arbitrage.
And in isolation that seems fair enough. Except that when it comes to National’s mates in the industrial sector, who were awarded a free allocation of NZUs to meet the bulk of their emissions when they entered the scheme, there are no such restrictions. They have been given a free pass to continue to engage in arbitrage without restriction.
The Minister claimed the bill was about reducing fiscal risk to the Crown but when you consider that the fiscal risk associated with post-1989 foresters is estimated to be between $11-66 million compared to $107 million for other holders of NZUs (based on the Government’s own methodology) – you have to ask yourself why this sector was not only the first but is the only sector targeted.
Minister Foss’ comments in the first reading are ridiculous for a number of reasons. Firstly this isn’t an “unintended consequence in the operation of the New Zealand emissions trading scheme”. It is the result of a very deliberate decision made by National to not restrict cheap Kyoto units. And “urgent intervention” was required back in 2011 when the forestry sector first raised this issue with the National Government.
The retrospective nature of the legislation also means that any foresters who were intending to de-register and had purchased Kyoto units to meet their obligations are now stuck with them. They will also have to purchase NZUs to replace them. The Government could have made the restriction apply only to future imported Kyoto units but chose not to.
This change had no consultation, no select committee process, and was dropped on the sector without warning. This is despite the Ministry for Primary Industries routinely promoting the re-registration arbitrage process – including tips on how to de-register and re-register under the ETS – in their Sustainable Forestry Bulletin as early as February this year.
This change does nothing to address the actual problem which is the significant price differential between the NZU and Kyoto units and the unrestricted flow of these cheap units into our ETS.
Labour has consistently supported the forestry sector and iwi in calling for a restriction on these cheap Kyoto units for years. But the restriction must apply to all participants – not only forestry. Anything else is just cronyism. Plain and simple.