Voluntary sequestration schemes create opportunities as well as confusion

Native forests that began regenerating prior to 1990 are excluded from the ETS. This opens opportunities for voluntary schemes independent of Government.

In a recent article, I wrote how carbon credits are not created equal. This inequality is now leading to game-playing and confusion across society. Terms like ‘greenwash’ as the carbon equivalent of a ‘whitewash’ are increasingly heard and there is increasing talk of ‘hot air’ carbon claims.

Since writing that article, I have been wrestling with the challenge of further deepening my own understanding of how the carbon game is being played. It is a game where different players are playing by different sets of rules, as are the certifying referees.  Many of the certifying rules are far from transparent.

Here in this article my focus is specifically on the rules surrounding sequestration that removes carbon from the atmosphere. That leaves other aspects of the carbon rules for another time.

In New Zealand, the dominant sequestration rules to date have been those of the Emission Trading Scheme (ETS). However, that could now be changing with the emergence of voluntary certification schemes with potential for local and international certification outside of any official system.

To understand the basic differences between alternative sequestration systems, it is necessary to understand ‘additionality’ versus ‘business as usual’ in relation to ‘baselines’.  Those three terms are where most of the complexity and potential confusion lie.

Within the New Zealand ETS, the key baseline is 31 December 1989.  If either a native (indigenous) or exotic (introduced-species) forest was in existence before that date, even if at only an early stage of regeneration, then it is not eligible to earn official NZUs within the ETS.  The supposed logic of this is that the ongoing growth in these forests is ‘business as usual’ consequent to decisions that were made pre-1990, when no-one was thinking about carbon credits.

Nearly all of the ETS-registered forests are introduced species, which reflects a simple reality that establishment of native forests is a long and expensive process.

When I hear people saying that these new forests should comprise native species, my response is to suggest they come up with the money if that is what they wish to happen. There is a need to recognise that planting natives is not a paying proposition and that is why it is unlikely to happen on any scale unless publicly funded.

Incidentally, according to the MPI website, we already have 10.1 million hectares of forest in New Zealand of which eight million hectares are native forests. That means that 30 percent of New Zealand’s total land area of 26.8 million hectares is already in native forests.

The exception in relation to native forest establishment costs is where regeneration is feasible based on existing seed stocks in the soil.

In recent weeks I have become aware of an example where a farmer has been able to register a regenerating native forest into the ETS in a situation where some elements of the regeneration commenced prior to 1990.  At that time there were remnant groves of native trees in the gullies. However, the farmer and his consultant have been able to demonstrate that this area has increased considerably since 1989, and that there is a contiguous area of new forest approaching 100 ha, defined by squiggly lines that exclude the pre-1990 regeneration.  There are also other properties where this is occurring and there may well be many other farms where this is a possibility.

However, there are also many landholders, and sheep farmers in particular, who have regenerating native forests which are failing to meet the ETS criteria. Some big questions need to be asked as to whether the pre-1990 baseline is being applied in a way that is unduly tough for long-life regenerating forests.

In relation to the pre-1990 baseline issue and its fairness, there is an important distinction to be made between exotic and indigenous forests. For example, New Zealand has approximately 1.4 million hectares of exotic pre-1990 forests that are into their second, third and even fourth rotations. Logic suggests that unless there are changes to rotation length, then there is no net sequestration occurring in relation to the overall amount of carbon within these forests.

In contrast, almost all regenerating indigenous forests are still relatively early in the regeneration cycle and will be sequestering carbon for some hundreds of years, even if that commenced pre-1990. Just because that regeneration started before 1990, is that a valid reason to exclude acknowledgement of the sequestration that is occurring?

It is with some surprise that I have learnt in recent months that although landholders cannot claim credits for these pre-1990 regenerating forests, the Government does include the assessed net growth in these forests within its nationally determined contribution (NDC) and this is reported to the UNFCCC. The argument is that because all of these forests are managed – in the main by Department of Conservation – that net sequestration is a valid contribution to the NDC.

Interesting questions then arise as to whether private landholders should be able to claim credits within the ETS for the indigenous forests that they too are managing. Also, if credits were available, then this would give a clear incentive to undertake more management by fencing and other methods of predator control, leading to additional sequestration.

It is the absence of credits within the ETS for genuine sequestration in pre-1990 indigenous forests that is creating space for voluntary sequestration schemes to develop. The CarbonCrop example that I referred to in my last article illustrates this point. In the case of CarbonCrop, the rules of the game as set out within their website do seem explicit.

I am advised that the early sales of CarbonCrop units for native forests have been at $50 per tonne of sequestered carbon.  This is still early days and the price could go in either direction. CarbonCrop currently requires a landholder to register a minimum area of 20 hectares of native forest, with this no doubt reflecting that small areas become too expensive to justify the measurement, registration and administration costs.

One thing that has changed markedly in the last few years is the ability to measure growth in established forests using a combination of GPS and AI (artificial intelligence) systems including inbuilt learning capacity.   Precise measurement of growth in pre-1990 forests is now feasible from ‘eyes in the sky’ in a way that was totally infeasible when the ETS was established.

My big concern is the need for standardisation both of the overarching methodologies (rules of the game) and the accuracy of measurement with different measuring techniques. Linked to this, it is important that carbon claims are demonstratively not greenwash. I note that there is an international non-government body called Integrity Council for Voluntary Carbon Markets (ICVCM) working towards this.  The rules of the game for carbon markets extend well beyond sequestration, but sequestration is an important component.

Although the focus of this article has primarily been on voluntary schemes for pre-1990 indigenous forests, I see the possibility of a voluntary scheme also emerging for post-1989 exotic forests. This could be in response to Government restrictions on access to sequestration within the ETS as advocated both by Minister James Shaw and Climate Commission Chair Rod Carr.

In regard to the ETS, the Government can do whatever it likes. However, if landowners are restricted from registering their exotic forests in the ETS, then the alternative of a voluntary scheme may well have appeal. The question then becomes whether overseas buyers would see merit in purchasing such units, with the units then credited to the buyer rather than New Zealand’s NDC.   We do indeed live in interesting times.

About Keith Woodford

Keith Woodford is an independent consultant, based in New Zealand, who works internationally on agri-food systems and rural development projects. He holds honorary positions as Professor of Agri-Food Systems at Lincoln University, New Zealand, and as Senior Research Fellow at the Contemporary China Research Centre at Victoria University, Wellington.
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9 Responses to Voluntary sequestration schemes create opportunities as well as confusion

  1. Peter says:

    Insightful article Keith. As you say, if landowners cannot play the game under the ETS, then new games outside of the ETS with different rules become an option. These new games however, such as CarbonCrop’s, are ominous of a bubble in my opinion. A CarbonCrop unit is only worth $50 if people believe it is worth that, those units are not backed by the Government like ETS units are. Who knows, perhaps we will see ‘tussock hills units’ or something similar next, after all it is not only forestry that sequesters carbon.

    • Keith Woodford says:

      I think it would be very difficult to build an argument that tussock hills are sequestering net carbon. In contrast, regenerating native forests are sequestering net carbon.

      • Peter says:

        Fair point Keith, although I was more alluding to the lack of boundaries regarding “carbon units” outside of the ETS.
        Do you share any concern with a value being given to CarbonCrop units that are not backed by NZ Government and have no legal standing under NZ law? That is to say, if the units cannot be used to meet obligations under the NZ ETS, then presumably they are used for marketing purposes. The value of these units then is only attributable to their use for that purpose, and that value arguably is still unknown at this early stage. A further danger may be, that if the ETS were to ever change its settings to include the forestry that CarbonCrop works with, then those CarbonCrop units effectively become worthless.

  2. Keith Woodford says:

    Correct. Units are unused for marketing purposes.
    At this point I am not trying to advocate anything. But I am trying to increase the level of knowledge that we all need as these debates occur.
    As with most items bought and sold in a market, It all depends on supply and demand functions and where those functions intersect.

  3. AL says:

    Entirely agree Keith.
    Players in this secondary carbon market need to be cautious however, in my view it is highly unlikely that pre 1990 forest meets the ‘additionality’ requirement you refer to above. Pre 1990 forest today would still sequester carbon in the absence of a market for offset credits. Authorities are getting up to speed on greenwashing, the Financial Markets Authority will be shaking this space up in the near future.

    • Keith Woodford says:

      Additonality can definitely be a quagmire. But it is interesting that the NZ inventory that is used to report to the UNFCCC does include some sequestration from pre-1990 forests and this is for both indigenous and planted forests. Very few people seem to know this. So, what is good for the goose….

      • Paul says:

        Hi Keith.
        And does this pre-1990 counting used by the Govt for reporting to UNFCCC include such vegetation that is held on private land? Or is it just the Govts public owned land?
        This pre-1990 sequestration should be used first as offset against N2O.
        Next we need methane to be accounted domestically (until UNFCCC catches up) based on ‘additional warming’, just like ‘additional carbon’.
        I note in PCE report this ‘marginal warming’ concept got added by reviewer(s). It is not something at least one of the authors agrees with.

      • Paul says:

        Hi Keith.
        And does this pre-1990 counting used by the Govt for reporting to UNFCCC include such vegetation that is held on private land? Or is it just the Govts public owned land?
        This pre-1990 sequestration should be used first as offset against N2O.
        Next we need methane to be accounted domestically (until UNFCCC catches up) based on ‘additional warming’, just like ‘additional carbon’.
        I note in PCE report this ‘marginal warming’ concept got added by reviewer(s). It is not something at least one of the authors agrees with.

  4. Steve says:

    Hi Keith, great article. I do wonder with the alternative units, whether there is an opportunity to include measurement of soil carbon stores through management practices. I see organizations pop up in the states like “Nori” who by the look of their marketing, act as an intermediaries between arable farmers and non farm industry (via blockchain NFTs). Clearly using a different set of assumptions and methodology than the NZ ETS. Theoretically, if there is no double counting then selling NFT’s to pay HWEN tax isn’t the worst option..

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