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Tēnā koutou, New research by Motu Economic has summarised the recent amendments to the NZ ETS. The paper highlights incentives, barriers and changes to accounting methodology that need to be considered by landowners. It is hoped this paper will be used in order to guide participants in their choices under the new legislation.   You can find the full Working paper here. Key Messages Changes to the New Zealand Emissions Trading Scheme (NZ ETS) in June 2020 create incentives for landowners to establish new forests and register them in the NZ ETS as either standard or permanent forestry. From 1 January 2023, two different accounting methods will apply for calculating the changes in carbon stock in post-1989 forest land, carbon stock-change and averaging accounting. Forests registered before 2019 will retain carbon stock-change accounting and face unit liabilities at harvest. Forests registered between 2019 and 2022 can choose between carbon stock-change and averaging accounting. Under averaging accounting, participants receive New Zealand Units (NZUs) as their forests grow up to an average harvest age and will not face unit liabilities at harvest. In contrast, under carbon stock-change accounting, participants with permanent forests will earn NZUs as carbon stocks increase.  The changes are summarised in this paper to guide participants in their choices under the amendment legislation. Working Paper Summary Objectives/ Research question We designed this paper to help users understand the new forestry rules for the NZ ETS. It does not consider broader strategic policy issues about the potential scale of forestry removals that should apply toward meeting New Zealand’s Nationally Determined Contribution under the 2015 Paris Agreement or New Zealand’s future emissions budgets pursuant to the Zero Carbon Act 2019.     Methods We reviewed amendment legislation and supporting policy documentation to help inform landowners, NZ ETS market participants, and other stakeholders about the significant changes to NZ ETS forestry rules under the Climate Change Response (Emissions Trading Reform) Amendment Act 2020.   Conclusions For standard post-1989 forests registered in the NZ ETS after 2022 (and optional from 2019), the use of averaging accounting will increase the “low-risk” number of New Zealand Units (NZUs) available for trading relative to carbon stock-change accounting because under averaging, the associated carbon stocks will not face future harvest liabilities.   Compared to the Permanent Forest Sink Initiative, the new permanent forestry activity will be more fully integrated into the NZ ETS, will not require a legal forestry covenant, and will provide clear rules to guide future decisions on harvesting and land-use change. Permanent forests must be registered for at least 50 years and maintain a minimum of 30 per cent tree canopy cover,  and will face penalties for clear-fell harvesting and deforestation.   Implications By rewarding forest carbon stock increases as they accrue, the NZ ETS can generally be expected to provide stronger economic incentives for exotic species with faster growth rates than indigenous species for both standard and permanent forestry. However, in the case of permanent forests, the combination of carbon payments, landowner preferences and support for co-benefits can make indigenous species more attractive than exotics if the streams of benefit can be combined, especially over a longer time horizon.   The Motu Working Paper, “Decision trees: Forestry in the New Zealand Emissions Trading Scheme post-2020” by Sandra Cortés Acosta, Arthur Grimes, and Catherine Leining  is funded by New Forests.   For further information please contact: Ruth Copeland at ruth.copeland@motu.org.nz or on 027 69 444 69 Or Sandra Cortes Acosta  Sandra.CortesAcosta@motu.org.nz or on 04 929 4250.

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