How does the White Paper affect the forestry sector?

By Claire Smith.

Key Points:
Forestry stakeholders will need to continue to consult with Government to ensure appropriate accreditation and security arrangements are adopted and any buffer imposed is commensurate with the risk.

The forestry sector includes reforestation and deforestation.

Reforestation

In the Green Paper, the Government proposed to cover reforestation on a voluntary basis from CPRS commencement. This position remains the same in the White Paper. The CPRS will cover only domestic emissions sources and sinks that are counted in Australia's Kyoto Protocol national account. To provide forestry participants with sufficient time to manage any liabilities that could flow from changes to international rules, the Government will in general provide five years' notice of changes to accounting rules that would materially affect the supply and demand of CPRS permits.

The Government has accepted that certain entities that own "carbon property rights" which go beyond traditional land ownership (ie. personal rights over sequestered carbon in the trees) will be eligible to join the CPRS. As the Government will not necessarily have the value of the land as security against future CPRS debts, it will require participating forestry entities to meet stringent accreditation requirements and may require them to provide other forms of security (eg. a bank guarantee) and/or lodge an appropriate restriction on the land title.

The Government will issue permits on an average crediting basis. Under this approach, permits will be issued for the projected net greenhouse gas removals (ie. sinks less sources) after CPRS commencement up to a permit limit determined by the regulator of each forest. The permit limit will include an allowance to account for additional emissions that could be generated from natural disturbances such as fire, insect attack, storms or severe drought (referred to in the White Paper as a "reversal buffer"). This will avoid entities having to surrender permits every time there is a loss of carbon stock. Buffers could be amended over time to reflect changed circumstances.

Forestry entities will need to satisfy a range of reporting and other obligations (including Kyoto Protocol criteria) to ensure that the correct number of permits are issued and surrendered. The White Paper position is that emissions and removals in the forestry sector will be estimated using a prescribed methodology such as the National Carbon Accounting Toolbox.

Because forestry will generally act as a net carbon-sink (ie. entities are more likely to be issued with permits than to have compliance obligations), the sector will be able to report less frequently than other industries. Forest entities will be required to report at least once every five years, but may elect to report more frequently but not more than once per year.

Permits will be issued for each tonne of net greenhouse gas removals and will only be issued in arrears, after trees have grown. Permits for established forests will only be issued for net removals from 2010 once carbon stocks are greater than the 2008 baseline. Permits will also not be issued for greenhouse gas removals sold as offsets to avoid double-counting.

The Government will enforce CPRS obligations against the forest entity for a defined period (eg. 70 years following the issue of the last permit for an individual forest stand) rather than indefinitely.

Implications

Forestry stakeholders will need to continue to consult with Government to ensure appropriate accreditation and security arrangements are adopted and any buffer imposed is commensurate with the risk. Prospective participants in the CPRS may find it useful to conduct a gap analysis of their existing obligations (under their voluntary sector accreditation) against the proposed requirements for inclusion in the CPRS.

Deforestation

Under the Kyoto Protocol, Australia is liable for emissions from deforestation. Deforestation currently accounts for around 11 percent of Australia's emissions although this is declining due to state restrictions on land clearing. The Government announced in the Green Paper that it did not propose to include deforestation in the CPRS because increased protections against land clearing have already reduced deforestation markedly in Australia since 1990. Despite mixed reaction to this, the Government's position remains the same under the White Paper.

The Government's rationale is that the relative small scale nature of the deforestation activities could mean, depending on the participation thresholds, that potentially thousands of entities would be covered as there is no obvious point of obligation elsewhere in the supply chain. Further, the Government was concerned that including deforestation would provide a powerful incentive for pre-emptive land clearing prior to CPRS commencement.

For further information, please contact Claire Smith.