The use of market mechanisms to bolster forest carbon:
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The use of market mechanisms to bolster forest carbon:A critical analysis
Faculty of Law, University of Sydney, Australia
Celeste M Black, Senior Lecturer
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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
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Introduction
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Forest Carbon
Reducing deforestation
› REDD
› Domestic measures: emissions liability upon deforestation
Establishing new forests
› CDM
› Domestic forest offsets
› Voluntary/regulatory markets
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Role of Market Incentives
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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
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Forests as a Carbon Sink
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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
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Creating positive incentives for forestry
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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
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Forest incentives in Australia
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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)
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Federal tax incentives for carbon sink forests
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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
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Federal incentive: Generation of units under CPRS
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Forest Carbon: Australia
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CPRS Discussion Paper: short rotation harvest – unit limit in red
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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
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Generating NGACs under NSW GGAS
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NSW GGAS sequestration pool management
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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)
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Forestry incentives in New Zealand
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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
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National Incentives: Permanent Forest Sink Initiative
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Forest Carbon: New Zealand
› NZ units issues for increases in carbon stock from afforestation and reforestation
› Delineation between pre-1990 and post-1989
- 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
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National Incentives: NZ ETS
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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
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Afforestation Grants Scheme
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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
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Comparison of approaches in Australia and NZ