Owners of pre-1990 exotic forests should soon learn whether they will qualify under the ETS for a free allocation of carbon credits.


To compensate landowners for the reduced land flexibility and consequent reduced land value, a one-off allocation will be made of New Zealand Units (NZUs) per hectare of qualifying forest.


The allocation plan, which details the final rules on eligibility criteria for pre-1990 exotic forests is due out this month.


Oliver Roberts, a partner with law firm Duncan Cotterill, says this is distinct from post-1989 forests, which have a choice whether to join the ETS and will receive carbon credits for each year of growth.


“Essentially, depending on how long you may have held your pre-1990 forest, you will be entitled to a free allocation of either 39 units or 60 units per hectare. However, as with most things, the devil is in the detail.”


Roberts says forest owners with eligible land need to consider key aspects of the scheme. If a transfer of the forest has occurred since October 31, 2002, then the lower allocation of 39 units applies. Changes to ownership or control through trust and corporate groups will need to be checked carefully to ensure no transfer occurred and the higher 60 units/ha allocation is available.


The less than 50ha exemption applies only to forest blocks less than that size but also where the landowner of such block as at September 1, 2007, owned less than 50ha of pre-1990 forest. If you bought a small forest block after August 31, 2007, you may not be entitled to the free allocation depending on what other pre-1990 forests the vendor owned.


It is most likely the landowner at the date of release of the allocation plan who may claim the free units. A leaseholder or holder of forestry rights may be entitled but there could be dispute between interested parties. Sale and purchase agreements spanning this period need to consider carefully the settlement date and whether vendor or purchaser will be the eligible person entitled to claim, Roberts says.


The free allocation could be factored into the price if the vendor will remain the landowner on the date of release, in such case it is the vendor who remains entitled to claim credits despite sale of the forest. There is no ability to choose eligibility between vendor and purchaser.


The units are not all immediately paid – 38% will be paid by December 31, 2012, and the balance after 2012. The price of carbon credits will continue to fluctuate in the interim.


Roberts points out the ability to deforest is for 2ha only, every five years, with the first five years ending December 31, 2012. Any other deforestation without re-planting will incur carbon liabilities based on the amount of stored carbon in the deforested area (much greater than the one-off allocation of NZUs).


For further information contact Oliver Roberts 03 379 2430.