managing your covenant
Carbon Credits 

Carbon credits and forestry have been a topic of much conversation in the last year or two, especially as a recently lucrative carbon market has prompted significant land-use conversion to exotic forestry for carbon credits.

We’ve been increasingly getting questions from covenantors about carbon credits and covenants. Below, we cover some of the most frequently asked questions.

The New Zealand Emissions Trading Scheme (NZ ETS) is the Government’s main tool for reducing our greenhouse gas emissions and achieving Aotearoa New Zealand’s climate change targets, such as reducing net emissions of all greenhouse gases (except biogenic methane) to zero by 2025.

The ETS trades in New Zealand Units (NZUs). One NZU is worth one “carbon credit” and is equivalent to one metric tonne of carbon dioxide equivalent (other greenhouse gases). All emitting industries (except agriculture, this is currently exempt till 2025) must purchase NZUs to offset at least some of their emissions.

Forest owners “supply” NZUs. They can register their eligible forest land in the ETS where the carbon sequestration occurring in their forest is accounted for and converted into NZUs. Forest owners can then sell their NZUs to “emitters” on the carbon market. It is intended that over time, the government will increase the price (or constrain the supply) of NZUs, providing an economic incentive for emitters to reduce their emissions instead of relying on offsetting.

There has been a lot of media coverage about the ETS. Policy settings and a high carbon price have meant that converting land for exotic forestry to sequester carbon has been very lucrative, driving wide scale land-use change in some parts of the country. As highlighted in the May 2022 edition of Open Space, land-use change to exotic forestry around areas of indigenous biodiversity can present many ecological and practical challenges for covenant sustainability.

Yes, you can, as long as it’s eligible under the ETS rules – having a covenant does not prevent you from getting carbon credits.

No, QEII doesn’t own your carbon credits, you do. You own the land, so you own the carbon credits, until you decide to sell the carbon credits on the carbon market.

The ETS has strict requirements around what native forest is eligible for carbon credits. For forest areas to be eligible they must meet the Ministry for Primary Industries (MPI) ‘forestland’ definition, that is: –

  • At least 1 hectare of land
  • Forest that will reach at least 30 metres across on average
  • Contain trees that can grow to at least 5 metres in height
  • The forest must be able to reach at least 30% average canopy cover
  • New trees since 1990. Forest before 31 December 1989 is not eligible

Most covenants that are protecting native forest will easily meet the first four, but it’s the post-1989 point that makes things tricky for many QEII covenants. Many QEII covenants aren’t eligible for the ETS because they’re primary or secondary forest that was established prior to 1990.

Your covenant might be eligible if it includes native forest that has regenerated after 1989. These areas typically regenerate through pasture, bracken, gorse, and broom and are often found on the edges or within gaps in the covenant, among more mature native forest. To be eligible, you’ll need to prove that that the trees in your covenant were established post 1989. We recommend contacting a carbon consultant to help you with this if you think it’s a possibility.

This helpful explainer gives a good overview of these criteria for registering forest in the ETS. If you think your forest might be eligible, we encourage you to talk this through with a consultancy of your choice that specialises in this work – unfortunately, QEII does not have the expertise to help you with this.

The ETS does not currently recognise sequestration other than forests. The ETS is limited to carbon sequestration where it can be reliably measured. While it’s known that wetlands (especially peatlands) and soil store carbon, there’s much more research needed to be able to robustly measure and quantify carbon sequestration under different management regimes.

There are a range of fees associated with the ETS, although there is no longer an application fee if you’re applying to register permanent native forestry. It is possible to make your own application, however many people use a carbon consultant, especially if they are trying to register areas of regenerating native forest and need to prove it is post-1989. There are a growing number of carbon consultancies and some charge an hourly fee, while others take a portion of the carbon credit income over a set period.

Registering in the ETS and earning and selling NZUs as they accumulate over time is an ongoing process. You may also require a consultant to help you lodge emissions returns and to sell the NZUs.

If you are keen to explore planting in your covenant, please get in touch with your QEII regional rep first. Standard covenant conditions prohibit planting exotic species and any native species that aren’t locally appropriate.

You may be able to plant eco-sourced native species for carbon credits, it depends on your covenant, the type of ecosystem, what might be suitable to plant and whether planting “woody” species that would meet the ETS definition of forest land is consistent with your covenant deed. Bear in mind the MPI ‘forest land’ definition above, includes a requirement for at least one hectare of eligible species.

The carbon space is complicated and everchanging. Our regional reps and staff don’t have the expertise to advise on details associated with carbon credits and your covenant.

Our reps can check your covenant deed to make sure there are no covenant management obligations that could conflict with getting carbon credits (unlikely) and give you an idea of whether your covenant contains the right woody tree species to be eligible.

As these are personal, financial decisions, we recommend speaking to an expert/carbon consultancy for specific carbon advice. Some carbon consultancies will also be able to help you navigate potential opportunities in New Zealand’s emerging voluntary carbon market. We have listed a few consultants below.

It will likely be easiest to use a local provider, but here are a few consultants we’re aware of.

We’ll continue adding to this list, so please let us know if you’re aware of any other consultants.  

Example: carbon credits in a QEII covenant

Jenny and Darryl successfully registered some of their covenant in the NZ ETS and share their experience navigating the application process below.

They own a 26 hectare property on Banks Peninsula. A QEII covenant protecting the entire property was established in 1992. Before protection, the land was used for livestock grazing and was sprayed for extensive gorse control.

The pair successfully registered 12.2 hectares in the ETS in 2020. Their application was helped considerably due to photos from the former landowners, QEII photo points, aerial images, and a property-wide botanical report conducted in 1993. This was all strong evidence to show post 1990 forested areas.

Jenny and Darryl were encouraged by friends, who had experience with the ETS application process, to apply and they also engaged a carbon consultant. The consultant identified ten plots and they were required to provide vegetation samples.

“Each individual forest species had to be identified, counted, and given a height estimate in every plot. Luckily, our friends helped us, and we couldn’t have done it alone. We also had to get ground and drone photos taken at each plot. This took four keen people two weekends.” Jenny said.

The couple learned firsthand that the ETS application process can be complex and although information can be hard to understand, Jenny noted that it is worth seeking help. “Ask others about their experience, ask for ideas and help. We found that conservation minded people are happy to show you the way. It’s healthy to not know how to do things and to keep on learning. You yourself can pass on new experiences to others too.”