4.0 Overview of the updated Draft Forestry Regulations
4.1 Fees and charges
How will the scheme be funded?
The ETS will be funded partly by the Government and, for voluntary participants, partly though participant fees. It is intended that:
- The costs of developing, setting up and promoting the scheme will be funded by the Government because the scheme provides benefits to NZ as a whole.
- The costs of administering the participation of pre-1990 forest landowners will be met by the Government because participation for this group is mandatory if land is deforested.
- The direct costs associated with administering the scheme for post-1989 forest landowners with forest landholdings over 100 hectares will be funded through fees because participation for this group is optional and there are direct benefits for scheme participants.
- The direct costs associated with administering the scheme for post-1989 forest landowners with forest landholdings of between 1 and 99 hectares will be partially funded through fees.
How have the fees been calculated?
The fees have been developed in line with Treasury Guidelines to achieve a balance of the following objectives:
- Fees should equate to the effort or costs incurred in administering the scheme and delivering services
- Fees should be simple to minimise administration costs and associated compliance costs.
- Fees should not exceed the cost of delivering the scheme.
- Forest owners should have some certainty around the costs of participation to allow them to make decisions on whether to participate.
- Fees should not be set at a level which acts as a disincentive to forest landowners to participate.
Costs Attributable To Post-1989 Participants
Treasury cost recovery guidelines indicate that fees should equate to the effort or costs incurred in administering the scheme and delivering services. At this stage it is very difficult to determine how many owners of post-1989 forest land will join the ETS. Accordingly, in November 2007 MAF commissioned an external consultancy to (amongst other things):
- Identify the economic incentives and other considerations that were likely to influence post-1989 forest landowners to join the ETS;
- Recommend an appropriate compliance strategy and level of risk-based verification that MAF should implement to administer the ETS;
- Estimate the number of post-1989 forest land owner participants likely to apply to join the ETS and the work effort they could be expected to present to MAF;
- Estimate the number of emissions returns post-1989 forest land owner participants were likely to file during the five year period and the work effort that was likely to present to MAF;
- Estimate the standard processing times and resource effort required by MAF to undertake the recommended risk-based verification given the estimate work volumes.
Based on the external consultancy's estimate of post-1989 participant numbers and the work effort they are likely to present, officials have designed the cost recovery proposals to focus on the direct costs associated with administering the participation of post-1989 forest land owners in the ETS. This excludes costs not directly associated with post-1989 forest land participation such as:
- ETS establishment and development costs
- Costs of providing information about the ETS to the public and potential participants
- Costs associated with promoting the ETS to encourage compliance and participation.
Post-1989 Landowner Participation Estimates
The external consultancy estimated the participation rate and volumes of post-1989 forest landowners in different holding bands, shown in Table 1:
Table 1: Post-1989 Estimated Participation
| Post-1989 Estimated Participation | Forestry Holding Band (Ha) | |||||
|---|---|---|---|---|---|---|
| 1-9 | 10-39 | 40-99 | 100-499 | 500-4,999 | 5,000 + | |
| Participation Rate | 30% | 38% | 48% | 58% | 80% | 95% |
| Participation Volumes | 1792 | 1536 | 277 | 215 | 34 | 19 |
The external consultancy found that there was generally a significant economic incentive for post-1989 forest landowners to participate in the ETS, particularly as size of forestry holding increased. This was mitigated by risk aversion based on perceived uncertainty about the ETS's future after 2012, the future price path of carbon, potential for unexpected liabilities arising from forest fire or wind throw, a narrow range of tree classes and lack of geographical dispersion especially for smaller landowners. Total costs of participation and compliance were also seen as a potentially negative influence on the participation rate particularly among smaller forest landowners.
What do the fees cover?
The work activities required to support the ETS include:
- Verify the entitlement of legal landowner(s) (or written agreements between forestry right/leaseholders where applicable) to apply to become participants of the ETS by checking the legal ownership of post-1989 forest land at the time of application;
- Accurately register the correct legal landowner(s) as a participant of the ETS to ensure that only those legally entitled claim and receive NZUs;
- Accurately capture details of post-1989 forest land in order to improve New Zealand's forest land inventory under LUCAS (Land Use and Carbon Analysis System www.mfe.govt.nz/issues/climate/lucas/);
- Ensure Land Information New Zealand and the Māori Land Court are notified of the correct landowner(s) and land title(s) information in accordance with provisions in the Bill;
- Verify on a risk-based approach the accuracy of emissions returns to ensure participants do not claim NZUs to which they are not entitled;
- Maintain the credibility of the ETS by ensuring robust data is captured relating to participants, entitlements and post-1989 forest land.
MAF's administrative work will be divided into two groups:
- Processing applications to ensure that only eligible landowners, forestry right holders and leaseholders are registered as participants. This work involves checking land ownership and land title records and will be influenced by the complexity of legal landowning arrangements and number of land titles relating to a particular forest; notifying Land Information New Zealand and the Māori Land Court to annotate land titles as "subject to the Climate Change Act"; and processing changes to the names of registered participants as land ownership changes, to ensure NZUs are only allocated to/surrendered by those persons legally entitled.
- Risk-based verification that emissions returns filed by participants correctly claim NZUs. We expect to use "risk triggers" to identify emissions returns that appear to fall outside expected ranges. These will be scrutinised more carefully and, in some cases, escalated for comprehensive audit.
What are the proposed fees for post-1989 forest land participants?
It is proposed to charge the following fees to owners of post-1989 forests participating in the scheme, depending on size of forest holding:
| Proposed fee schedule for post-1989 forest participants | Forestry Holding Band (Ha) | |||
|---|---|---|---|---|
| 1 - 99 | 100 - 499 | 500 - 4,999 | 5,000 + | |
| Total Application cost per participant | $439 | $2,143 | $5,700 | $11,044 |
| Plus GST | $55 | $268 | $712 | $1,380 |
| = Application Fee | $494 | $2,411 | $6,412 | $12,424 |
| Total cost per Emissions Return Filed | $217 | $1,207 | $5,177 | $6,966 |
| Plus GST | $27 | $151 | $647 | $871 |
| = Emissions Return Filing Fee | $244 | $1,358 | $5,824 | $7,836 |
Why are there two fees?
Under public sector cost recovery guidelines, fees should be structured to reflect the underlying activities. The activities supporting the ETS fall into two broad categories — joining and participation as shown in the following diagram:
However the costs of these two categories are driven by different factors. The costs of joining the scheme are related to the number of applications to become a participant, whereas the costs of participating in the scheme are largely determined by the number of emission returns filed by participants. It is therefore proposed to have two separate fees:
- Application fee - covers the initial costs of joining the scheme; and
- Emissions return filing fee - covers the ongoing costs related to processing emission returns, applications to exit the scheme and compliance activities such as emission return audits.
Why do the fees vary depending on the size of forest land holding?
The fees increase with the size of post-1989 forest land holding for two reasons:
- ETS eligibility will be determined by reference to legal land ownership and any forestry rights or leases that pertain to the land. The work effort required to process applications and emission returns will be driven by the number of land titles that have to be considered. Larger forests are expected to present a larger number of land titles.
- The scheme will employ regional programme advisors to provide advice and assistance to scheme participants. It is expected that landowners of large forests will receive greater support from these programme advisors compared with landowners of smaller forests. This is reflected in the fees, with the costs associated with programme advisors being spread evenly over each forestry holding band ie 1-99 hectares, 100 to 499 hectares, 500-4,999 hectares and 5,000 or more hectares. The smaller the number of participants in a forestry holding band, the bigger the impact those costs have on the fees for that band.
- If the fees were higher for smaller forests, fewer would opt in to the scheme. This would in turn reduce the contribution to fixed costs, which would result in increased charges to the larger forests which do opt in.
Will the fees increase next year?
The fees aim to recover the costs of participation by owners of post-1989 forests over a five year time horizon from the expected commencement of the scheme in July 2008 to June 2013. The fee structure proposed is also designed to focus on the recovery of direct costs. However the level of fees depends on the number of scheme participants, the number of emission returns filed and the time required to process applications and emission returns. If actual participation and emission return volumes or processing times vary from estimates, fees may under or over recover the costs of administering the scheme.
Fees will be reviewed periodically to ensure they appropriately recover the costs of administering the participation of post-1989 forest land owners in the scheme. This could result in changes to the level of fees.
Contact for Enquiries
Sustainable Land Management and Climate Change
MAF
Pastoral House
25 The Terrace
PO Box 2526, Wellington
Tel: 0800 CLIMATE (254 628)
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