‘Hot air’ accounting could meet NZ’s Paris climate target

Special report: New Zealand could use creative accounting to claim it has sequestered millions of tonnes of additional carbon dioxide above expectations through better management of existing forests, rather than reducing emissions or planting new trees.
Forestry Minister Todd McClay sought advice from officials earlier this year about how management of pre-1990 forestry – which includes 1.4 million hectares of planted trees and 7.8 million hectares of natural forest – could contribute to meeting New Zealand’s climate obligations under the Paris Agreement.
Though officials reported back that tens of millions of tonnes could be sequestered, perhaps without having to do much at all, experts warn this could lead to a repeat of the “hot air” carbon credits debacle of the 2010s.
The importance of this is heightened by the difficult position the Government has found itself in with New Zealand’s Paris target. The country’s target under the climate pact was first set under John Key’s government in 2015 and then updated under Jacinda Ardern in 2021. In both cases, the bulk of the emissions reductions needed were planned to be obtained by paying other countries to cut their pollution.
Now, the Government has been cutting costs, including climate policies. Projections show emissions will be higher under this Government than they would have been under Labour. In that context, there’s little political willpower to spend the estimated $3.3 billion to $23.7 billion needed to buy those offshore emissions cuts.
Last week, Climate Change Minister Simon Watts raised doubts as to whether he was committed to meeting the Paris target: “When I stand up and say, ‘Guess what, I’m going to write a cheque for $4 billion in your taxpayer money to some country overseas,’ you know people go: ‘I sort of want my hospital and I want my health care over that. You know, I love it, but I sort of want other stuff.’
“The political reality of writing a cheque to someone overseas, for benefits that will be achieved overseas, is sort of nice, but I don’t think it’s realistic, and hence why the conversation, from a Government point of view, is we need to do everything possible in order to reduce our domestic emissions at a profile that doesn’t decimate our economy.”
It would be extremely convenient, therefore, if the Government could close a substantial portion of the 100 million tonne Paris target gap without trying too hard, through creative accounting.
At issue is how to account for carbon dioxide absorbed by forests planted before the United Nations global climate accord was signed in the 1990s. Traditionally, these pre-1990 forests have been considered part of New Zealand’s baseline. Cutting down these trees produces emissions we must account for, but we don’t get to count the carbon they suck down every year towards our targets because they were already there when we started trying to stop polluting.
That’s very different from the 830,000 hectares of forest planted after 1989. Every tonne of carbon dioxide sequestered by these trees has been reported on our annual emissions returns and counted towards our targets under the Kyoto Protocol, the Zero Carbon Act and now the Paris Agreement.
In total, more than 200 million tonnes of carbon dioxide have been removed from the atmosphere by these new post-1989 forests, including 80 million tonnes that went towards our 2020 Copenhagen target. Comparatively, New Zealand could only count 32 million tonnes of removals from the (11 times larger) pre-1990 forestry estate during the Copenhagen period – and the amount that actually went towards our target was capped by accounting rules at 18.7 million.
That we could count any sequestration from the pre-1990 forests at all was because of a quirk of the rules, which say human activity due to climate policy which might lead to lower emissions from the estate than business-as-usual could be counted towards international climate targets.
In other words, if pest management programmes mean native forests grow faster and sequester more carbon than otherwise, or if climate policies incentivise pre-1990 foresters to delay harvest of their trees, that can be counted as a removal towards our targets.
In their briefing to McClay, obtained by Newsroom under the Official Information Act, officials from Te Uru Rākau told him the 32 million tonne figure from the Copenhagen period gave “a rough indication of the potential scale of removals from pre-1990 forests that could be achieved” during the 2021-2030 period of the Paris target. Moreover, the Paris Agreement doesn’t involve any cap at all, so we could count the full amount of removals towards the target.
This line has prompted concern from experts, however, who say there’s no obvious action or policy that could be leading to millions of tonnes of additional removals and that they might end up being hot air – sequestration on paper but not in the real world.
The key principle here is “additionality”. International accounting rules say countries can only count removals or avoided emissions towards their targets if they can prove it is additional to what otherwise would have happened.
The hot air carbon credit scandals often featured a breach of additionality. Russia and Ukraine for example sold credits on global carbon markets during the 2010s which they claimed they had earned from closing down dirty industries. Though those industries often had closed down, they were going to anyway because of economic factors, so there was no additional emission reduction involved. Nonetheless, New Zealand and other developed nations bought millions of the credits and even counted some of them towards our targets.
McClay says additionality will be a key principle underpinning New Zealand’s emissions accounting, but how do we prove removals in the pre-1990 forestry estate are actually additional?
Steve Wakelin is a forestry system scientist at Scion who has been intimately involved in modelling and advising on the approach to pre-1990 forestry. He’s the lead author on three papers commissioned by the Ministry for Primary Industries on how to include pre-1990 forest management in our Paris target.
“The forestry reference level will take a point of time in the past and say: ‘This is what we call business-as-usual management of our forests. Now let’s project forward what would happen if we keep managing our forests in this way, what do we expect in terms of net emissions going into the future?’” he explains.
“We’re predicting what, under business-as-usual management, our net emissions would have been during the 2021 to 2030 period. For anything that’s still a forest during the 2021 to 2030 period, you take a look at what it’s actual net emissions turned out to be. If [the removals are] greater than what you predicted, then it ends up being a net credit; if it’s lower, then it’s a debit.”
That’s not all, however.
“That’s the easy step. You can show that you’ve got a different number and it’s more or it’s less, but if you think you’re getting a credit out of it, then you’ve got to go back and say this was our management during that historical period and this is how we’ve changed that, and here’s the evidence that making that change would have resulted in net removals,” Wakelin says.
This process is hardly simple. In fact, perhaps the most contentious part is that first step, of predicting a business-as-usual pathway. This is called the forest reference level (FRL) for the Paris period, or the forest management reference level (FMRL) during Copenhagen.
New Zealand’s FRL baseline hasn’t been set yet. Even once it is announced, it can still be changed as new data comes in.
That’s exactly what happened with the FMRL, which in 2011 predicted New Zealand’s pre-1990 forests would release a net 11 million tonnes a year on average over the Copenhagen period. That was due to expected harvesting of plantation forests and because native forests and carbon stored in wood products wasn’t accounted for. The FMRL was then lowered in 2016 to a net sink of 6 million tonnes, dropped further in 2019 to 9 million, then to 11 million in 2021 and finally to 14 million in 2022.
It isn’t uncommon for these reference levels to swing around so significantly. But it does have a large effect.
New Zealand’s pre-1990 forests sequestered an average of 18 million tonnes a year during the Copenhagen period, adding up to 146 million for the full eight years covered by that target. Subtracting the finalised FMRL left 32 million tonnes, which we could claim as additional removals. But if the original FMRL had been used instead, New Zealand could have claimed 234 million tonnes of additional sequestration.
A similar process may play out for the new reference level, McClay says, which won’t be finalised until after the Paris period ends.
“Given the focus on additionality, changes in our pre-1990 forest estate can have a positive or negative effect on progress towards climate change targets. Due to annual fluctuations in the pre-1990 forest estate, mainly from harvest rates in production forests, our progress against the business-as-usual baseline will not be confirmed until the end of the NDC (after 2030).”
The changeability and unreliability of reference levels led the Climate Change Commission to urge caution when using them. Reflecting on the removals reported from the Copenhagen period, the commission writes in its latest draft advice: “The net removal appears to have been the result of lower harvesting rates of pre-1990 production forest than projected when the reference level was set.
“Issues with accuracy of estimates for intended harvesting rates of pre-1990 forests are largely due to the skewed profile of the country’s forests driving variable harvest rates, as well as inconsistency of different forest statistics. This means that the removals accounted for may not actually be ‘additional’ to what was planned. Delayed (rather than avoided) harvesting would just result in these emissions occurring further down the track.”
The commission advised the Government to improve its methodologies to ensure the principles of additionality and of permanence of sequestration were honoured.
“As Aotearoa New Zealand’s history with Kyoto Protocol accounting shows, the inclusion of forest management creates risks of generating credits or debits that are not the result of genuine management practice change affecting long-term emissions trajectories.”
Similar concerns have led the European Union to abandon reference-level accounting entirely. While the EU’s system is being looked at as the basis for New Zealand’s forest reference level for the Paris period, the bloc has decided to switch methodologies from 2025, to merely comparing the net emissions in a given period with the net emissions from a baseline period. This gets rid of the complexity of attempting to project forward how foresters will manage their forests based on past activity and becomes a simple project of addition and subtraction.
“You don’t have to do reference levels. New Zealand should be looking at these critiques of reference levels in general. The EU are kind of moving away from that approach, what other approaches are credible? That’s the thing I think would be a good process for New Zealand to go through for future targets,” Kristen Green, the director of consultancy Kapiti Climate Insights and a long-time MPI and MfE advisor on climate policy, tells Newsroom.
“It’s very hard to do these to a credible, high-integrity way that prevents countries playing shenanigans. While I’m sure there are officials that will try and do it in a robust and rigorous way and there’ll be technical people who will review the methods, the whole area has got some fundamental flaws to it.”
Wakelin says criticism of reference-level accounting is understandable – and he even backs it, to some extent.
“I kind of agree in this instance with the Climate Change Commission, I thought that was a pretty useful comment. I don’t think it’s something that anyone particularly likes. Reference-level accounting is difficult to work with,” he says.
How can we tell, then, that removals we report towards our Paris target are real, if we can’t necessarily trust the reference level?
Green points to the second step of the process, which requires any given removal to be linked to an actual policy, as the arbiter of what is or isn’t hot air.
“It’s worth acknowledging that in terms of active policies or recent policies affecting the pre-90 forest estate, there isn’t really much to be talked about. Maybe in terms of pre-90 natural forest, you could throw in some of [former minister James] Shaw’s biodiversity protection stuff, but that’s now been rolled back,” she said.
“There isn’t a huge new initiative that’s already in place affecting this stuff. For the time scales that we’re talking about – five years – it’s really hard for the more genuine, credible kind of actions, to see how they would get to that volume of 30 million tonnes.”
McClay says the Government won’t rely on hot air.
“In order to be recognised in our NDC we will need to establish a robust evidence base that proves there is a measurable link between forest management activities above [business-as-usual] and additional carbon storage in pre-1990 forests,” he explains.
But no government would concede its accounting is dodgy, even though we know previous governments have relied on hot air to meet climate targets.
Green says she’d be skeptical if, come 2030, the Government revealed it had sequestered tens of millions of tonnes on the pre-1990 forest estate almost by accident, without really noticing. That would be a sign the reference level was wrong, rather than mass real and additional removals had occurred under the radar.
None of this is to say there aren’t policies that could lead to a significant sinking of carbon in pre-1990 forests. When looking at these forest management policies, officials divide them into two categories – those affecting natural forests and those affecting human-planted production forests.
The former includes fencing off forests from grazing stock and pest management. Doing this should allow native understory to regenerate, storing carbon but also importantly ensuring the forest can replace itself as mature trees die from disease, hazard or old age.
But the research into the carbon impacts of these activities is still ongoing. It wasn’t robust enough to allow New Zealand to claim removals from these types of policies during the Copenhagen period.
One thing the research does agree on is that these activities take a long time to have a measurable impact on carbon stores.
“A lot of the benefits from things that people are talking about, like controlling deer, they’re going to be massive benefits but they might be 100 years from now,” Wakelin says.
“You aren’t necessarily in the short term getting a great big gain in carbon just by keeping stock or deer out. There’ll be payoff further down the track and it’s absolutely vital for the environmental, ecological integrity of that forest. But in carbon terms, it may not be something that you’re going to pick up from 2021 to 2030 because it’s a ridiculously short time period to try and assess anything.”
And, of course, they need to actually be happening. Kayla Kingdon-Bebb, the CEO of WWF New Zealand and the former policy director at the Department of Conservation, says protection of natural forests is sparse.
“Anecdotally, when I was in the minister’s office, just looking at aerial 1080, not even goat and deer control, the average amount of aerial toxin application was less than 2 percent of public conservation land in a given year,” she says.
“Look at the reporting that’s been done on the explosion of deer, tahr, chamois and goat populations on public conservation land. The impact that they have in the understory is really dramatic.”
Kingdon-Bebb says the reference level needs to reflect the parlous state of natural forest management, rather than assuming it’s fit for purpose for maintaining the health of forests.
In its recent advice, the Climate Change Commission said verifying changes of carbon stock in these millions of hectares of natural forest would require a far greater monitoring programme than currently exists.
The present method is to measure the heights and diameters of trees in 20 metre-plots spaced every 8km around the country. This measuring occurs every 10 years – halved from five yearly during Covid – and covers about a thousand plots.
The commission said thousands more plots would be needed to identify removals above baseline and attribute them to pest control policies. This would come “at significant cost”.
Even so, McClay tells Newsroom the Government will “set up a national monitoring system to track net removals in pre-1990 forests for our National Greenhouse Gas Inventory”. Whether it aligns with the commission’s expectation of what would be needed is yet to be seen.
If removals from natural forests are hard to find and take a long time to come to fruition, the opposite is true for the 1.4 million hectares of planted, largely production, forest.
“The thinking for officials was that that pre-90 production forest estate, theoretically there’s quite significant potential for you to get more carbon,” Green says.
“In terms of the core things, there’s improving genetics of the tree species, delaying harvest, increasing rotation length and then converting them to permanent, which avoids that harvest. If you’re paying someone not to harvest, you’re talking about 1000 tonnes of carbon per hectare. Rather than a whole chunk of that coming off with the harvest, you’re pushing all that into the 2030s.”
Pushing those emissions into the 2030s, of course, doesn’t mean they never occur. After New Zealand’s first Paris target, covering 2021 to 2030, it will have a second one, and then a third, in five-year stepping stones down to net zero emissions and beyond. Delaying the harvest of a forest may help New Zealand meet its first target, but it then creates a bigger problem for the second or third one.
Plus, as with natural forests, New Zealand will still need to demonstrate a delayed harvest is because of climate policies rather than a change in economic conditions or other factors. The Emissions Trading Scheme provides a strong incentive for storing more carbon in forests, but pre-1990 forests aren’t eligible. There’s no clear lever that would incentivise foresters to delay their harvests en masse at the moment.
Policies that would encourage delayed harvests or the conversion of production forests into permanent forests are certainly possible. This could come in the form of direct payments, or of including particular actions in the ETS. But, as with a boosted natural forest monitoring programme, these don’t seem to be part of the Government’s work programme.
All this means the public and the international community should closely scrutinise any future Government claims of millions of tonnes of removals from pre-1990 forestry, Kingdon-Bebb says.
“We would be very concerned to ensure that the methodology that is applied to assessing our actual removals is robust,” she says. If the Government did claim tens of millions of tonnes of removals out of the blue, “I can’t imagine a world in which the numbers would add up in that direction, to be perfectly honest”.
Even if everything is done above board, the global community may not see it that way, Green says.
“The line between what’s credible and not credible, it could be open to challenge or interpretation. From one person’s standpoint, it might be perfectly reasonable. From another, you might get into stuff that people go: ‘Well, have you actually really done anything, New Zealand?’”