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23 November 2021
Method Development Team
Clean Energy Regulator
methoddevelopment@cer.gov.au
To whom it may concern
Draft Plantation Forestry method public consultation – November 2021
Thank you very much for the opportunity to provide comments on the updated 2021 Plantation
Forestry method. New Forests is very supportive of the objectives of the review process
undertaken by the Clean Energy Regulator to further develop the 2017 methodology. We
believe that the updated methodology will significantly enhance the opportunities for the
plantation forestry industry to participate in the ERF, increasing the potential for abatement,
while maintaining the integrity of the program.
The feedback below builds on the previous submission by New Forests in July 2021 as part of
the initial stakeholder consultation process, as well as the more recent consultation session
held in conjunction with the Australian Forest Products Association in November 2021.
We would be happy to have a follow-up call to discuss any of the comments.
Kind regards,
Nick O’Brien
Global Head, Investment Analytics
New Forests Asset Management
New Forests comments on Plantation Forestry method – November 2021
In lieu of newness provisions
We support the inclusion of changes that provide greater flexibility to undertake activities
between the date the section 22 application is made and when the project is declared eligible.
Forest Management Plan
We are generally supportive of the change to reporting requirements, with the following
caveats:
The requirement that the Forest Management Plan is signed off by a Registered Forestry
Professional (RFP) should be broadened to include forestry valuers and other suitably
qualified and accredited parties, consistent with the sign-off of eligibility requirements
in Schedule 3. The reasons for this recommendation are that:
o There is currently a limited pool of RFPs in Australia for project proponents to
use, thereby potentially limiting the ability to have FMPs signed off. This will
increasingly become an issue given the proposed requirement to submit updated
FMPs where even minor (and inconsequential) changes in timing of management
activities have occurred.
o Larger project proponents will have numerous FMPs that require review and
sign-off on a periodic basis, the workload for which is likely to exceed the
capacity of individual RFPs. Consistent with other auditing and consulting tasks,
the industry needs the ability to engage suitably qualified consulting firms who
can coordinate the task and allocate workload across their staff. The RFP scheme
is an individual certification, and so is not consistent with the functional
organisation of these types of consultants.
There needs to be a materiality threshold in what is reported in relation to changes in
Forest Management Plans. Smaller (inconsequential) changes to the FMP should only be
reported to the Clean Energy Regulator at the end of a reporting period.
o The operational reality of forestry operations is such that, due to seasonal
variation in climate and economic factors, the timing of activities will often be
conducted outside of the exact date that they may be specified in the Forest
Management Plan. Does changing the date for an activity by a week to reflect
when an activity was actually completed qualify as a change in management
action?
o In many cases the changed timing in management activities will have little or no
impact on the abatement profile of the project, and it seems very inefficient to
have to report these changes where they have had no impact. In addition, we
are concerned that this requirement will very quickly lead to an excessive
amount of information being provided to the CER, overwhelming its capacity to
adequately review these documents and identify critical issues.
Evidence of management actions
o Clause 24(2)(b) states that the FMP sets out for each CEA, an explanation, with
supporting evidence, of how each management action was undertaken. The
guidance document (page 16) states that the FMP sets out the records being
maintained to evidence management actions being undertaken. It is not clear
whether this means that each FMP needs to include all of the underlying detailed
evidence, or simply needs to list what information is available to evidence the
management actions.
o We would recommend that the guidance be updated to state clearly that the FMP
should include a list of the documentation being used to evidence management
actions, but not include the actual documentation itself, on the basis that:
Including all of the detail in the FMP for each CEA would be highly
duplicative (across multiple CEAs), and significantly increase the
administrative burden on project proponents and on the CER team
reviewing FMPs.
It would be much more efficient and practical to include a requirement for
an audit of the relevant documentation as part of the review of the FMP
by the independent person (RFP or qualified valuer/consultant).
An annual reporting process for material changes to the FMPs, with a requirement to
report within 15 or 18 months of the change in activity, is more appropriate from an
operational perspective than the current proposal to report within 9 months of any
change.
o A 15 or 18 month reporting window would be more operationally feasible, as it
would (a) allow project proponents to consolidate changes in management plans
consistent with other annual strategic review processes, and (b) provide time
after the end of a given 12 month period to prepare, review and submit an
updated FMP.
o This would also reduce the number of individual reports that the CER would need
to review.
Ability to adjust management regimes
As it is currently drafted, the limitations imposed by Clause 29 do not reflect the operational
reality of managing forest estates, in particular where a change in management regime will
result in a decrease in the carbon sequestered within a project. We recognise that this is not
new to the 2021 version of the method, and have previously provided feedback in relation to
the related clause in prior versions of the method.
The wording of Clause 29 does not reflect the reality that forest management is dynamic, and
that there are often changes to management plans due to factors such as the impact of
seasonal climatic variation and market constraints that are outside the control of the forest
manager. In some cases this will result in a reduction in the abatement within the project for a
given period, and may reduce the long-term average net carbon stock for the project.
Where adjustments to management actions occur, project proponents should have the
flexibility to surrender units in the situation where the total credits to be received by the
project under the new management regime is less than the number of credits already issued
for the project.
Modelling project scenario and long-term project scenario – conversion and continuing CEAs
We believe there is an inconsistent treatment of conversion CEAs (and continuing CEAs) where
there is a rotation underway at the time of project application compared with an equivalent
project where there is no plantation present at the start of the project, and that this will
potentially lead to a different crediting outcome for two projects that are in all other respects
identical. It does not seem logical that the crediting outcome would be influenced by whether a
project proponent made the application prior to or after harvesting the current rotation.
Clauses 40 and 41 state that the project scenario simulation and the long-term project
scenario simulation begin on the day before the forest start date.
In the definitions on page 10, for a conversion CEA where a rotation is in progress on
the eligibility date, the forest start date is at the start of that rotation. Conversely, for a
conversion CEA on which no rotation was in progress on the eligibility date (i.e. the
previous rotation has already been harvested), the forest start date is the starting date
of the first rotation after the eligibility date.
As a result, the project scenario simulation and long-term project scenario simulation
for the project where there is a rotation in progress on the eligibility date will include
the carbon stocks from the previous (short rotation) crop, whereas for the project
where there was no rotation in progress at the eligibility date it will not.
This has implications for the estimated long-term project carbon stock. Consider two
scenarios where there is a 15 year rotation of eucalyptus, followed by conversion to a
30 year rotation of pine:
o Scenario A. Project application is made prior to harvest of the eucalyptus crop.
The long-term project scenario simulation will be based on one rotation of
eucalyptus plus two full rotations of pine and a part rotation of pine (modelling
period ends prior to harvest of the third pine crop). We were not aware that it is
possible to model two different species
o Scenario B. Project application is made after the harvest of the eucalyptus crop.
The long-term project scenario simulation will be based on three full rotations of
pine plus a part rotation of pine.
The baseline simulation will be identical for these two scenarios, since they both include
the modelling of six full rotations and one part rotation of eucalyptus. However, the
predicted long-term average net carbon stock for the project area will be different for
the two scenarios (because of the different basis of the underlying models), and
therefore the credits issued over time will be different for the two scenarios. This does
not seem logical given that the difference between the scenarios is purely an
administrative one and does not have any impact on the environmental benefit that the
two projects provide.
We recognise that it will be important to model the existing rotation for a conversion project
that operates under clause 2(a)(ii)(B) of Schedule 2 (i.e. making the current short rotation into
a long rotation), but do not see the logic of having different treatment for projects operating
under clauses 2(a)(i) and 2(a)(ii)(A) of Schedule 2. We recommend that the definition of forest
start date be adjusted to reflect that for a conversion CEA operating under clause 2(a)(ii)(A) of
Schedule 2, the forest start date be the start date of the rotation planted immediately
subsequent to the eligibility date.
The same inconsistency is applicable to continuing CEA projects under the current draft.
Baseline scenario simulation for continuing plantation
There is an inconsistency in wording relating to how the baseline scenario simulation is
constructed for a continuing plantation.
Clause 42(2) states that the baseline scenario simulation begins on the day before the
forest start date, and that the model must simulate a single harvest event undertaken
at a time before the eligibility date, or no more than 24 months after the eligibility date.
Under the definitions on page 10, for a continuing plantation project where there was
no rotation underway at the eligibility date, the forest start date is the starting date of
the first rotation after the eligibility date.
These two clauses are inconsistent – how can we simulate an initial harvest event (prior
to the eligibility date, or no more than 24 months after the eligibility date) when in this
case the baseline model does not include any consideration of the previous rotation?
Similar to the point made above in relation to modelling the long-term project scenario, the
baseline scenario simulation for a continuing plantation should not be dependent on whether or
not there was a rotation underway at the time of project application. This is an administrative
detail which doesn’t have any impact on the environmental benefit achieved by the project,
and so should not affect the baseline calculation.
We recommend that the forest start date for continuing plantations be set to the start
date of the rotation planted immediately subsequent to the eligibility date, and that the
requirement to model an initial harvest event be removed.
Further, the requirement to model an initial harvest event no more than 24 months after the
eligibility date seems inconsistent with the first non-continuation requirement (Clause 4(1) of
Schedule 3) which dictates a 12 month limit on the conversion of the plantation to a non-forest
land use.
Eligibility requirements for continuing plantation project activity
We are broadly supportive of the approach adopted in the current draft in relation to
determining eligibility of continuing plantation projects. The financial assessment criteria are
much more functional than the previously suggested use of the FORUM model, and will enable
the inclusion of project specific data in determining project eligibility.
The comments below relate to information in both the draft method and the draft financial
assessment guidance document.
Qualified independent person.
o We support the inclusion of a qualified auditor, accountant or valuer (with
appropriate expertise) in the definition of a qualified independent person.
Inclusion of land appreciation in calculation of base returns (B1)
o We interpret the wording (Guidance page 5) to mean that we include an amount
in each year of the forestry cash flows representing the change in land value for
that year. This is inconsistent with a standard industry approach to recognising
the investment return associated with land value appreciation. Typically we
would recognise the increment (or decrement) in land value at the time when it
is realised (i.e. at the end of the rotation, or when the asset is assumed to be
sold). The proposed approach will overestimate the contribution of the capital
appreciation in land value to the overall investment return of the forestry
enterprise (base returns). We recommend including the change in land value as
a cash flow recognised at the end of the rotation.
Market land value
o Land valuations are primarily conducted on a comparable sales basis, using
recent transaction evidence. While valuers may provide analysis of historical
trends in land appreciation, it is unusual for land valuers to provide commentary
on the expected future appreciation in land value over time (and we have
previously experienced resistance from land valuers in providing a forecast of
this when we have asked). It therefore may be difficult to meet the requirement
to have the valuer provide an estimate of future land value appreciation
(Guidance page 4).
o The attribution of future land appreciation, which could be determined by the
project proponent, will be covered as part of the review of the financial
assessment by the qualified independent person.
o We therefore recommend that the requirement to have an estimate of forecast
land appreciation be provided by the land valuer is removed.
Minimum economic viability
o This definition (guidance page 3) is very open to subjective interpretation. Will
there be further guidance on how this is interpreted to ensure some level of
consistency?
Costs associated with non-forested land use
o Table 3 on page 6 in the guidance document should include the ability to use
other sources of data from private companies (consistent with the revenues
component).
o Other sources of data, such as derived through site- or location-specific
consultancies as part of the project development, should take precedence over
the ABARES Farm Survey reports, which are very general in nature.
Indexation of costs and prices
o Table 2 (Guidance page 5) refers to the consideration of real returns from
continuing plantations and real increase in the value of the land. This is
inconsistent with Table 4 (Guidance pages 8 & 9), which refers to the inclusion of
indexation associated with CPI. By definition, the inclusion of CPI adjustments to
future costs and prices would result in nominal cashflows.
o Typically, forestry valuations (and the underlying cash flows) are modelled on a
real basis, with the discount rate used reflecting this construct. Further
clarification is required in the guidance to ensure that the cash flows and value
construct are consistent. For example, historical company records for costs and
revenues will reflect the nominal trend in these values over time (i.e. including
impact of inflation). It is logical that when using these data to derive a real
return, the values should be adjusted to remove the impact of inflation.
However, this is not clear in the guidance.
FullCAM guidelines
Page 5 of the guidelines states that users should check the Determination to determine
which version of FullCAM is required to be used. There are multiple public release
versions of FullCAM currently available (2016 and 2020), and the guidelines show a
step-by-step walkthrough of using FullCAM 2016, but there is no indication in the
guidance or determination which version is required to be used for the updated
plantations method.
Page 22 states that users are only permitted to model one fertilisation event per
rotation at most, where supported by evidence. It is common practice, particularly in
longer rotation plantation forests, to apply fertiliser a number of times throughout the
rotation (e.g. at planting, and then subsequent to mid-rotation thinning events). Each
of these applications is based on a site- or regionally-specific assessment that there will
be a yield benefit arising from the application of fertiliser (otherwise why would we
incur the expense). Why would this not be reflected in the model?
In the comments under equation 6 (page 38), the reference to equation 1 should be to
equation 4. Similarly, the reference to equation 2 should be to equation 5.
The comments under equation 15 (page 43) includes a reference to subclause 7(1) or
(4) of Schedule 2. There is no subclause 7(4) in Schedule 2. Confirm reference to the
correct clauses.
The comments under equation 22 (page 47) reference section 13. Is this referring to
clause 13? If so, it does not appear to have any relation to equation 22.
Other comments
Clause 15(9) states that an ex-plantation CEA must have uniform site characteristics.
o Why is this required for an ex-plantation CEA but not other CEA types?
o What is the scale over which this is applied? In an undulating landscape does
this mean that a single forest stand needs to be split into multiple CEAs to
reflect the land units with different aspect? This would not be logical. Further
guidance is required.
There are several typographical errors in the document
o Clause 31 relates to continuing plantation CEAs, but 31(1) mentions conversion
CEA
o Clause 31(2)(c) mentions ‘permanent planting’ in several places. Should this be
continuing plantation?
