City Forests chief executive Grant Dodson yesterday told the Otago Daily Times changes to the Kyoto Protocol agreed last year, and due to come into force next year, included the removal of the "fast forest fix" rule.
The rule allowed forestry companies to claim credits for carbon sequestered - or stored - in forests, and sell the credits, but only for carbon stored since 2008. Companies were also required to pay when those trees were harvested, but also only for credits claimed since 2008.
City Forests in 2010 sold 150,000 carbon credits accumulated in 2008 and 2009 for $3 million to an unnamed New Zealand company. It said at the time it expected to be in a position to sell more credits during the 10-year period to 2010.
Without the rule, officially called the "afforestation-reforestation debit credit" (ARDC) rule, forestry companies would be obliged to pay for all carbon stored in trees when harvesting them, meaning additional costs.
The Government was yet to decide whether to commit to the new rules but, if the decision was to sign up, companies would be left with "massive liability" that could threaten the viability of the emissions trading scheme, Mr Dodson said.
The bill for City Forests - a Dunedin City Council-owned company - would reach "tens of millions" of dollars, and "across the sector you're talking hundreds of millions of dollars", Mr Dodson said.
"If that came to pass, we'd be stuffed, really. We'd have no choice but to pull out of the emissions trading scheme."
One alternative would be for the Government to shoulder the extra costs and "get the taxpayer to wear it", he said.
However, a better option would be for New Zealand to instead refuse to sign the next iteration of Kyoto, and rely on its own initiatives to tackle carbon emissions, he said.
"The objective of Kyoto is to do something about carbon. Kyoto got everyone started ... but the important thing is that we're doing something about carbon.
"New Zealand can continue to do what it does without having to sign up to rules that don't necessarily suit the New Zealand environment and culture."
New Zealand Forest Owners' Association chief executive David Rhodes, of Wellington, said the issue was a concern for some members, who were calling "quite strongly" for clarification of the Government's position.
It was possible the Government could decide not to sign the next round of Kyoto commitments, while remaining part of the United Nations' overarching - but less prescriptive - Framework Convention, he said.
New Zealand could then still commit to other Kyoto rules, while opting not to recognise the removal of the fast forest fix rule.
Alternatively, the Government could decide the Kyoto rules had changed in unexpected ways, and adjust New Zealand's emissions targets accordingly, protecting both the Government and the domestic forestry sector, he said.
That would risk accusations the Government was back-pedalling on its commitments, but Mr Rhodes believed it would be "very legitimate to argue the rules have changed".
Climate Change Minister Tim Groser is overseas but in a statement said New Zealand had unsuccessfully argued for the rule's continued inclusion.
The Government was considering whether to make its future carbon mitigation commitment through the Kyoto Protocol or the Framework Convention, he said.
In the meantime, the rule remained in New Zealand's ETS despite recent amendments, and there was "no expectation" foresters would withdraw from the ETS "in anticipation of a rule change", he said.
A spokeswoman for Mr Groser added participants would not face additional costs if the ETS included the rule, but there was "no doubt" removing it from the next phase of the Kyoto Protocol would impose greater costs on New Zealand.
Opting for mitigation under the Framework Convention would allow New Zealand to nominate rules that applied, rather than having them imposed under Kyoto, she confirmed.
