Common Mistakes & Pitfalls

Carbon farming offers real opportunities, but also real risks. Many landowners have learned expensive lessons. Understanding common mistakes helps you avoid them.

Registration and Setup Mistakes

1. Not Understanding What You’re Committing To

The mistake: Registering without fully understanding obligations, thinking it’s “free money.”

The reality: ETS registration creates legal obligations that run with the land. You must:

• File returns accurately and on time
• Maintain records
• Surrender units if carbon stock decreases
• Manage the land appropriately

Avoid it: Get proper advice before registering. Understand the commitment fully.

2. Choosing the Wrong Accounting Method

The mistake: Selecting permanent category for a forest you might want to harvest, or averaging for forest better suited to permanence.

The reality: Changing pathways is difficult or impossible. The wrong choice can cost you significant money.

Avoid it: Think carefully about your 20-50 year intentions before choosing. Get professional advice.

3. Poor Mapping

The mistake: Submitting inaccurate or poorly formatted maps, causing delays or incorrect registrations.

The reality: Map errors can mean:

• Application rejection
• Wrong area registered (too much or too little)
• Compliance problems later

Avoid it: Use professional mapping services. Double-check boundaries against title and reality.

4. Missing Interested Party Consents

The mistake: Forgetting to get written consent from mortgagees, leaseholders, or other interested parties.

The reality: Registration without proper consents can be invalid or create legal disputes.

Avoid it: Identify all interested parties early. Get consents in writing before applying.

Carbon Credit Management Mistakes

5. Selling All Units Immediately

The mistake: Selling every unit as soon as they’re received, without considering future needs.

The reality: You may need units later for:

• Harvest liability (under stock change)
• Unexpected events (fire, disease)
• Leaving the scheme
• Price movements against you

Avoid it: Consider holding some units as a buffer. Understand your potential future liabilities.

6. Not Understanding Tax Timing

The mistake: Selling units without planning for the tax impact, then struggling to pay the bill.

The reality:

• NZUs are taxable income when sold
• Large sales can push you into higher tax brackets
• GST registration may be required
• Tax is due regardless of what you’ve spent the money on

Avoid it: Work with an accountant familiar with carbon. Plan sales to manage tax impact.

7. Ignoring Market Price When Selling

The mistake: Accepting whatever price a broker offers without checking the market.

The reality: Carbon is a commodity with a market price. Brokers charge margins. You can negotiate.

Avoid it: Check current spot prices before selling. Get quotes from multiple brokers. Understand the margin.

Compliance Mistakes

8. Missing Emissions Return Deadlines

The mistake: Forgetting to file returns, or filing late.

The reality: Penalties apply for late filing. Infringement fees range from hundreds to thousands of dollars.

Avoid it: Set reminders. Use a consultant if you’re not confident managing compliance yourself.

9. Inaccurate Record Keeping

The mistake: Not maintaining records of planting, events, boundaries, and activities.

The reality: You may be unable to:

• Support your emissions returns
• Prove your position in an audit
• Defend against queries from MPI

Avoid it: Keep organised records from day one. Document everything.

10. Not Reporting Adverse Events

The mistake: Failing to report fires, storms, or other events that affect carbon stock.

The reality: Unreported events can trigger:

• Later compliance problems
• Unexpected surrender liabilities
• Penalties for non-compliance

Avoid it: Report events promptly. Apply for temporary adverse event exemptions when applicable.

Forest Management Mistakes

11. Neglecting Pest Control

The mistake: Registering native regeneration then failing to maintain pest control.

The reality: Pests can devastate native forest, reducing carbon stocks and potentially triggering liabilities.

Avoid it: Budget for ongoing pest control. Include it in your forest management plan.

12. Planting the Wrong Species

The mistake: Planting species unsuited to the site, resulting in poor growth or failure.

The reality: Poor species selection means:

• Lower carbon earnings
• Higher maintenance costs
• Possible replanting expense

Avoid it: Get site-specific advice. Match species to soil, climate, and exposure.

13. Underestimating Fire Risk

The mistake: Not managing fire risk, especially in exotic plantations.

The reality: Fire can:

• Destroy your forest
• Create carbon liabilities
• Trigger expensive surrender obligations (unless temporary adverse event exemption applies)

Avoid it: Maintain firebreaks. Have a fire response plan. Consider insurance.

Transaction Mistakes

14. Buying Land Without Understanding ETS Status

The mistake: Purchasing land without knowing its ETS registration status or associated liabilities.

The reality: ETS obligations run with the land. Buying registered land means inheriting:

• Any accumulated liabilities
• Ongoing compliance obligations
• The original registration terms

Avoid it: Get ETS status as part of due diligence. Check for registered units and surrender obligations.

15. Not Addressing ETS in Sale Agreements

The mistake: Selling land with registered forest without properly addressing carbon credits and liabilities.

The reality: Disputes arise over:

• Who owns accumulated units
• Who bears future liabilities
• What happens to existing credits

Avoid it: Address ETS matters explicitly in sale agreements. Get legal advice.

16. Ignoring Transfer Requirements

The mistake: Assuming ETS registration automatically transfers with land.

The reality: Some transfers require applications to MPI. Failure to transfer properly can mean:

• Seller remains liable
• Buyer can’t claim credits
• Compliance problems for both parties

Avoid it: Complete transfer processes properly. File required notifications.

Strategic Mistakes

17. Treating Carbon as “Set and Forget”

The mistake: Registering forest then ignoring it for years.

The reality: Carbon farming requires ongoing:

• Compliance management
• Forest management
• Market monitoring
• Policy awareness

Avoid it: Stay engaged. Either manage actively or engage professionals to manage for you.

18. Not Having an Exit Strategy

The mistake: Entering the ETS without considering how you might eventually leave.

The reality: Exiting the ETS typically requires surrendering all or most credits received. Without planning:

• You may not have units available
• Exit costs may be prohibitive
• Options become limited

Avoid it: Understand exit implications before entering. Plan for different scenarios.

19. Ignoring Policy Risk

The mistake: Assuming current rules will continue indefinitely.

The reality: ETS rules have changed repeatedly. Future changes could affect:

• Credit values
• Eligibility rules
• Surrender obligations
• Available accounting methods

Avoid it: Stay informed on policy developments. Build flexibility into your planning.

Getting Professional Help

Many mistakes stem from trying to manage complex situations without appropriate expertise. Consider professional help for:

• Initial registration and pathway selection
• Ongoing compliance management
• Carbon sales and market timing
• Legal matters (contracts, transactions)
• Tax planning
• Forest management

The cost of professional advice is often far less than the cost of mistakes.

Key Takeaways

1. Understand your commitment before registering
2. Choose pathways carefully — changes are difficult
3. Manage tax proactively — plan before selling
4. Stay compliant — penalties are real
5. Plan for exit — even if it’s years away
6. Get professional help when complexity exceeds your expertise

Next Steps

• Legal Considerations & Contracts
• Tax Treatment of Carbon Income
• Talk to us about managing risk