The rule allows 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.
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.
"If that came to pass, we'd be stuffed, really. We'd have no choice but to pull out of the emissions trading scheme," Mr Dodson said
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.
Forest Owners' Association chief executive David Rhodes, of Wellington, says some members are 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.
Climate change minister Tim Groser is overseas but in a statement said New Zealand had unsuccessfully argued for the rule's continued inclusion.
In its submission to United Nations climate change negotiations the government said the rule must be retained for future commitment periods, at least until most forests established after 1990 but before 2008 have been harvested once. This means the rule would phase out over time.
New Zealand also argued that the rule should be clarified to make clear that it covered all disturbances to new forests whether the disturbance was as a result of human activity such as harvesting or was due to natural events like pests and fire. This would provide for a more comprehensive coverage of events or activities that affect these forests.
The government is now 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.
Sources:
1. Story by Chris Morris, Otago Daily Times. To read the full story, click here.
2. NZ Government Submission to the Ad-Hoc Working Group on Further Commitments for Annex I Parties under the Kyoto Protocol (AWG-KP),
Land Use, Land Use Change and Forestry.