Sydney, 20 August (Argus) — The New Zealand Emissions Trading Scheme (ETS) will continue to face uncertainty while the debate around using rural land for forest plantation or agriculture remains far from settled, delegates heard at a carbon conference this week.
The New Zealand government is introducing rules to limit how much farmland is converted to exotic forest and registered in the ETS, as it seeks to strike the “right balance” between food production and its climate goals.
A bill going through parliament since June with a proposed start of 31 October would allow landowners to plant only up to a quarter of their land as forestry for the ETS where their land is classified between classes 1 to 6 under the country’s so-called Land Use Capability (LUC) system. The system categorises land into eight types according to its long-term capability to sustain one or more productive uses, with LUC 1 being the most productive and LUC 8 the least productive land. No ETS restrictions will be placed on LUC 7-8 land.
The changes would also add a national limit of 15,000 /yr (150km²) for registrations on LUC 6 farmland across New Zealand, with the right to apply to register to be allocated through an annual ballot that could start in mid-2026.
But the proposed rules have been criticised by both farmers and forestry firms. The proposed regulations would not cause a significant reduction in the number of whole-farm conversions to carbon forestry, as most recent conversions have happened on LUC 6 and 7 land, where most of New Zealand’s sheep and beef farmers operate, lobby group Federated Farmers said today. Leaving class 7 unrestricted is ineffective and unfair, forestry spokesperson Richard Dawkins said.
Beef + Lamb New Zealand said it estimates up to 26,000 ha/yr of whole farms on land classes 6-7 could still be converted and registered into the ETS between 2025 and 2050, despite the proposed changes, meaning as much as 650,000ha of productive land in the sheep and beef sector “could be lost to forestry” over that period.
But the Forest Owners Association argues that the proposed changes will distort afforestation incentives, pushing forestry activity into LUC 7-8 land. This is in hill country areas of higher operational risk, more prone to mass movement and erosion. FOA has urged the government to adopt a more balanced approach that helps preserve the integrity of the ETS as a market-based mechanism.
The “very active” debate on rural land use change means that uncertainty around the implications for the ETS will remain, the Climate Change Commission’s (CCC) principal analyst, Eva Murray, told delegates at the Carbon Forestry 2025 conference in Rotorua on Wednesday.
“The question of how we should weigh up the climate benefits of planting forests and the change that this brings for people living in rural communities is still not settled, and until we get more agreement across society and across political parties, we can expect this will continue to cause uncertainty for the ETS,” Murray said.
The CCC last month said it was “uncertain” how the proposed rules to limit the conversion of farmland to forests would affect afforestation rates and the NZ ETS incentive for gross emissions reductions.
There is a projected gap of around 9mn t of CO2 equivalent (CO2e) for New Zealand to meet its 2031-35 greenhouse gas (GHG) emissions reduction budget, and it is not clear how that gap will be closed, Murray told delegates.
It takes around 4-5 years for a new forest to start sequestering carbon, so a significant volume of plantings would need to take place in the period to 2031 for the forestry sector to help the country meet its 2031-35 targets, she said.
The number of forestry participants and amount of registered land in the ETS have increased sharply, data from the primary industries ministry show. There are currently around 4,750 participants and over 775,000ha registered, up from 4,343 participants and 652,988ha at the end of November, just before the farm-to-forest restrictions were announced. A total of 110,673ha have been approved as eligible so far this year, almost as much as the 112,441ha approved in the whole of 2024.
In the long term, the proposed new rules may tighten New Zealand emissions unit supply, leading to higher prices in the ETS, Stephanie de Groot, partner at law firm MinterEllisonRuddWatts, said at the conference.
The changes may also lead to a reduced return on investment from fragmented land use, and could prompt foresters to shift from exotic to indigenous forests — although those grow more slowly and have higher costs. Another potential effect is a switch to voluntary carbon schemes, with some initial interest already noticed in the market, de Groot said.
By Juan Weik
