Yesterday the Agriculture and Forestry Minister and the Climate Change Minister announced a new policy which will limit farm to forestry conversions from entering the Emissions Trading Scheme (ETS). 

What the proposed policy change is

This policy aims to provide certainty for foresters wanting to enter the ETS while also ensuring the active protection of farmland for use by rural communities.

The policy imposes limits on how much farmland can be converted into exotic forest land and registered in the ETS. This policy does not apply to all land, but rather it applies depending on the land use capability (LUC) productivity rating of the relevant farmland.

The key changes that the policy intends to implement are:

• a 3-year moratorium on full farm conversions to exotic forest land being registered in the ETS on LUC 1 to 5 farmland
• a national annual limit of 15,000 hectares for exotic forest land ETS registrations for LUC 6 farmland
• a 25% limit on the amount of any particular landowner’s LUC 1-6 farmland that is able to be planted in forestry for the ETS.

Some categories of land will remain unaffected by the policy including:

• native forests
• specific categories of Māori land; including land held under Te Ture Whenua Māori Act 1993, land that became general land under the Māori Affairs Amendment Act 1967 and land subject to a treaty settlement
• land which is already registered in the ETS
• landowners currently in the process of afforestation who can demonstrate an intent to afforest prior to 4 December 2024.

The focus is on forestry conversions registered in the ETS (as opposed to planting per se) because ETS registration is seen as a barrier to changing land back to food production. Although there are pathways and mechanisms to de-register land from the ETS, the associated surrender liability (ie surrender of carbon credits claimed) generally limits the amount of land removed from the ETS.

The proposals are not a great surprise as the National Party flagged, pre-election, that it would look to restrict farm to forestry conversions and the draft second Emissions Reduction plan (released in August 2024 and due to be published in final form by the end of 2024) explicitly described the announced restrictions as options.

The policy appears partly aimed at limiting ‘permanent’ afforestation, which has received some bad press in recent years where it has been blamed for taking productive farmland and shrinking rural communities and jobs. With that said, in our experience ‘permanent’ afforestation, which encompasses a range of applications and methods, tends to utilise the more marginal land classes in any event, so while the LUC 6 cap will have an impact, it may be limited.

Impact on planting and emissions reductions targets

Minister Todd McClay has stated that that the policy will result in fewer trees being planted on farmland.^[1]

MPI estimates that exotic afforestation in 2022 totalled 64,100 hectares and in 2023 was 68,500 hectares (split across production and permanent forests). A 2024 report produced for Beef + Lamb New Zealand found that the weighted average of forestry conversions on LUC 6 across 2017-2023 was 57.2%^[2] (although that focuses on planting, not ETS registration). So, it seems clear that the 15,000 ha annual cap on LUC 6 farmland for exotic forestry being registered in the ETS will have an impact^[3].

Planting exotic trees is one of New Zealand’s primary tools for meeting its Paris Agreement emissions reduction commitments, so a decrease in planting would naturally impact that. The Government is currently consulting on New Zealand’s Nationally Determined Contribution for the period 2031 - 2035^[4], including how to balance various factors such as trade-offs relating to the rate of afforestation.

Minister McClay has also pointed out however that the Government is also progressing policy to partner with the private sector to plant trees on Crown land with low environmental and farming value. A further announcement is expected in relation to that in the next few days.

How it will affect those wanting to participate or those already in the ETS

This policy will have no impact on those who already have already registered forest land in the ETS or who can demonstrate that they are in the process of doing so. 

However, for those evaluating future exotic forest opportunities that involve registering forest land in the ETS a more careful consideration of the LUC of that land will be necessary. To assist with this, landowners will have the opportunity to obtain an LUC assessment of their land where they don’t agree with the blanket categorisation applied to it. 

The relevant LUC classification of the land will then determine what landowners are able to do. For example, those who are wanting to participate and register exotic forests in the ETS on LUC 6 will still be able to do so. But, given the annual cap, this will be done on a first-in, first-served basis.

What about the Voluntary Carbon Market?

The proposed restrictions relate to registration in the ETS and would not prevent registration of forests on voluntary market registries, which are used by businesses wanting to buy greenhouse gas removals or reductions credits to support their “carbon neutral” or “net carbon zero” claims, rather than buying units for regulatory compliance purposes.

Next steps

This policy will be supported by legislative changes. The relevant legislation will be introduced in 2025 and is anticipated to come into effect in October 2025.

There may also be some transitional mechanisms put into place before the legislative process is finalised, or be included as retrospective capture under the main legislation. The Ministers have indicated that the new measures will apply from 4 December 2024, and so these transitional/retrospective measures will largely be for landowners who are currently in the process of developing forests and can demonstrate they had intent to do so prior to 4 December 2024.

Get in touch

We will continue to monitor this policy development closely and let you know as this legislative change progresses through Parliament. If you would like to discuss the impacts of the regulations on your business, or if you'd like assistance making a submission when the opportunity arises, get in touch with one of our experts.

Special thanks to Claudia Green and Sarah Gwynn for their help drafting this FYI.