In a transformative policy shift, the Government has announced key changes to the Emissions Trading Scheme (ETS), placing new restrictions on farm-to-forestry conversions for land with high productive potential. This builds on an earlier major change, which excludes agricultural emissions from regulation. These reforms aim to safeguard New Zealand’s fertile farmland, provide clarity for foresters, and address the concerns of farming communities regarding the ETS’s impact on rural productivity.
Current system
The ETS is New Zealand’s primary tool for reducing greenhouse gas emissions and meeting international climate commitments. It operates by putting a price on emissions, incentivising businesses to reduce their carbon footprint. Participants can earn or purchase carbon credits (NZUs), which can be traded. Forestry plays a key role, as trees absorb carbon dioxide, allowing forest owners to register their forests in the ETS and earn credits.
The current system has facilitated an increase in carbon prices, making large-scale forestry an attractive investment. The potential for significant revenue from carbon credits has encouraged landowners to convert their farmland to forestry. While this contributes to emissions offsetting, it has raised concerns about the loss of productive farmland, rural community impacts, and long-term sustainability.
Shift in approach to land use
The changes, revealed by the Ministers of Agriculture and Forestry, and Climate Change, mark a significant shift, aiming to balance the economic vitality of rural communities with New Zealand’s climate commitments.
The Government intends to address concerns around ETS policies by limiting large-scale forestry conversion and promoting sustainable land-use practices. As part of the initiative, partnerships with the private sector will see trees planted on Crown-owned land deemed unsuitable for farming or of low environmental value.
This shift is intended to deliver on an election promise of a more balanced and equitable approach to land use, one that champions New Zealand’s potential as a world-class agricultural producer while meeting climate change obligations.
Key changes at a glance
The Land Use Capability (LUC) classification system categorises land based on its productive capability, from Class 1 (the most productive) to Class 8 (the least productive).
The reforms introduce several major changes to the ETS rules:
Exotic forestry registrations for actively farmed LUC 1-5 land will be prohibited.
Exotic forestry registrations will be limited to 15,000ha annually for LUC 6 land.
Farmers can plant up to 25% of their LUC 1-6 land in forestry under the ETS, retaining the ability to diversify their land use.
Landowners can request a more granular assessment of their LUC categorisation at the property level.
No limits will be placed on LUC 7-8 farmland, forest land already registered, or native forest registrations. There are also exclusions for specific categories of Māori-owned land to respect Treaty obligations, while ensuring support for economic development.
The legislation is set to be introduced in 2025 and is expected to be passed in October 2025. Under transitional provisions, landowners in the process of afforestation before 4 December 2024 can proceed. It expands on recent amendments where agriculture was completely removed from the ETS as of 26 November 2024, meaning these farmers are no longer required to report or pay for their emissions (with the Government intending to introduce a new system specifically for agricultural emissions).
What this means for farmers and foresters
For farmers, the reforms relieve them from ETS rules and offer a clearer pathway to integrating forestry into their operations without jeopardising food production capacity. With some flexibility to plant up to 25% of their land in forestry, they can diversify income streams while maintaining most of their land for agricultural use.
However, landowners pursuing large-scale forestry projects may face challenges navigating the 25% limitation for LUC 1-5 land which may not suit all farmers, and the annual cap on LUC 6 land which could lead to competition and disputes over prioritisation. Landowners with current forestry conversion plans may also face a period of uncertainty until the transitional provisions are finalised.
The ability to seek property-level LUC reassessments, however, addresses concerns about inaccuracies in broad-scale land categorisation, ensuring fairer outcomes for individual landowners.
The bigger picture
The reforms represent a turning point for rural land use in New Zealand, paving the way for a new approach to land management intended to protect productive farmland while meeting climate change goals and offering landowners greater certainty and flexibility.
As legislation develops, stakeholders, including farmers, foresters, and Māori landowners, should actively engage in the consultation process to ensure the new framework is effective and equitable.
If you have any questions about these changes, please reach out to a member of our team.