Two key changes to the New Zealand Emissions Trading Scheme (ETS) have been progressed by the Government in recent weeks targeting the forestry and agricultural sectors:

• a temporary restriction on farm-to-forestry conversions on productive land registering in the ETS; and

• complete removal of agriculture from the ETS. 

The policy changes are a nod to the agriculture sector and a desire to protect productive agricultural land.  
The changes do not come as a surprise, being foreshadowed in election policy, the Government’s coalition agreements, and the recent Emissions Reduction Plan 2026-2030 consultation document discussed in our previous article.

The changes are potentially the most significant we will see to the ETS this term, with the Government otherwise signalling a strong intention to restore market confidence in the ETS, partly by avoiding policy changes that threaten its credibility.

So, what do the changes look like?

Temporary restrictions on farm-to-forestry conversions registering in the ETS

The Government announced on 4 December that it will progress with this policy change in 2025. The changes target exotic forestry and include:

• A moratorium (temporary restriction) on registering exotic forestry in the ETS for land use capability (LUC) classes 1-5 where that forest has been converted from farmland to forest land.
• Limiting the amount of exotic forestry on LUC class 6 land that can be registered in the ETS after conversion from farmland. An annual registration cap of 15,000 hectares for exotic forestry will be imposed and will be allocated on a first in, first served basis. 
• No limits on the registration of LUC class 7 and 8 for exotic farm-to-forest conversions. 
• Forest land already registered in the ETS, and native (indigenous) forest registrations in the ETS, will not be affected.

There are three exceptions to the restrictions set out above:

• Anyone who can provide evidence that they were in the process of afforestation before 4 December 2024 will be exempt and can continue to register their converted farm to forest land. 
• Farmers will still be able to convert up to 25% of their LUC 1-6 farmland into forest and register it in the ETS.
• This is possible because the policy allows an exemption of up to 25% of a farm’s LUC class 1 to 6 land, from the limits to be planted as forestry and registered in the ETS.
• Specific categories of Māori-owned land will be exempt, including:
  • Māori land held under Te Ture Whenua Māori Act 1993;
  • land on which the status was changed to general land under the Māori Affairs Amendment Act 1967; and
  • land pursuant to a Treaty settlement.

Exotic forests provide abatement towards New Zealand’s climate change targets. However, the Government considers that the expansion of exotic forestry on productive farmland may have wider undesirable impacts on rural communities and economies. 

The intention of the changes is to disincentivise farm-to-forestry conversions on highly productive land, and balance the trade-offs between forestry, agriculture and climate change. 

Climate Change Minister Simon Watts has commented that “Forestry and agriculture both play an important part in our climate strategy, it's important we are incentivising the right balance so New Zealand can have prosperous communities, increasing primary production and exports, and a thriving economy while meeting our climate goals”. 

Other commentators have suggested the policy will be ineffective at protecting productive farmland and inhibit tree planting required to tackle the demands of climate change. This could impact New Zealand’s growing reliance on carbon sequestration to meet international climate reporting obligations. The changes will also likely disrupt the development of the production forestry sector which has previously benefited from participating in the ETS.  

The Government has advised that legislation to effect the changes will be introduced in 2025 and come into force from October 2025. In the recent announcements the Government has not signalled that it will consult on the proposed changes prior to introducing legislation. 

Removal of agriculture from the ETS

The agriculture sector has been removed from the ETS, with the passing of the Climate Change Response (Emissions Trading Scheme Agricultural Obligations) Amendment Bill, which came into force on 26 November 2024.

Previously, the Climate Change Response Act 2002 required: 

• Agricultural processors to report their biological emissions from livestock and fertiliser they process.
• Agricultural processors to pay for 5% of their agricultural emissions from 1 January 2025. 
• Animal farmers to report their emissions starting 1 January 2026, and pay for 5% of their emissions from 1 January 2027.
• Agricultural processors and animal farmers were to be given a free allocation of New Zealand Units (NZUs) starting at 95% in 2025 for Agricultural processors and 2027 for Animal farmers,- with that free allocation reducing by 1% each year.

These requirements have been removed with the passing of the Bill. 

The Government intends to introduce an alternative, farm-level pricing system by 2030 to address agricultural emissions. Alongside this development, the Government has indicated it will focus on developing practical tools and technology for farmers to reduce emissions.

More guidance

Please reach out to one of our experts if you would like more information about the ETS reforms and how it might affect you.

This article was co-authored by Imogene Jones (Solicitor) and Alyssa Langford (Senior Solicitor) in our Environment team.