Proposed restrictions on farm to exotic ETS forestry conversions

In a move to restrict productive farmland from being converted to exotic forest registered in the New Zealand emissions trading scheme (ETS), the Government’s Climate Change Response (Emissions Trading Scheme—Forestry Conversion) Amendment Bill (Bill) was introduced and passed its first reading in June this year. The concern is that the ETS incentivises farm conversions to exotic forests, due to current and expected returns for New Zealand units (NZUs) being cost-competitive with pastoral land uses. Whereas, the economic return for forestry outside the ETS, which this Bill does not prohibit, is close to that of sheep and beef farming.
The Bill would amend the Climate Change Response Act 2002 to manage the balance between protecting our most productive farmland for food production, while still supporting our climate goals through farmers participating in the ETS. The impact, of locking up productive land for NZUs, on the viability of rural communities is also a key consideration.
The Bill proposes using the Land Use Capability (LUC) classification system, which classifies land based on its capability for long-term production. The restrictions would focus on the most productive land as follows:
• For an individual farm, exotic forestry on up to 25% of its high to medium-versatility land (LUC class 1-6) would be eligible for registration in the ETS; ensuring farmers have some flexibility as to land use.
• Each year, an additional 15,000 hectares nationally of LUC 6 farmland would be allowed to be registered in the ETS. The right to register this land would be allocated using a randomised ballot system. This allocation would be in addition to the 25% allowance on the same farm.
• No restrictions would apply for exotic ETS forestry on low-versatility farmland (LUC 7 and 8) or land that is not actively farmed (in the 5-year period prior to ETS application).
• Existing forest land, and new indigenous forestry would be eligible for registration in the ETS.
Exemptions that would apply include:
• A transitional exemption would be available for those who had begun the process of converting farmland to exotic forest in the period between 1 January 2021 and 4 December 2024. Conversions that began after the new restrictions were announced on 4 December 2025 would be subject to them.
• An exemption would be allowed for land with high or severe erosion risk that should be retired from farming to prevent further erosion.
• Specific types of Maori land would be excluded from the restrictions in line with Treaty obligations.
The Bill is being moved along quickly, and if passed would come into effect 31 October 2025, with the first ballot of LUC 6 farmland in mid-2026.