In a bid to disincentivise farm to forestry conversions on productive farmland, Agriculture and Forestry Minister Todd McClay and Climate Change Minister Simon Watts have recently announced restrictions around the eligibility of farmland that is converted to forestry for registration in the New Zealand Emissions Trading Scheme (NZETS).
The NZETS is a government strategy aimed at combatting climate change and curbing greenhouse gas emissions. Businesses subject to the NZETS regime must surrender one New Zealand Unit (NZU) per tonne of carbon emitted. Participants in the NZETS who plant forestry receive NZUs in consideration for the carbon dioxide removal achieved from the growth of the forest.
Concerns have been raised for several years by farming groups and rural communities around productive farmland being converted into forestry, in part driven by carbon emitting businesses being able to generate NZUs through afforestation activities more cost effectively than acquiring them via the secondary market or government auctions.
The government is now delivering on an election promise that it would look to limit the practice of converting productive farmland to forestry by:
- Land Use Capability (LUC) restrictions: placing a moratorium (temporary restriction) on exotic forestry registrations for LUC Classes 1-5 actively farmed land (being land generally suitable for productive farming)
- Annual registration cap: implementing an annual NZETS registration cap of 15,000 hectares per annum for exotic forestry registrations on LUC Class 6 farmland (being land often erosion prone and more suitable to pastural and forestry use). It remains to be seen how this cap will be managed and monitored in practice and the supporting legislation will need to be very carefully considered by the government.
However, these restrictions are softened by:
- LUC Classes 1-6 allowances: allowing up to 25% of a farm’s LUC Classes 1-6 land to be planted in forestry for the NZETS
- LUC reassessment: enabling landowners to have their LUC reassessed to ensure it accurately reflects the nature of the land
- Exclusions: excluding certain categories of land owned by Māori
- Grandfathering: implementing transitional measures for landowners currently in the process of afforestation activities who can demonstrate an intent to afforest prior to 4 December 2024.
As with any policy decision that impacts the NZETS, a range of factors need to be delicately balanced. Prioritisation of reduction of carbon emissions over carbon removal activities may impact the cost of living for New Zealanders (through higher fuel and electricity prices) and the ability for New Zealand to meet its climate change targets, as well as limit the ability for landowners to diversify their land through the planting of trees. Conversely, prioritisation of carbon removal activities over reduction of greenhouse emissions may disincentivise carbon emitters from changing business practices to reduce those emissions.
Inevitably, the recent announcement and its implementation will have an impact on the price of NZUs (which have already dropped following the announcement), afforestation activities, New Zealand's ability to meet its climate change targets as well as the forestry industry more generally.
Buddle Findlay is a leading provider of climate change and sustainability legal services and is well-placed to advise businesses on how the policy options may impact them. To learn more about our services, or to contact one of our team, visit our climate change and sustainability page.
