Emissions Trading Scheme
Posted: 30 April 2025
The Emissions Trading Scheme (ETS) will turn 17 years old in September. An integral part of the Climate Change Response (Emissions Trading) Amendment Act 2008, the ETS has undergone significant change throughout its existence.
What is the ETS?
The ETS is New Zealand’s main tool for reducing greenhouse gas emissions. It essentially works by requiring participating businesses to measure and report on their greenhouse gas emissions. Businesses that participate in the scheme must surrender what is known as an ‘emissions unit’ for each tonne of carbon dioxide that they emit. One tonne of CO2 will cost you one emissions unit.
Over time, the government will reduce the number of units that are supplied into the ETS. The effect of this is that emissions units increase in demand as participating businesses buy and sell emissions units from each other. The price of emissions units in the ETS will (in theory) trend upwards, helping New Zealand to steadily move towards the goal of being a net zero emitter of greenhouse gas by 2050.
Recent developments in the ETS
There has been some concern regarding the conversion of productive farmland into forestry in order to gain emissions units. The government has announced changes to the ETS; its aim is to strike a balance between achieving New Zealand’s climate goals, and protecting the longevity of our most profitable farmland.
The government has signalled that the proposed changes to the ETS will be formally introduced to the House this year, with the new rules expected to come into force by October 2025.
All trees created equal?
The most significant proposed change to the ETS is the temporary prohibition of the registration of exotic forestry (non-native) for emissions units on Land Use Capability (LUC) 1–5 farmland. LUC separates land into eight categories based on an assessment of the land’s capability for use. LUC Class 1 land is the most versatile, with LUC Class 8 land being the least versatile.
At present, any tree can be planted on any farmland to earn emissions units (provided the tree species planted can reach at least five metres in height). This means there is no incentive to prioritise the planting of native trees over the planting of exotic species, such as the Radiata pine.
The proposed changes will also require ETS participants to exercise greater discretion in choosing which areas of farmland to plant on; should you wish to plant an exotic species, you must do so on your less productive land.
A flexible approach
The proposed rules are not entirely hard and fast as there is some wriggle room for ETS participants. Up to 25% of LUC Class 1–6 land on a farm can be used to plant exotic forestry for the purpose of registering it under the ETS.
The proposed new rules have also scrapped plans to include agricultural processors (meat processors, dairy processors, nitrogen fertiliser manufacturers and importers, live animal exporters) in the ETS. Agricultural processors had been due to enter the ETS from 1 January 2025, but the passing of the Climate Change Response (Emissions Trading Scheme Agricultural Obligations) Amendment Bill on 26 November 2024 has stopped this.
Why the changes?
The proposed changes clearly signal the government’s desire to promote the planting of native species. It appears, however, that consideration has been given to the idea that ETS participants have benefitted from the planting of exotic species that can be planted en masse and grow quickly. This practice will remain, with the caveat being that it will need to take place on less productive farmland.
DISCLAIMER: All the information published in the Property eSpeaking, Commercial eSpeaking, Trust eSpeaking, Rural eSpeaking, and Fineprint newsletters is true and accurate to the best of the authors’ knowledge. It should not be a substitute for legal advice. No liability is assumed by the authors or publisher for losses suffered by any person or organisation relying directly or indirectly on this article. Views expressed are those of individual authors, and do not necessarily reflect the view of this firm. Articles appearing in Property eSpeaking, Commercial eSpeaking, Trust eSpeaking, and Fineprint may be reproduced with prior approval from the editor and credit given to the source. Copyright, NZ LAW Limited, 2019. Editor: Adrienne Olsen. E-mail: [email protected]. Ph: 029 286 3650 or 04 496 5513.
