By Theresa Le Bas and Lauren Aplin
Over the past decade, many farm owners have converted parts of their land to forestry and registered those areas in the Emissions Trading Scheme (ETS), generating New Zealand Units, commonly referred to as carbon credits, which can be sold for profit. While this has created new income streams, it has also driven significant farm-to-forestry conversion, particularly on sheep and beef farms.
Lauren Aplin
Concerns that large-scale conversion was reducing the availability of highly productive land have now prompted a legislative response. The Climate Change Response (Emissions Trading Scheme – Forestry Conversion) Amendment Act received royal assent on 23 September 2025 and introduces new limits on future forestry registration under the ETS.
The reforms are forward-looking. They do not affect land already registered in the ETS, nor applications lodged with the Environmental Protection Authority (EPA) before 31 October 2025.
Restricted forest land
From 31 October 2025, new restrictions apply to what is defined as “restricted forest land”. In broad terms, this includes land that falls within Land Use Capability (LUC) classes 1 to 6, was not forest land as at that date, and is intended to be planted predominantly in exotic species. Certain categories of land are excluded, including erosion-prone land, specified Māori land, unfarmed land, unmapped land and Crown afforestation land.
LUC classes rank land based on its productive capability, with class 1 being the most productive and class 8 the least. The policy intent is clear: to limit the conversion of productive farmland to exotic forestry.
Once land meets the definition of restricted forest land, options for ETS registration become significantly narrower.
Theresa Le Bas
The 25 per cent allowance
One pathway remains available through the 25 per cent allowance. Landowners may apply to register forestry under the ETS for up to 25 per cent of an individual farm. An individual farm may comprise multiple records of title, provided they share a boundary and are owned by the same person or entity.
The allowance is fixed. It does not increase if the landowner later acquires adjoining LUC class 1 to 6 land. If an application is approved, the EPA must notify the Registrar-General, and the registration is recorded on the relevant titles. This means future purchasers and lenders will be able to see that the allowance has been used.
For many landowners, this allowance will be the primary option for future ETS participation on productive land.
LUC class 6 permits
A second, more limited pathway applies to LUC class 6 land only. Each year, permits will be allocated through two random selection ballots. Successful permit holders may register forestry beyond the 25 per cent allowance for the number of hectares specified in the permit.
Permits are non-transferable and expire after three full calendar years. Nationally, permits will be capped at 15,000 hectares per year unless amended by regulation. Applications will be split into small and large categories, with a portion of permits reserved for smaller landholdings. The first ballot is currently proposed for mid-2026.
What this means for landowners
These reforms introduce additional barriers to farm-to-exotic forestry conversion and add a layer of regulatory complexity to land-use planning. For some landowners, this may limit flexibility and future revenue options. For others, particularly those with existing ETS-registered forestry, it may increase the relative value of land already within the scheme.
Whether the changes lead to greater uptake of indigenous forestry or materially shift farm values remains to be seen. What is clear is that ETS participation is no longer a straightforward option for productive land, and future land-use decisions will require careful legal and commercial consideration.
