The Environment Committee has examined the Climate Change Response (Emissions Trading Scheme—Forestry Conversion) Amendment Bill and recommends that it be passed. We recommend all amendments unanimously.

The bill would amend the Climate Change Response Act 2002. It aims to address the widespread conversion of farmland into forestry by restricting the ability to register exotic forestry on certain types of land in the New Zealand Emissions Trading Scheme (ETS).¹

ETS participants earn New Zealand Units (NZUs) for forests registered in the ETS, based on the amount of carbon removed or absorbed by forests. Participants can earn revenue by selling NZUs to emitting businesses. This creates a financial incentive to convert farmland to exotic forestry. However, conversion of large amounts of farmland to forestry may present risks for agricultural supply chains, rural communities, and the flexibility of long-term land use.

The bill would restrict the amount of exotic forestry conversions on Land Use Capability (LUC) class 1–6 farmland that can be registered in the ETS.² Under the bill, landowners and rights holders could register a maximum of 25 percent of the LUC class 1–6 land on an individual farm as exotic forestry in the ETS. The bill would also create a national limit of 15,000 hectares of LUC class 6 land that could be registered as exotic forestry each year. Under this system, permits to register LUC class 6 land as exotic forestry would be allocated by random ballot annually. Permits granted would enable an ETS participant to apply to register a specified amount of LUC class 6 land in addition to the right to register up to 25 percent of the LUC class 1–6 land on a farm.

The bill would provide for some exemptions from these restrictions, including for specific categories of Māori-owned land and unfarmed land. There would also be temporary transitional exemptions for people who began investing to convert land to forestry before the policy change was announced.

The bill’s proposed restrictions would apply only to registrations of exotic forests (tree species not native to New Zealand), not of indigenous forests. The bill would not restrict people’s ability to plant exotic trees; the restrictions would be on registering exotic forestry in the ETS.

As part of our consideration of the bill, we have examined its consistency with principles of legislative quality. We have no issues regarding the legislation’s design to bring to the attention of the House.

This commentary covers the main amendments we recommend to the bill as introduced. We also make two minor and technical amendments, to:

• change the commencement date for clause 12 from 31 October 2025 to the day after Royal assent

• replace references to “Landcare Research New Zealand Limited” with “the New Zealand Institute for Bioeconomy Science Limited”.

Clause 6 would amend section 4 of the Act, the interpretation section, to add several new definitions, including the term “unfarmed land”. The bill would exempt exotic forestry that is on unfarmed land from the new restrictions on the ability to register in the ETS.

In the definition as introduced, to be considered unfarmed, none of the land described in the record of title could have been used for farming in the 5 years prior to the ETS application being made. Also, none of the land could contain forest of predominately exotic species that were planted in the 5 years since the land was last used for farming.

We consider that this definition may be too broad. It may unintentionally result in land not being able to be considered unfarmed if any exotic species had been planted, including on LUC class 7 or 8 land, in the 5 years since farming ceased. In these cases, registering exotic forestry on this land would not be exempt from the new restrictions. This is not consistent with the policy intent.

We recommend amending the definition to specify that, to be considered unfarmed, none of the LUC class 1–6 land on the title may be “forest land” or contain forest of predominately exotic species planted in the 5 years since the land was last used for farming. Forest land is defined in section 4 of the Act. This would mean that if shelter belts or exotic species were planted in an area of less than one hectare, or on LUC class 7 or 8 land, the land could still be classified as unfarmed.

Clause 11 would insert new sections 167A and 167B into the Act. As introduced, new section 167A provides for regulations to be made relating to methodologies and mapping standards. New section 167B provides for regulations to be made relating to the permits to register LUC class 6 land as exotic forest. ETS applicants must follow mapping standards to identify their forest land when they apply to register land into the ETS. If the bill’s proposed changes came into effect, information about the LUC classification of land would need to be updated. Consequently, new mapping standards would need to be issued to include this information.

As introduced, new section 167A(1) would enable regulations to be made prescribing the methodologies and mapping standard to be used. We propose that, rather than providing for regulations to prescribe a mapping standard, they instead authorise the Environmental Protection Authority (EPA), as the administering agency, to issue mapping standards. We recommend amending new sections 167A and 167B accordingly. This would enable greater flexibility and is consistent with the way that mapping standards are currently issued.

As introduced, the bill provides an exemption from the new restrictions for registering exotic forestry that is on “offsetting land” in the ETS. There are two different types of offsetting applications in the ETS, that apply to post-1989 and pre-1990 forest land.³ Generally, if an ETS participant removes registered post-1989 forest, they would have to pay NZUs. However, participants can apply to “offset” the removal of that forest from the ETS by planting an equivalent forest elsewhere. In this case, participants do not have to surrender NZUs for the removal of the forest.

We see a risk that post-1989 ETS participants might attempt to use this pathway and register exotic forestry on offsetting land to avoid the bill’s proposed restrictions. We do not think participants should have this option. We propose removing the exemption for offsetting land and preventing ETS participants from including post-1989 forest on LUC class 1–6 land in offsetting applications. We consider that the exemption should apply for offsetting applications for pre-1990 forest land. We recommend inserting new clauses 11A and 16A, and deleting the definition in proposed new section 4(1) of “offsetting land”, to provide for this.

The bill would introduce a hectare limit on the amount of LUC class 6 land that can be registered in the ETS as exotic forest each year.⁴ New subpart 4B (new sections 190KF–190KZB), inserted by clause 16, sets out matters relating to the permits to register LUC class 6 land as exotic forestry. New section 190KG sets out that permits would be issued by conducting a random ballot for the available hectares each year.

New section 190KK specifies that the ballot process must allow for a minimum allocation to be reserved for small applications. As introduced, the bill would not allow the reserved portion to be reallocated if there was not sufficient demand from small applications to distribute it all. We note that this might result in the total hectare limit not being fully allocated.

We recommend inserting new section 190KKA to specify that, if the total number of hectares for all small applications does not meet the reserved allocation, the unused balance may be reallocated. We also recommend inserting new section 167B(1)(ja), by means of clause 11, to enable regulations to be made to specify how the reserved portion may be reallocated.

Clause 17 would amend Schedule 1AA of the Act. It sets out the transitional arrangements for when the bill comes into effect. Proposed clause 48 of Schedule 1AA would create an exemption to the new restrictions on registering exotic forestry on LUC class 1–6 land in the ETS. Broadly, the exemption would apply to ETS applicants who can demonstrate that they began investing to convert land to forestry before the policy change was announced on 4 December 2024. Clause 46 of Schedule 1AA defines the types of investments that would count for these purposes. These are called “qualifying forestry investments”. Examples include applying for a resource consent to plant a forest, having a sale and purchase agreement for land, or making purchases to afforest land, such as ordering seedlings. ETS applicants would have to demonstrate that they made at least one qualifying forestry investment to be eligible for the exemption.

We consider that making a single qualifying forestry investment should not, on its own, be sufficient evidence that someone began investing with actual intent to convert farmland to exotic forestry. As introduced, the provision would mean that an ETS applicant would not have had to own or lease the land they are seeking to register prior to the policy announcement, to be eligible in all cases. We propose that, for this exemption to apply, ETS applicants be required to demonstrate both that they had a “clear interest” in the land they seek to register prior to 4 December and have made a qualifying forestry investment. We recommend amending clause 48 of Schedule 1AA to set out this requirement.

We recommend inserting a definition of “clear interest” in proposed clause 46 of Schedule 1AA. To have shown a clear interest, an applicant must have either:

• owned the land

• had a registered lease or registered forestry right, or agreement to obtain one

• had a conditional or unconditional sale and purchase agreement for the land

• made a written offer to purchase the land and received written acceptance or a written indication of the seller’s intent to negotiate further.

We also recommend amending the definition of “qualifying forestry investment” in clause 46 of Schedule 1AA as introduced. Our recommended amendments would make the definition consistent with the new requirement to demonstrate a clear interest in the land. They would also clarify the wording of one type of qualifying forestry investment, in relation to obtaining or providing a permitted activity notice under the Resource Management Act 1991.

We consider that these recommended amendments would clarify and strengthen the conditions for when a transitional exemption from the new requirements introduced by the bill would apply.

The Labour Party supports this bill, but notes that significant further work remains to be done with respect to the role of carbon forestry in the Emissions Trading Scheme (ETS). Current analysis by the Climate Change Commission suggests that if the use of forestry carbon credits in the ETS remains unchecked, then by the late 2030s the sectors covered by it will reach net zero and then negative emissions, leading to a very low carbon price which could lead to a new wave of deforestation. Over time, there could be large boom and bust cycles in carbon forestry, creating large swings in net emissions which will put New Zealand’s 2050 emissions target under the Paris Agreement at risk.⁵ We urge the Government to undertake a thorough review of the Emissions Trading Scheme with particular emphasis on the role of carbon forestry.