The Future of Carbon in NZ
Carbon farming exists within a rapidly evolving policy landscape. Understanding likely directions helps you make decisions that will stand the test of time.
The Big Picture
New Zealand has committed to:
- Net-zero by 2050 (excluding biogenic methane)
- 50% reduction by 2030 (below 2005 levels)
- Emissions budgets set every five years
These commitments create structural demand for emissions reductions and carbon removals. Forests will remain part of the solution.
Policy Direction
What Seems Likely
Continued carbon pricing: The ETS is embedded in NZ’s climate response. While settings will change, carbon pricing is here to stay.
Increasing ambition over time: Climate targets are likely to tighten as international pressure increases and net-zero approaches.
Agricultural emissions pricing: Currently exempt, agriculture will face pricing by 2030 at the latest. The form is uncertain, but some pricing is coming.
Refinement of forestry rules: Ongoing adjustments to LUC restrictions, accounting methods, and eligibility rules.
What’s Less Certain
Price trajectory: Will prices rise toward European levels ($100+) or remain range-bound?
International linkages: Will NZ reconnect with international carbon markets?
Technology disruption: How will direct air capture and other technologies affect forest carbon value?
Political continuity: Will successive governments maintain current direction?
Potential Changes to Watch
Carbon Pricing Levels
Current settings:
- Auction reserve price: $68 (2025)
- Rising with inflation, potentially more
Potential directions:
- Higher reserves to strengthen price signal
- Emissions cap tightening to drive prices up
- Political pressure could moderate ambition
Forestry Sector Rules
Current trends:
- LUC restrictions limiting exotic expansion on productive land
- Preference for native forestry emerging
- Averaging accounting simplifying production forestry
Potential changes:
- More differentiated native lookup tables
- Stricter exotic forestry limitations
- New permanent forest incentives
- Enhanced requirements for biodiversity outcomes
Market Structure
Current state:
- Domestic-only NZU market
- Limited liquidity
- Government as major supplier
Potential evolution:
- International market linkages (eventually)
- More market participants
- Better price discovery mechanisms
- Carbon removal certification standards
Scenarios for Landowners
Scenario A: Strengthening Commitment
Higher prices, stronger forestry role
- Carbon prices rise toward $100+
- Native forestry incentives increase
- Averaging accounting continues
- Forest land values appreciate
Implication: Carbon farming becomes more attractive. Register eligible land. Consider permanent forestry.
Scenario B: Stable Continuation
Modest changes, policy continuity
- Prices remain range-bound ($50-80)
- Rules adjust incrementally
- Forestry remains viable but not transformative
- Gradual evolution
Implication: Current approaches remain valid. Manage risk, diversify, maintain optionality.
Scenario C: Policy Retreat
Political pressure, weakened settings
- Carbon prices stagnate or fall
- Exemptions and carve-outs expand
- Reduced ambition overall
- Uncertainty increases
Implication: Timber value provides backup. Don’t over-commit to carbon-only strategies.
Emerging Opportunities
Biodiversity Credits
Markets developing for certified biodiversity outcomes:
- Corporate buyers seeking beyond-carbon impact
- Premium for native forests with verified biodiversity
- Stacking carbon + biodiversity payments
Timeline: Early stage, growing over next 5-10 years
Carbon Removal Certification
Growing distinction between:
- Emissions reductions
- Carbon removals (actual sequestration)
Removal credits may command premiums as corporate buyers seek “CDR” (carbon dioxide removal).
Blue Carbon
Carbon stored in marine and coastal ecosystems:
- Mangroves, seagrass, saltmarsh
- Currently not in NZ ETS
- International interest growing
Timeline: Early research phase for NZ
Enhanced Soil Carbon
Better measurement and crediting of soil carbon:
- Currently not well-captured in ETS
- Technology improving
- Could add value to native forests
Timeline: Uncertain, but being explored
Long-Term Considerations
50-Year Timeframes
Forest decisions today affect outcomes for generations:
- Climate will change over this period
- Policy will change multiple times
- Technology will advance
- Markets will evolve
Resilience over Optimisation
Rather than optimising for today’s rules:
- Build flexibility into plans
- Diversify across species and approaches
- Avoid over-commitment to single strategies
- Focus on fundamentals (good forest, good land)
Intergenerational Thinking
Carbon farming at its best is:
- Building assets for future generations
- Creating environmental legacy
- Providing ongoing income streams
- Responding to climate challenge
Practical Implications
For New Entrants
- Register eligible land if fundamentals are sound
- Don’t rely solely on carbon income projections
- Native forestry has policy tailwinds
- Build relationships with advisors who track changes
For Existing Participants
- Stay informed on policy developments
- Review arrangements periodically
- Consider transitions (averaging, permanent) as appropriate
- Maintain good records for whatever comes
For Investors
- Understand policy risk is real
- Diversify across geographies if possible
- Native forestry may have lower policy risk
- Focus on quality assets and management
Staying Informed
To track developments:
- Climate Change Commission — advice and analysis
- MPI — forestry scheme updates
- MfE — policy direction
- Industry bodies — NZFFA, NZFOA
- Carbon market news — Carbon News, international sources
Key Takeaways
- Carbon pricing is here to stay — but settings will change
- Climate ambition likely to increase — structural tailwind for forestry
- Forestry rules will continue evolving — adapt as needed
- New opportunities emerging — biodiversity, removal credits
- Build resilient strategies — not optimised for today’s rules alone
- Stay informed — the landscape will keep changing