Why New Zealand Is Scaling Back Its National Forest Carbon Credit Program
When it comes to forests, more is not necessarily always better
If you work in the forest industry today, you have probably heard about carbon credits. There is a lot to like about them. For landowners, carbon credit sales offer a new means to generate income. For potential buyers, the purchase of forest carbon credits (also called “offsets”1) provides a means of offsetting (cancelling out) carbon emissions through visibly good works, such as planting trees. Finally, for governments and society, forest carbon markets can encourage landowners to grow more trees, hence sequestering more carbon and bringing countries’ emissions closer to net zero.
Yet, New Zealand is now scaling back the sale of forest-based carbon credits as part of its national emissions trading system. The following article outlines how the country reached this decision. We begin with an overview of emissions trading schemes.
Overview of Emissions Trading
Under the Kyoto Protocol, participating countries have agreed to limit their greenhouse gas (GHG) emissions in accordance with national targets. Governments have two main tools for encouraging emissions reductions: carbon taxes and emissions trading schemes (ETSs), also known as a cap-and-trade schemes or compliance carbon markets.2
In emissions trading schemes, companies are assigned limits on the amount of emissions they may release. If these companies exceed their limits, they must either purchase carbon credits (=offsets) or pay a fine. However, companies can be awarded the right to sell carbon credits if they can demonstrate their actions have led to a reduction in carbon emissions compared to a business-as-usual scenario. They may also receive credits for removing carbon from the atmosphere, such as through tree planting or carbon capture technology. Thus, a commodity market has developed for carbon: some companies sell credits, others purchase credits, and the ongoing balance of supply and demand sets the price.
Companies operating in jurisdictions or industries in which there are no government-run emissions trading schemes (compliance carbon markets) may choose to sell or purchase carbon credits through voluntary markets. To sell credits in voluntary markets, companies must register their carbon-reducing project with a GHG registry organization and have their reduction or removal claims verified by an independent third party.
Forest-based carbon credit projects aim to offset carbon emissions by increasing the carbon sequestered (absorbed from the atmosphere) by trees. In general, three types of forest carbon projects exist: afforestation/reforestation projects (planting trees where forests might not otherwise have existed), conservation projects (avoiding forest harvests that might otherwise have occurred), and forest management improvement projects (changing forest management practices to capture more carbon than in a business-as-usual scenario). To date, most forest-based carbon credits have been sold on voluntary markets.
The Role of Forestry in New Zealand’s ETS
New Zealand is one of the few jurisdictions in the world to include forestry within its national emissions trading scheme (ETS). New Zealand’s commercial forestry sector, predominated by radiata pine grown on 28-year rotations, is very efficient at sequestering carbon. Additionally, there is an abundance of “plantable” land: forest plantations cover just 8% of the country’s land area, whereas 50% of the country is farmland or pasture. Therefore, planting a relatively small proportion of the currently unforested land has the potential to make a big difference to the country’s carbon sequestration.
Forest owners who register their plantations with the ETS program can earn “New Zealand Units” (NZUs), with one NZU representing one tonne of carbon dioxide equivalent (CO2-e). The owners can either hold onto these units or sell them at the prevailing market price. The number of NZUs earned depends on the species planted (radiata pine earns the most), the region (some regions are more productive than others), and the total area planted.
Under the New Zealand ETS, landowners have had the choice of registering their forests for either standard or permanent forestry. In standard forestry, the landowner can harvest logs as long as the land is promptly reforested after logging. Landowners also have the option to convert the land back to non-forest use, provided they pay the current price for the carbon held in the forest at the time of logging. The ability to earn money from both carbon sales and wood production, combined with the flexibility to change land use, have made this option the preferred choice of 80-90% ETS participants. In permanent forestry, landowners make a minimum 50-year commitment to keeping the land forested. If logging occurs, it must be by methods that leave at least 30% of the crown cover standing.3
The Rise and Fall of Carbon-Driven Afforestation
Perhaps not surprisingly, the opportunity to earn money from both wood production and carbon credit sales prompted a rise in afforestation. While the take-up of NZUs wasn’t immediate (indeed, during the farming boom of the 2010s, New Zealand actually experienced a slight decrease in net afforestation), a rise in carbon prices between 2018 and 2024 was matched by a 5% growth in New Zealand’s plantation area.
However, the rise in farm-to-forest conversions prompted political pushback from the New Zealand farming industry. Farmers were concerned that the conversion of arable—i.e., suitable for high-intensity livestock production—land to forestry use would reduce food production and employment in farm communities.
The permanent forestry program was of particular concern given that it could result in land being locked up for at least 50 years (the equivalent of nearly two full harvest rotations in New Zealand), often with no tending. In addition to reducing communities’ economic activity, leaving forests unmanaged could increase the risk of disease, pest outbreaks, and wildfire.
In December 2024, the New Zealand government announced that it would scale back the sale of afforestation-based NZUs. The policy changes included a moratorium on full farm-to-forest conversions on Class 1 through Class 5 (the most productive) land and an annual ETS program registration cap of 15,000 hectares (ha) on Class 6 (moderately productive) land.
NZUs can still be obtained for planting on land classes 7–9 (steeper slopes that are less suitable for agriculture or pasture), partial afforestation (i.e., up to 25%) of farms on land classes 1–6, and planting on some classes of Māori-owned land.
Rethinking Forest-Based Carbon Credits
If one’s policy goal is simply to grow more trees, selling forest-based carbon credits can be a good way to encourage this. However, carbon credit policies must weigh both benefits and risks. In the case of New Zealand, it eventually became clear that the ETS’s forestry policies were having some unintended political, economic, and environmental consequences. Recognizing the need to reevaluate forest-based carbon credit sales, the New Zealand Parliamentary Commissioner for the Environment released its white paper Alt-F Reset: Examining the Drivers of Forestry in New Zealand in April 2025.
Alt-F Reset identified several risks to New Zealand’s forest carbon policies. The first was that selling carbon credits created carbon liabilities, meaning that forest owners would have to pay back carbon credits if the forests on their land were converted back to farmland. Over time, this could “lock up” productive land as forests, saddling future generations with the cost of maintaining those forests even as the climate changed.
Another risky practice identified was the widespread use of radiata pine plantations. While the report makes it clear that radiata pine will always be an important commercial species in New Zealand, the species is not as well-suited to being left standing, untended, for 50+ years. Depending on the region, climate change may raise the risk of extreme rainfall events, extreme winds, wildfire, drought, and disease and pest outbreaks. While 28-year harvest rotations provide frequent windows for forest management changes, long-lived forests must be able to withstand a changing climate. Even-aged monocultures of exotic species like radiata pine may be less resilient than uneven-aged stands of native species. Also, ongoing forest management may be needed.
The report suggests several alternatives, including planting native species, planting a greater variety of exotic species, agroforestry (i.e., incorporating trees into agricultural landscapes), and continuous cover production forestry (i.e., using partial cutting instead of clearcutting). However, New Zealand’s current forestry policies inadvertently discourage the use of native species. First, as radiata pine’s carbon-sequestering abilities have been well-documented, landowners wishing to participate in the ETS are motivated to choose this species over others. Also, both planting and harvesting native species are heavily regulated.
The report concludes by recommending that New Zealand reform its ETS to phase out forest-based carbon offsets for fossil fuel emissions, or, at the very least, reform the permanent forestry category in the ETS to require permanent forest owners to have realistic long-term forest management plans. It also suggests the country reevaluate how regulates naturally regenerated forests.
Similarities Between New Zealand and North American Forestry
While New Zealand’s plantation-based forest industry differs greatly from the natural forest-based industry of Canada and the western US, there are also some striking similarities.
Foresters on both continents are coming to realize that forests, and the values they support, are at increasing risk from climate change. Just as a “plant it and walk away” strategy for carbon sequestration in New Zealand risks losing the stored carbon to natural events such as wildfire, a “draw a circle around it on the map and walk away” strategy for conservation in North America risks losing biodiversity values to the same sorts of natural events. Also, forests managed for non-timber values may still benefit from forestry activities such as stand thinning for wildfire mitigation.
There is also a growing realization that the benefits of managing land for maximum carbon sequestration can align with some forest values (such as timber production in New Zealand) while conflicting with others (such as biodiversity). While there are indeed benefits to selling carbon credits, there are often opportunity costs – such as the loss of rural economic activity when farms are converted to forests in New Zealand or when working forests are converted to wilderness reserves in North America.
The scaling down of New Zealand’s forest-based NZU sales does not represent the end of forest management for carbon sequestration. Instead, it signifies a rebalancing of priorities. Although carbon sequestration is becoming more important in our current era of climate warming, we must not manage for carbon at the expense of the many other values forests provide.
Note: For information on how New Zealand’s ETS program may impact the country’s wood supply, see “Update on Climate and Carbon Policies: Spotlight on New Zealand” in the May edition of Wood Markets Monthly.
While many sources use the terms “credits” and “offsets” interchangeably, some define credits as carbon sales and offsets as carbon purchases, and others define credits as carbon units in compliance systems and offsets as carbon units in voluntary systems.
Governments may incorporate both taxes and ETS in their carbon pricing policies.
“Crown cover” refers to area with overhead tree canopy. In other words, the site can be logged with partial cutting systems such as single tree or small group selection, as long as 30% of the overhead canopy remains afterwards.