How the NZ ETS Affects Forest Investors

The New Zealand Emissions Trading Scheme (ETS) can materially affect forestry investment returns, but it is often misunderstood. For forest investors, the ETS creates both opportunity and obligation, and its impact depends heavily on land eligibility, accounting method, and long-term management decisions.

This page explains how the NZ ETS affects forest investors in practice.

The role of forestry in the NZ ETS

Forestry is the only sector in the ETS that can earn units through biological growth. Eligible forests sequester carbon as they grow and can earn New Zealand Units (NZUs), which may be sold or retained.

“The ETS rewards carbon storage over time, not simply tree planting.”

Which forests are eligible?

Eligibility depends primarily on when the land was first forested:

  • Post-1989 forest land may be eligible to earn NZUs

  • Pre-1990 forest land generally cannot earn NZUs and faces restrictions on land use change

Eligibility must be confirmed using official mapping and historical evidence.

Post-1989 land is land which did not have a tree or scrub which can grow to 2m on it on 31 Dec 1989.

“Land is often the largest single Not all new forests automatically qualify for carbon income.”

Carbon income and timing

Carbon income is typically:

  • Strongest in the early to mid-growth years

  • Front-loaded compared to timber income

  • Dependent on ETS prices and settings

Carbon income can improve early cashflow but should not be assumed to be stable or permanent.

“Carbon prices are volatile, and income assumptions should be conservative.”

Carbon liabilities if deforest

Deforesting a forest creates a carbon liability. Units previously earned must be surrendered unless the forest is replanted or managed under specific accounting rules.

This means:

  • Carbon income is not free or unconditional

  • Harvest decisions must consider ETS consequences

“Poor ETS planning can turn apparent carbon gains into future costs.”

Regulatory and policy risk

ETS rules are set by government and can change. This includes:

  • Accounting rules

  • Unit supply settings

  • Compliance costs

While forestry remains a core part of the ETS, policy risk must be acknowledged.

“ETS exposure should be managed, not maximised.”

Forest Leaders’ view

The ETS can materially enhance forestry investment outcomes when integrated into a sound long term forest strategy. It should support forestry fundamentals, not replace them.