A Tough Year for Forestry in the NZ ETS - and Why the Scheme Still Matters
A Tough Year for Forestry in the NZ ETS - and Why the Scheme Still Matters
Let’s not sugar coat it: this year was a tough year for forestry in the New Zealand Emissions Trading Scheme. It’s especially frustrating as we had begun to believe the government’s promise, made just after it took power in late 2023, to “restore credibility in the ETS”. Indeed, this promise looked plausible up until quite recently. After all, the LUC restrictions, while unpopular among forestry companies and investors, had been clearly communicated long before the 2023 election. So no surprises there – except for a pleasant surprise in August, when the government announced it would not adopt the Climate Change Commission’s somewhat perplexing recommendation to reinject about 14 million of unsold auction NZUs from 2028 to 2030.
The positive streak finally ended in October when the government began a staccato of policy tweaks that have cumulatively undermined confidence in the government’s commitment to climate change mitigation and, by extension, the ETS. The last straw was the Climate Change Minister’s 4 November press release, in which he announced the government’s intention to do away with “the requirement for ETS Settings to accord with Nationally Determined Contributions” and diminish the Climate Change Commission’s advisory role. Clearly, at this point some market players decided they had enough and a big sell-off began.
After starting this government’s term at $70.70 and this year at $64.50, NZUs are now (11/12/2025) trading for $39. That’s a whopping $32 below next year’s auction floor price, which will now also conveniently double as next year’s cost containment reserve price.
This is obviously not good.
Having acknowledged the unfortunate developments in the last calendar quarter, let’s remind ourselves of some key facts in defense of New Zealand’s plantation forestry industry and Emissions Trading Scheme, which tend to get either misrepresented or completely ignored in the public discourse:
The positive streak finally ended in October when the government began a staccato of policy tweaks that have cumulatively undermined confidence in the government’s commitment to climate change mitigation and, by extension, the ETS. The last straw was the Climate Change Minister’s 4 November press release, in which he announced the government’s intention to do away with “the requirement for ETS Settings to accord with Nationally Determined Contributions” and diminish the Climate Change Commission’s advisory role. Clearly, at this point some market players decided they had enough and a big sell-off began.
After starting this government’s term at $70.70 and this year at $64.50, NZUs are now (11/12/2025) trading for $39. That’s a whopping $32 below next year’s auction floor price, which will now also conveniently double as next year’s cost containment reserve price.
This is obviously not good.
Having acknowledged the unfortunate developments in the last calendar quarter, let’s remind ourselves of some key facts in defense of New Zealand’s plantation forestry industry and Emissions Trading Scheme, which tend to get either misrepresented or completely ignored in the public discourse:
- It was the introduction of plantation forestry to New Zealand a century ago that halted the steady decline of our indigenous forests by providing an alternative source of construction timber. Radiata pine quite literally saved what little remained of New Zealand’s indigenous forests. This fact rarely gets a mention.
- Plantation forestry is not “taking over” productive agricultural land. At 1.8 million hectares, plantation forests today cover about 7% of New Zealand’s total land area compared to agriculture’s approx. 50%. Despite the comparatively high rates of afforestation in recent years, plantation forest cover has only increased by 3.2 percent since the ETS was launched in 2008 and is still below the peak of 2003. Forestry and farming are not competing but highly complementary land uses.
- I have yet to hear anyone claim that registering trees in the ETS is a silver bullet for all our climate woes. Most informed people, including in the forestry industry, will readily acknowledge that planting trees is just part of a whole suite of measures we need to take, including net emissions reduction measures, such as reducing our fossil fuel consumption. However, as things stand, tree planting is still by far the most significant climate change mitigation measure we have undertaken in New Zealand since the 1990 Kyoto baseline. Nothing else comes close.
- The current low carbon price, which clearly does not incentivise net emissions reductions, is due to uncertainty about the government’s commitment to climate action. It is not due to the ETS not being fit for purpose. It is worth noting here that the supply and demand fundamentals remain unchanged and will ultimately ensure that the NZU spot price is trading at an appropriate level.
- Permanent carbon forests registered in high-integrity compliance schemes, such as the NZETS, are not a “waste of land” but provide a valuable public good, i.e. carbon sequestration, at a critical time in human history. In 2023, the US Environmental Protection Agency put the Social Cost of Greenhouse Gases (SC-GHG) at $190 per tonne in 2020 US dollars, which equates to roughly US$240 or just over NZ$400 today. The SC-GHG is the estimated monetary value of the total harm caused by emitting one additional tonne of GHG, including impacts on health, the environment, and the economy. The cost of climate inaction is rarely mentioned by politicians from our major parties and never by those who (please forgive me) throw shade on carbon forests.
- The two kiwi industries who stand to benefit the most from climate change mitigation also happen to be our two biggest industries: the property sector (think coastal properties) and the agricultural sector (think unseasonal temperatures and rainfall/drought events, but also ETS driven land values, and untapped carbon credit earning potential). These groups should be lobbying hard for more climate action.
- The argument that nothing that little old New Zealand can do will impact climate change is best countered with an analogy, such as the scenario of one person among a hundred sitting in a slowly sinking boat on the open ocean arguing that there is no point in them helping to bail out water as they are only one person.
- New Zealand has a long and proud tradition of being a dependable partner to its international allies and trading partners, of being a voice of reason, and of standing on the right side of history. Failure to honour the Paris Agreement would be stark break with this tradition and a tragic act of self-harm that would haunt us for decades to come and, according to the scientific and economic consensus, cost us far more than the money we would save in the short term.
This is an unsettling period of populism and fact-free debate. Regardless of that, today, as I am writing this, is yet another day of unseasonably high temperatures. It appears Nature does not care about political expediency, science denial, and senseless industry turf wars. I find that strangely comforting, perhaps because I know that she will keep reminding us with increasing urgency that climate change is a real and present danger. I also take comfort in the knowledge that the NZ ETS has long proven its worth as a tool with integrity that can effect momentous change in a short time, especially if allowed to do its job with minimal tinkering and full government backing.