Restriction on Farm-to-Exotic Forestry Conversions
Restriction on Farm-to-Exotic Forestry Conversions
Thursday 18 December, 2025
Following the implementation of the Emissions Trading Scheme (“ETS”), many farm owners converted parts of their farmland to forestry and registered in the ETS to earn New Zealand Units (also called carbon credits) which may be sold for profit. A concern arose that large-scale farm-to-forestry conversion, particularly on sheep and beef farms, was preventing efficient use of highly productive land. The Climate Change Response (Emissions Trading Scheme – Forestry Conversion) Amendment Act (“the Act”) received royal assent on 23 September 2025 and now addresses this concern by limiting the future registration of forestry on productive land.
Restricted Forest Land
As from 31 October 2025, the only way to register in the ETS as a participant of standard or permanent forestry (“forestry”) or to add a carbon accounting area (for existing participants of forestry) on restricted forest land, is by using the 25 per cent allowance or by getting a Land Use Capability (“LUC”) class 6 permit in a ballot. “Restricted forest land” is defined as land that:
- is LUC class 1 – 6 (this class system ranks land based on its ability to support productive uses, such as primary production or forestry, with LUC class 1 being the most productive and LUC class 8 being the least);
- was not forest land on 31 October 2025;
- has forest species which are predominantly exotic; and
- is not exempt Māori land, erosion-prone land, unmapped land, unfarmed land or Crown afforestation land.
These changes do not impact forest land that has already been registered and do not apply to applications for registration that were received by the EPA before 31 October 2025. There are further transitional exemptions allowing applications for the registration of LUC class 1 – 6 land if the applicant had a clear interest in the land before 4 December 2024 and made or obtained one or more qualifying forestry investments in relation to the land between 1 January 2021 and 4 December 2024.
25 per cent Allowance
A person may be able to apply to the EPA to be registered as a participant of a forestry activity or add a carbon accounting area for up to 25 per cent of the total restricted forest land on their individual farm (“25 per cent allowance”). An individual farm may be made up of more than one record of title if the records of title share a boundary and are owned by the same persons or entities. The 25 per cent allowance does not increase if the landowner of an individual farm becomes the landowner of adjacent LUC class 1 – 6 land.
Now that the amendments are in force, landowners can apply to the EPA to use the 25 per cent allowance. If the EPA accepts an application and registers a participant or adds a carbon accounting area, it must notify the Registrar-General. The Registrar-General must then record the notice on the record/s of title for the individual farm.
LUC class 6 Permit
Each year, LUC class 6 permits will be allocated through two random selection ballots. Holders of these permits may apply to the EPA to be registered as a participant of a forestry activity or add a carbon accounting area on LUC class 6 land on their farm for the number of hectares specified in the permit. Permits are valid until 31 December of the year that is three full years after the year they are issued; the permits cannot be transferred. If the EPA accepts an application, the area may be registered in the ETS in addition to the 25 per cent allowance for that individual farm.
LUC class 6 permits will be issued for 15,000 hectares across New Zealand each year (unless this number is changed by a regulation) and applications will be divided into two groups: small and large. The thresholds for these groups will be set out in a regulation and a portion of the LUC class 6 permits will be reserved for small applications. The first ballot is proposed to be in mid-2026.
Conclusion
Farm owners now face additional barriers for farm-to-exotic forestry conversions. It will be interesting to see whether this results in a greater rate of conversion to indigenous forestry on highly productive land and to see the impact it has on the value of individual farms which already have large areas of forestry registered in the ETS.
If you have any questions about the Act and the implications for your farmland, please contact one of our experts below.
