Significant policy changes have been announced in the past two weeks that will affect the forestry sector.

• Yesterday the Ministry for Primary Industries (MPI) announced proposed changes to the New Zealand Emissions Trading Scheme (ETS) to shift the forestry sector away from permanent exotic afforestation in favour of permanent indigenous afforestation.
• MPI also announced that it intends to consult later in the year on proposals that would give local authorities more power to decide where exotic forests should be planted under the Resource Management Act 1991 (RMA). The change is intended to manage the social and economic effects of afforestation on rural communities. This is a significant shift away from the centralised planning system introduced by the National Environmental Standards for Plantation Forestry (Forestry NES) that came into effect in 2018.
• The proposal to de-centralise forestry planning follows quickly after the government announced it will be changing the approval criteria for overseas investment in land for conversion to forestry.

Together, our view is that the changes will disincentivise investment in land use conversion for forestry – a significant shift from the existing policy approach.

We expand on the proposals below.

Preventing permanent exotic forests from being registered in the ETS

MPI has issued a discussion document, Managing exotic afforestation incentives, (Discussion Document) that proposes to remove the ability for exotic forests to be registered as a permanent post-1989 forest under the ETS.

From 1 January 2023, a new category for permanent forest was to be introduced into the ETS, allowing exotic and indigenous forestry to register and earn units (NZUs). However, MPI anticipates that this new category, and the increasing price of NZUs, will cause more permanent exotic forests (particularly pinus radiata) to be planted.

Exotic forestry is accepted as a relatively quick, low-cost method for reducing New Zealand’s net emissions. However, MPI has concerns that widespread permanent exotic forests will have negative effects including:

• Displacement of other productive land uses such as production forestry and sheep and beef farming;
• Increasing the supply and reducing the price of NZUs, which will reduce the incentive to invest in low-carbon technologies; and
• Ecological risks such as pests, fire, damaged habitats for native species, biodiversity threats, and a relatively short lifespan compared to well-managed mixed indigenous forests.

To reduce these risks MPI proposes to exclude exotic forestry from the post-1989 permanent forest category under the ETS. This means that owners of permanent exotic forestry cannot earn NZUs as their forests grow.

Coupled with this proposal, MPI is considering:

• A long rotation averaging accounting forest category in the ETS. This category would recognise that higher than average levels of carbon are stored in Pinus radiata that has a longer rotation period (the forest is older when it is harvested). The intention is to provide opportunities for forest owners whose land is poorly suited to harvesting Pinus radiata at typical harvest ages.
• How to incentivise permanent indigenous afforestation. However, incentives for permanent indigenous afforestation are not a focus for this round of consultation and MPI will undertake further consultation at a later date.

These policy changes are intended to discourage the planting of permanent exotic forestry relative to production forestry and permanent indigenous forestry (which will be able to register in the ETS and earn NZUs).

Councils to have greater control over the location and type of new local forests

In the Discussion Document MPI indicates that later this year it will consult on proposals to give local authorities more power to decide where exotic forests should be planted under the RMA. This proposal contrasts to the centralised planning system under the Forestry NES which was introduced in 2018 (in part) to increased national consistency, efficiency and certainty of managing plantation forest activities in New Zealand.

The change would give local authorities the ability to manage the social and economic effects of afforestation on rural communities at a local level. A potential outcome is variation in planning rules applicable to plantation forestry between and within districts and regions.

MPI has signalled that as part of its consultation on this policy change it will consider expanding the scope of the existing Forestry NES to ensure the environmental effects of existing permanent exotic forests are managed. It is not clear what effects this would cover but national objectives and policies are contemplated. MPI has indicated that its proposals will be designed to fit both the old and new (reformed RMA) systems.

Removal of the streamlined special forestry test under the OIA

The above proposals come on the back of the Government’s recent announcement that it will be making changes to the Overseas Investment Act 2005 (OIA) so that proposals by overseas investors to acquire land for conversion to production forestry will be considered under the general benefit to New Zealand test, rather than the streamlined special forestry test.

This will require an overseas investor looking to convert a farm to forestry to show how that will benefit New Zealand – setting a higher bar for overseas investment in forestry conversions, and one that aligns with the approach taken under the Act for most other land-based investments..

We expect these changes to the OIA to be progressed through Parliament and to take effect in the next few months. It is not yet clear how the changes will apply to existing applications to the OIA under the special forestry test or to pending applicants who have entered into sale and purchase agreements conditional on OIA approval prior to the changes come into effect.

Make a submission

Submissions on the Discussion Document are open from 14 March 2022 and close on 22 April 2022.

We encourage those who are affected by the proposals to make a submission and provide their views to MPI.

If you have any questions about the proposed changes to the ETS or the OIA and how they will impact your business, or if you would like to provide feedback on the proposals in the Discussion Document, please get in touch with one of our experts.