Permanent forestry in the ETS

Update – 6 October 2022

From 14 March to 22 April 2022, the Government consulted on proposals to exclude exotic forests from permanent forestry in the New Zealand Emissions Trading Scheme (NZ ETS).

Cabinet has made final decisions on this proposal and agreed to redesign the permanent forestry activity to better support the Government’s objectives for forestry.

The Government also consulted on whether to adjust how carbon accounting applies to forests on remote and marginal land. Cabinet agreed that further consideration of a long rotation option will be undertaken alongside work on the future design of permanent forestry in the ETS.

See more about the consultation including the summary of submissions, Regulatory Impact Statement and more

Permanent forestry

From 1 January 2023, "permanent forestry" is part of the ETS. This is for post-1989 forests that will not be clear-felled. They must remain in permanent forestry for at least 50 years.

You must use the "stock change" accounting method for permanent forests. With stock change accounting, you earn units as a forest grows and its carbon storage increases. You need to pay New Zealand units (NZUs, or units) back when you harvest the forest.

To earn units, you must submit emissions returns. Emissions returns must be submitted at the end of every mandatory emissions return period. These are usually 5 years long. There are other instances when you must submit an emissions return, such as after a change in land ownership.

The units that you earn will be tagged in the register as coming from a permanent forest. You can store or trade units through the New Zealand Emissions Trading Register (NZETR).

Learn more about stock change accounting

Find out when and how to submit emissions returns

Restrictions on clear-felling permanent forest

There are specific rules around clear-felling for permanent forest land.

Limited clearing of permanent forests is allowed. After clearance, more than 30% tree crown cover must remain in each hectare of forest.

You must to account for the emissions from this clearance in your next emissions return.

If you clear-fell or deforest within the 50-year period

If you clear-fell permanent forest, you:

must pay units for the emissions from the area that was clear-felled
may face a penalty based on the value of the clear-felled forest.

If you deforest or change the land use of permanent forest, you:

must pay units to the government, up to the amount you've earned for that area of land
may face a penalty based on the emissions from deforesting and the carbon price.

These unit payments and penalties may not apply if we believe:

the clearing or deforestation was beyond your control, and
you couldn’t have prevented it.

If you clear-fell or deforest land in permanent forestry, you must let us know as soon as practically possible. Contact us at forestryets@mpi.govt.nz

Penalties for clear-felling or deforesting land in permanent forestry

From 1 January 2023, penalties apply for post-1989 forest land in permanent forestry if you:

clear-fell the land so that 30% or less crown cover remains per hectare, or
deforest any part of the land.

We’ll be published new guidance on this in early 2023. Read more about the new penalties:

Section 272 of the Climate Change Response (Emissions Trading Reform) Amendment Act 2020 - NZ Legislation

Removing land from the ETS within the 50-year period

Areas of permanent forest may be removed from the ETS before the 50-year period ends. This can only be done with approval from the Minister for Climate Change. The minister must be satisfied certain conditions are met.

You will need to pay units to the government for the removed area.

Moving land from standard forestry to permanent forestry

You can apply to move post-1989 forest land from standard forestry to permanent forestry.

After land moves from standard forestry to permanent forestry, you must complete an emissions return.

Apply to move registered post-1989 forest land from standard to permanent forestry [PDF, 317 KB]

Options after the 50-year period ends

When the 50-year permanent forest period ends, you have 3 options.

Option 1 – Keep the forest land in permanent forestry for another 25 years

You can opt to keep your forest in permanent forestry for another 25 years. This means you will continue to earn units under stock change accounting.

If you stay in permanent forestry, you must choose between these 3 options again after 25 years.

Option 2 – Move to standard forestry with averaging accounting

You may choose to move your forest land to standard forestry with averaging accounting. With the averaging accounting method, you earn units based on the average age of your forest. The average age is the age that it's expected to reach its average long-term carbon storage. Each forest type has its own average age, under the ETS legislation.

As your forest will be at least 50 years old by this time, it will likely already have passed its average age. You will have earned more units than you are entitled to for the forest under averaging accounting. This means you'll have to pay the difference between:

the number of units you’ve earned, and
the units you would have earned if it had been under averaging accounting the whole time.

Under averaging accounting, you can harvest your forest without paying units, as long as you replant.

Find out more about averaging accounting

Option 3 – Remove the land from the ETS

At the end of the 50 years, you may decide to remove your forest land from the ETS. If you remove land from the ETS, you must pay the "unit balance" of the land to the government. The unit balance is the net total of units earned for the forest land.

Find out more about removing land from the ETS

Permanent forestry to replace the Permanent Forest Sink Initiative

From 1 January 2024, the Permanent Forest Sink Initiative (PFSI) will close. If you have a covenant in the PFSI, you can apply to transfer to the ETS before the PFSI closes. Only forest land that is eligible to be registered as post-1989 forest land can be moved into the ETS.

You can choose to move your forest land into:

permanent forestry, or
standard forestry with averaging accounting.

Apply to move land from a permanent forest sink covenant into the ETS [PDF, 546 KB]

You can also ask to leave the PFSI without moving to the ETS.

Find out more about forest land eligibility in the ETS

If you don't apply to move your PFSI land into the ETS between 1 January 2023 and 31 December 2023, your eligible forest land will be moved into permanent forestry.

In the ETS, you will have legal responsibilities. If you don't meet certain requirements, you may face a penalty or an infringement notice. These are different to those in the PFSI.

Learn more about your responsibilities in the ETS

Penalties and the ETS

Infringement offences in the ETS

If you want to discuss your options and get help with the transition:

phone 0800 CLIMATE (0800 25 46 28) and select option 2
email us at pfsi@mpi.govt.nz

Learn more about the Permanent Forest Sink Initiative

Option 1 – Move the eligible forest land from the PFSI into permanent forestry

Permanent forestry in the ETS is for post-1989 forest land that won’t be clear-felled. “Clear-felling” is harvesting or other clearing that leaves less than 30% tree crown cover in any hectare. The registration period for permanent forestry is at least 50 years. This is most similar to the PFSI.

Find out more about post-1989 forest land

Later on this web page, we explain permanent forestry, the penalties for clear-felling permanent forest, and how you earn New Zealand Units (NZUs or units) for permanent forest. This may help you make your decision.

If you move land directly from a PFSI covenant to permanent forestry, the initial 50-year registration period doesn’t start from zero. The 50 years are counted from the date the forest sink covenant was registered.

If you move your land into standard forestry (as explained in the next section), you can move it to permanent forestry later. As long as the forest has never been clear-felled, the initial 50-year registration period will count from when your covenant was registered.

Option 2 – Move the eligible forest land from the PFSI into standard forestry with averaging accounting

You may choose to move your forest land into "standard" forestry for post-1989 forest land. This was the only option for post-1989 forest land before permanent forestry was created. In standard forestry, there are no restrictions against harvesting. You can also remove standard post-1989 forest land from the ETS at any time, although you will need to pay units if you do.

If you move post-1989 forest land from the PFSI to standard forestry, you must use "averaging accounting". This is an accounting method available from 1 January 2023. In averaging accounting, you earn units for your forest until it reaches its "average age". The average age is the age that it’s expected to reach its average long-term carbon storage.

Find out more about averaging accounting

If your forest is already past its average age, or past its first rotation (harvest cycle), you will not earn units under averaging accounting.

You may have already earned more units for your forest under the PFSI than it would be entitled to at its average age. In this case, you may need to pay units to the government. This is known as "surrendering" units.

Option 3 – Request to leave the PFSI and surrender your units

MPI will consider requests to leave the PFSI without moving into the ETS. We would need to cancel your permanent forest sink covenant to do this. If your covenant is cancelled, you may need to pay all the units you have earned for the forest land to the government.

To discuss cancelling your covenant, email pfsi@mpi.govt.nz