Recent announcements around Land Use Classification (LUC) restrictions are set to reshape how exotic afforestation projects are managed in New Zealand. These changes will directly impact anyone considering planting out land in the future. But what do these LUC restrictions mean for ETS participation, and what practical steps can forest owners take to stay compliant while maximising opportunities in the carbon market?
Important: This blog is for informational purposes only. It is not advice, a forecast, or a prediction. We do not have special insights into future regulations, industry trends, or primary/secondary market prices. Always seek professional advice before making any trading or investment decisions.
What are LUC restrictions and why do they matter?
In December 2024, the government announced a set of proposed restrictions targeting the registration of exotic forests in the ETS, focusing on certain Land Use Classifications (LUCs). These restrictions are part of a broader strategy to:
-
Protect productive farmland from being converted into large-scale exotic forestry.
-
Maintain the credibility of the ETS by preventing an oversupply of carbon units from unregulated afforestation.
With these restrictions now in effect, it’s critical for anyone planning to register forests in the ETS to understand how they apply.
What are the LUC restrictions?
The restrictions primarily target exotic afforestation on farmland, with specific rules for different LUC categories:
1. Exotic afforestation ban on LUC 1-5 farmland
-
What it means: There is now a ban on registering exotic forests on LUC 1-5 land that is considered actively farmed.
-
Uncertainty: The definition of “actively farmed” remains unclear. It’s uncertain whether land currently fallow or under mixed land use will be affected.
2. Restrictions on LUC 6 farmland
-
What it means: Exotic afforestation on LUC 6 farmland will be limited to 15,000 hectares per year.
-
Uncertainty: The allocation process for this 15,000-hectare cap is yet to be defined. Until further guidance is provided, it’s advisable to treat this as a ban unless you have clear access to part of that allocation.
3. Exemptions for LUC 7-8 land
-
What it means: There are no restrictions on exotic afforestation for LUC 7 and 8 land, which typically includes steep, erosion-prone, or less productive areas.
Who is exempt from these restrictions?
While the new restrictions are broad, several exemptions will apply:
-
Native and indigenous forests
Native forests are not subject to these new restrictions. Landowners can continue to register indigenous species in the ETS without additional limitations. -
Pre-2025 registered forests
Forests registered in the ETS before October 2024 are exempt from the new rules. These forests will remain in the ETS under the current regulations, and no adjustments to registration will be necessary. -
Māori-owned land
Specific categories of Māori-owned land are fully exempt from the restrictions. This includes land held under the Te Ture Whenua Māori Act 1993, land converted under the Māori Affairs Amendment Act 1967, and land associated with Treaty settlements. -
Transitional exemptions for ongoing projects
Landowners who were already in the process of afforestation before 4 December 2024 may qualify for transitional exemptions. To be eligible, landowners will need to provide clear evidence of afforestation intent.
How to qualify for transitional exemptions
To qualify for a transitional exemption, landowners must provide evidence of intent to afforest before 4 December 2024. Examples of acceptable documentation may include:
-
Land purchase agreements indicating the land was acquired for afforestation
-
Seedling orders dated prior to 4 December 2024
-
Detailed business plans that clearly outline afforestation intentions
While the government has emphasised that it does not intend to penalise existing projects, the exact qualifying criteria remain unclear. Providing thorough and well-documented evidence will improve your chances of qualifying for an exemption.
Navigating LUC restrictions
If you’re planning to register your forest in the ETS, here are some practical steps to take now:
Assess Your Land’s LUC Classification
Understanding your land’s classification is essential. LUC maps are publicly available, but for a more detailed understanding, you may consider a farm-level LUC assessment. If you’re a CarbonCrop customer, you can use the LUC layer in our platform to review your site’s LUC status.
Transitional forest registration
If your afforestation project began before 4 December 2024, you may qualify for a transitional exemption. The government has emphasised that it does not intend to penalise existing investments, but eligibility will depend on the strength of the evidence provided.
Document all afforestation project intentions for 2025
If you’re planning to plant in 2025, it’s important to thoroughly document your plans in case future exemptions are introduced. The strength of your evidence will likely determine your eligibility. Examples include:
-
Land purchase agreements indicating the land was acquired for afforestation.
-
Seedling orders dated before 4 December 2024.
-
Detailed business plans that clearly outline afforestation intentions.
Challenges with the restrictions
1. Uncertainty in regulation
Many details about how LUC restrictions will be applied are still unclear. The government has not provided full clarity on definitions like “actively farmed” land or how exemptions, such as the 15,000-hectare cap on LUC 6, will be allocated. Until the legislation is finalised, uncertainty will remain for landowners planning afforestation.
2. Uncertainty around LUC 6 allocation
As of now, there is no mechanism for how the 15,000-hectare annual cap for LUC 6 land will be allocated. The lack of a defined mechanism adds complexity. Without clear guidance, landowners may find it challenging to plan afforestation projects with confidence, as it's unclear whether they will qualify for registration under this cap.
Opportunities despite the restrictions
1. Existing Forests Registered Before October 2024 Are Protected
Forests that were registered in the ETS before October 2024 are exempt from the new restrictions. Our understanding is that these forests will remain in the ETS under the current rules, and landowners won’t need to reapply or adjust their registration due to these changes.
2. Native Forest Registration Remains Unchanged
Native and indigenous forests are exempt from the new restrictions. This means, in general, landowners can continue to register these forests in the ETS without being affected by the new LUC rules.
3. Crown Land Afforestation
The Crown has signalled interest in afforestation and issued a Request for Information (RFI) for afforestation on Crown-owned land. The government is exploring public-private partnerships under various models and is seeking proposals from the private sector. Further details are expected in upcoming sessions.
Final Thoughts
There are still many unanswered questions regarding how these restrictions will be implemented. However, forests registered before October 2024 are protected and will remain in the ETS under the current rules. While the broader market implications are uncertain, having a compliant registration offers landowners certainty under the existing framework.
If you’re unsure about how these changes might affect your land or afforestation plans, stay tuned. The final legislation is expected later this year, which will provide further clarification. At CarbonCrop, we’re closely monitoring these developments and will continue to provide updates as new legislation and policies are introduced.
Want to Learn More?
Check out our full CarbonCurious session for deeper insights into these changes and what they could mean for your forestry plans.
- Source: https://www.carboncrop.com/post/ets-changes-luc-restrictions-what-forest-owners-need-to-know
