Including forestry in an emissions trading scheme: Lessons from New Zealand

In September 2022, the journal Frontiers in Forests and Global Change published a paper by Motu researchers on forestry in the New Zealand Emissions Trading Scheme. The abstract is provided below. The full paper can be downloaded online.

Photo by Mark de Jong on Unsplash

The forestry sector has a crucial role to play in mitigating climate change. Given the share of global emissions covered by emissions trading is expected to rise, there is a need to understand how emissions trading might drive behavior change in the forestry sector. 

To explore this, we analyze the New Zealand Emissions Trading Scheme (NZ ETS) − the only system in the world with symmetrical incentives that reward forest owners who afforest and make liable those who deforest. In theory, these incentives should drive net carbon dioxide removals in the forestry sector, but the sectoral response has proven complex. 

We evaluate the NZ ETS policies that directly affect forestry and the sectoral response to these policies by analyzing trends in deforestation, afforestation, and participation over 2008 to 2022. 

Our findings indicate that the forestry sector, and the NZ ETS participants within it, have responded rationally to emissions pricing over time. However, multiple factors such as complex participation requirements, extended periods of policy uncertainty, and weak emissions price signals (particularly over 2011–2016) have likely restricted the effectiveness of the NZ ETS in changing forestry outcomes over much of its operating life.