Labour is promising an urgent overhaul of New Zealand’s Emissions Trading Scheme if elected in November, arguing the carbon market is failing to cut emissions, encouraging the wrong type of forestry and undermining confidence in the country’s climate policy.
Labour leader Chris Hipkins says fixing the ETS would be an urgent priority for a new Labour government, with the party promising to restore a meaningful carbon price and put greater emphasis on reducing pollution rather than relying on forestry offsets.
The announcement opens another major dividing line ahead of Election 2026, putting climate change, forestry, farming and New Zealand’s international commitments firmly into the campaign.
LABOUR SAYS CARBON PRICE IS TOO LOW
Labour argues the current carbon price is too weak to provide businesses with the financial incentive needed to make substantial investments in reducing emissions.
The ETS is designed to put a price on greenhouse gas emissions, requiring covered businesses to surrender New Zealand Units while allowing eligible forestry to generate units by removing carbon dioxide from the atmosphere.
Labour says that balance is no longer working as intended.
Hipkins says uncertainty and repeated changes to the scheme have damaged confidence in the carbon market, while the price signal has become too weak to encourage the scale of emissions reductions New Zealand requires.
Labour says it would restore certainty to the market and use revenue generated through the ETS to support affordable energy and climate resilience.
FORESTRY RULES IN THE FIRING LINE
One of the biggest proposed changes involves forestry.
Labour says current ETS settings can make planting exotic forests financially more attractive than maintaining productive farmland.
The party is concerned about entire farms being converted into forestry primarily to generate carbon credits, potentially reducing food production and employment in rural communities.
Under the proposed review, Labour would reconsider the role forestry plays within the ETS and develop new rules aimed at preventing whole-farm conversions.
It would also pause new forestry registrations in the ETS while the review is underway, reflecting recommendations from the Parliamentary Commissioner for the Environment.
That could have significant implications for forestry investors, farmers, iwi and Māori landowners.
Māori collectively hold substantial forestry interests and significant areas of whenua where land-use options can be constrained by geography, historical land tenure and access to capital.
Any major changes to forestry participation in the ETS will therefore need to consider the consequences for Māori landowners alongside the wider environmental and economic objectives.
CUT POLLUTION, NOT JUST OFFSET IT
Labour climate spokesperson Dr Deborah Russell says the review would examine how the ETS can encourage genuine emissions reductions rather than allowing the economy to depend heavily on offsets.
That distinction could become one of the most important climate policy debates of the election.
Planting forests removes carbon dioxide from the atmosphere and can play an important role in climate policy.
But Labour argues forestry cannot become a substitute for reducing emissions from transport, energy, industry and other parts of the economy.
The proposed review would therefore examine changes designed to encourage businesses to actually reduce the pollution they produce.
PARIS AGREEMENT BECOMES ELECTION ISSUE
Labour is also drawing a firm line around New Zealand’s continued participation in the Paris Agreement.
Hipkins says a Labour government would remain fully committed to the international climate accord and put New Zealand on a pathway towards meeting its targets.
The party is portraying international climate commitments as both an environmental and economic issue.
New Zealand’s exporters increasingly operate in markets where customers, governments and investors are demanding evidence of lower emissions and sustainable production.
Labour argues retreating from international climate commitments could therefore damage New Zealand’s reputation and create costs for exporters rather than protecting the economy.
CLIMATE ACTION AS ECONOMIC POLICY
Labour is attempting to shift the climate debate away from climate policy being viewed solely as a cost.
Russell says reducing emissions can create economic opportunities through renewable energy, new technology, greater energy security and investment in lower-carbon industries.
The party argues cleaner and more affordable electricity could also reduce household costs while providing businesses with greater certainty to make long-term investments.
For agriculture, Labour sees New Zealand’s reputation for sustainable food production as an increasingly important competitive advantage in international markets.
That creates a broader argument that climate policy and economic development do not necessarily have to work against one another.
BIG QUESTIONS FOR MĀORI LANDOWNERS
For Māori, changes to the ETS carry particular significance.
Iwi, Māori incorporations, trusts and whānau landowners have interests across forestry, farming, renewable energy and carbon markets.
Some whenua is well suited to productive agriculture. Other land has limited economic options, making forestry and carbon income potentially important components of long-term Māori economic development.
There are also environmental considerations around indigenous forests, biodiversity, erosion-prone whenua, waterways and the long-term health of the whenua.
Any redesign of the ETS therefore raises fundamental questions about how Māori landowners participate in the transition to a lower-emissions economy and whether the system properly recognises both economic rangatiratanga and kaitiakitanga.
ELECTION 2026: WHO PAYS FOR THE TRANSITION?
Labour says its review would focus on five major areas: incentivising real emissions reductions, reconsidering forestry’s role, aligning the ETS with New Zealand’s Paris commitments, preventing whole-farm conversions and temporarily stopping new forestry registrations while that work is completed.
The party says the changes would be implemented quickly following the review.
But changing the ETS will inevitably create winners and losers.
A stronger carbon price increases pressure on major emitters to change their behaviour, but those costs can also flow through to businesses and consumers.
Restricting forestry offsets could strengthen incentives to reduce emissions while simultaneously affecting land values and investment decisions.
That means the challenge for any incoming government will be creating a system strong enough to change behaviour without creating another cycle of policy uncertainty.
For Labour, the argument heading into November is that the current system has reached that point already.
Its Election 2026 promise is now clear: put a real price back on pollution, change the rules around forestry and make the ETS about cutting emissions — not simply finding somewhere else to store the carbon.
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