In the global fight against climate change, carbon credits have become one of the most talked-about tools for reducing greenhouse gas emissions
New Zealand likes to promote itself as a country proud of its clean, green image and it aligns with thinking of the general population.
Agree or disagree, climate strategy financially affects everyone’s lives, from food production to how companies operate, right through to the vehicles we drive. Because of this, carbon credits play a central role in how the economy functions – but how do they actually work, and what do they mean for businesses, landowners, and everyday Kiwis?
What are Carbon Credits?
At their core, carbon credits represent one tonne of carbon dioxide (or equivalent greenhouse gases) either removed from the atmosphere or prevented from being emitted. These credits are a kind of currency in a cap-and-trade system – a system where emissions are capped, and companies can trade credits to stay within limits.
In New Zealand, carbon credits are part of the New Zealand Emissions Trading Scheme (NZ ETS), which began in 2008. The ETS covers most sectors of the economy, including forestry, energy, waste, and transport. It’s New Zealand’s primary tool for meeting its domestic and international climate obligations.
How the NZ ETS works
The government sets a limit (or cap) on the total amount of greenhouse gases that can be emitted by sectors covered by the scheme. It then issues New Zealand Units (NZUs), the local version of carbon credits, equal to this cap.
Businesses that are part of the NZ ETS must either reduce their emissions or surrender enough NZUs to cover them. If a company emits more than its allocation, it must buy extra NZUs from others. If it emits less, it can sell its surplus units. This creates a financial incentive to reduce emissions: the fewer emissions a company produces, the fewer NZUs it needs to buy.
Forestry: the key to earning Carbon Credits
Forests play a special role in New Zealand’s carbon credit system. Because trees absorb CO₂ as they grow, planting and maintaining forests can earn landowners carbon credits. This has led to a surge in interest in forestry as a way to offset emissions and make money at the same time – roughly grossing around $1200-$2000 per year per hectare, based on a carbon price of NZ$6075, once the forest is in good growth phase.
There are two main ways forests earn NZUs:
Post-1989 Forests – Landowners who plant new forests on land not previously forested (since 1989) can register in the ETS and earn NZUs as their trees grow and absorb carbon.
Permanent Forest Sink Initiative (now part of the NZ ETS) – This allows landowners to earn credits for maintaining permanent forests that are not harvested, creating long-term carbon sinks.
However, there’s a catch: if forests are cut down or change use (like converting to farmland), landowners may have to repay the NZUs, a process known as ‘carbon liability.’
The price Of carbon
The price of an NZU fluctuates with market demand. As of late 2025, NZU prices have ranged between NZD $50–$80 per unit, though the government regulates supply to prevent extreme volatility. This price directly affects the cost of emitting carbon and the value of planting forests.
A high NZU price encourages emission reductions and investment in carbon sequestration. But it also increases costs for industries like fuel and electricity, which can impact consumers. It’s a delicate balancing act.
Challenges and controversies
While the NZ ETS has been praised for its broad coverage and early implementation, it’s not without criticism.
Some argue that allowing emitters to offset emissions through forestry delays actual reductions. Others worry about the rapid conversion of farmland to pine plantations – dubbed ‘carbon farming’, which can affect rural communities, biodiversity, and food production.
The government has responded with reforms, including tighter rules around forestry and exploring alternative ways to cut emissions, such as agricultural innovation and cleaner transport.
Why it matters
Carbon credits are more than just an economic mechanism. They are a reflection of New Zealand’s commitment to tackling climate change, although it is hard for a country to stay focussed on the end goal when large emitters do not participate. As New Zealand aims for net-zero emissions by 2050, the role of the NZ ETS and carbon markets will only grow in importance.
For businesses, understanding carbon pricing is essential for future planning. For landowners, it offers opportunities to contribute to climate goals while earning income. And for everyday New Zealanders, it’s a reminder that the journey to a low-emissions future involves everyone.
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