Section 6
Post-election policy outlook
This section looks beyond current settings to the policy changes that could emerge after the next election, especially where coalition bargaining may affect forestry eligibility, auction settings, and the medium-term NZU price path.
Working assumption: the main post-election risk is not the abolition of the ETS, but further adjustment of how much the scheme relies on forestry, how tightly auction volumes are controlled, and how much new exotic planting is permitted on productive land.
1. Likely areas of policy continuity
- The current political centre of gravity favours keeping the ETS, while continuing active ministerial control over auction volumes and price guardrails.
- Restrictions on large-scale farm-to-forest conversions are likely to remain politically durable, even if the detail is amended by a different coalition mix.
- Forestry is still expected to play a major role in meeting net targets, but there is increasing resistance to relying on unlimited exotic planting as the balancing mechanism.
2. Coalition-partner pressure points
- Parties focused on farming and rural communities are likely to keep pressing for tighter controls on whole-farm conversion into exotic forestry.
- Parties focused on fiscal discipline or market confidence are more likely to support tighter unit supply and stronger auction credibility than a return to oversupply.
- That combination tends to support a managed-scarcity NZU market: fewer units, more political oversight, and less tolerance for a purely laissez-faire price outcome.
3. What this could mean for forestry and NZU prices
| Potential policy direction | Possible effect on forestry | Possible effect on NZU prices |
|---|
| Tighter controls on exotic afforestation of productive farmland | Limits future ETS supply growth from new planting; may favour existing forests and better-located Māori landholdings. | Supportive for medium-term prices if supply is constrained. |
| Reduced auction volumes and firmer reserve prices | Signals that the Crown is prioritising credibility over short-term revenue. | Supportive for price floors and medium-term expectations. |
| Delayed or softened pricing of biological emissions | Increases pressure on other sectors and on forestry removals to carry more of the net target burden. | Could support NZU demand indirectly, while increasing longer-term policy tension. |
| Stronger limits on forestry’s share of future target delivery | Reduces confidence in relying on carbon-only planting as a long-term strategy. | Mixed: may tighten supply near term, but create uncertainty about future demand settings. |
4. Paris and the 2030 shortfall narrative
There is frequent public commentary implying that New Zealand faces a fixed 2030 bill if emissions outcomes fall short. That overstates the legal position. New Zealand’s Paris commitment is best understood as a best-endeavours international commitment, backed by reporting, scrutiny, and diplomatic pressure rather than an automatic contractual penalty.
That does not mean the issue is irrelevant. Perceived shortfall risk can still influence ministerial behaviour, particularly if governments want to preserve international credibility or avoid the fiscal and political cost of offshore mitigation. For the ETS, the practical result is that governments may still prefer firmer auction settings and stronger NZU prices rather than risk a visible loss of momentum, but most current market commentary sees the main downside risks as further credibility shocks – for example, weakening the link between ETS settings and long-term targets, unexpected loosening of auction volumes, or prolonged uncertainty over agricultural pricing – rather than a deliberate tightening that forces NZU prices sharply higher in the near term.
5. Fiscal incentives and price interference
NZU auction proceeds are now material enough to matter for the Crown’s fiscal position. In practical terms, sustained downward pressure on NZU prices would not only weaken carbon incentives; it would also reduce expected auction revenue and worsen the government’s fiscal position. That creates an important counter-weight to any post-election coalition pressure for softer settings, because ministers must weigh the political appeal of lower carbon prices against the Budget impact of lower auction receipts. This does not remove policy risk, but it does mean there is now a fiscal reason for the Crown itself to resist any deliberate, prolonged suppression of NZU prices.
Board implication: the main strategic uncertainty is not whether climate policy disappears, but how future governments divide the mitigation burden between gross emissions reduction, forestry removals, and any offshore flexibility. That mix matters directly for forestry land-use value and indirectly for NZU prices.