Labour says emissions are too cheap, hints at price rise, promises forestry review

The Labour Party says it will fix the Emissions Trading Scheme if elected, saying the current price is “too low to drive meaningful emissions”. 

Announcing its policy this morning, leader Chris Hipkins and climate change spokeswoman Deborah Russell said the party would urgently review the scheme and move quickly to implement any changes. 

Hipkins also confirmed Labour would not campaign on pricing agricultural emissions, first reported by the Herald, ending nearly two decades of Labour campaigning on some form of emissions pricing for agriculture. 

Labour is concerned at the rampant tree planting that has depressed the Emissions Trading Scheme (ETS) price without encouraging emissions reductions. A low ETS price encourages polluting firms to buy offsets instead of investing in processes that actually reduce their emissions. 

Over time, this leads to widespread tree planting and conversion of otherwise productive land. 

New forestry registrations under the ETS will be paused while the review is completed, Labour said. 

Labour said the review will look at ways to “incentivise genuine emissions reductions rather than relying on offsets” and “reconsider the role of forestry”, as recommended by the Parliamentary Commissioner for the Environment. 

The party said it would ensure the ETS supports the targets set under the Paris Agreement and develop new rules to prevent whole-farm conversions. 

“We will stop the short-term political tinkering that undermines business confidence and puts us all on the back foot,” Hipkins said. 

“Labour is fully committed to the Paris Agreement and will put New Zealand on course to meet its targets. The Paris Agreement is essential for bringing countries together to address a problem affecting every country, every community and every generation. Walking away from it, as National and its mates are planning to do, would be giving up on our kids’ future and impose huge costs on our economy. 

“We can’t afford another three years of National’s inaction on climate,” Hipkins said. 

Russell said: “Climate change is one of the greatest challenges we face, but it is also one of the greatest opportunities available to New Zealand.” 

“We can deliver cleaner and more affordable energy, give businesses the certainty to invest, and help our farmers to compete in global markets by building on New Zealand’s reputation for world-class sustainability,” she said. 

Market watchers have argued the ETS has been broken for years, with multiple auctions of new units failing to clear. A rising carbon price could be controversial, however. While higher carbon prices help to drive emissions reductions, they do so by making things more expensive, adding to inflation. 

It was fear of inflation that arguably broke the ETS. In December 2022, the then Labour Government rejected recommendations from the Climate Change Commission to tighten the scheme, fearing they would add to inflation. That decision crashed the ETS price. 

It subsequently recovered some gains. Modelling by the Ministry for the Environment suggests the impact of a higher price is small but not negligible, especially if the price rises significantly. 

A $10 increase in the price costs the average household about $1.67 a week — or $0.88-$0.95 for low-income households. 

Changing rules around forestry has also been controversial because many iwi have invested heavily in forestry offsets. The Ministry for the Environment, in advice on offsets, said Māori own more than 30% of all land used for forestry. 

Hipkins confirmed Labour was not campaigning on agricultural emissions pricing. 

“We’re not going to be pricing agriculture as the default - we want to reduce agriculture emissions. We want to work with farmers to do that without putting a price on methane emissions,” he said. 

Hipkins said some large exporters were “driving this change themselves” noting Fonterra and Silver Fern Farms were trying to reduce emissions. 

These firms are struggling to hit their targets. Fonterra is targeting a 30% reduction in emissions intensity by 2030 compared with 2018, yet as of this 2025 had achieved just 3.8% reduction. 

Hipkins said he was “not ruling out pricing for all time”, but that it would not be the “first port of call”.