One of the most common questions prospective investors ask is:
“Who actually buys carbon credits?”
It’s a fair question. After all, if forestry investments generate carbon credits, there needs to be a genuine market for those credits to create value.
The answer lies within New Zealand’s Emissions Trading Scheme (NZ ETS).
What Is the NZ ETS?
The New Zealand Emissions Trading Scheme is the Government’s primary mechanism for reducing greenhouse gas emissions and helping New Zealand meet its climate commitments under the Paris Agreement.
At its core, the NZ ETS places a financial value on carbon emissions.
Businesses that produce greenhouse gases are required to account for those emissions. They can do this by reducing emissions, offsetting them, or purchasing and surrendering New Zealand Units (NZUs).
An NZU is New Zealand’s official carbon credit. Each NZU represents one tonne of carbon dioxide equivalent (CO₂).
Because NZUs have value and can be traded, they create a regulated market for carbon.
Who Buys Carbon Credits?
The primary buyers of NZUs are businesses and industries that produce emissions as part of their normal operations.
These commonly include:
- Fuel and energy suppliers
- Heavy transport operators
- Manufacturing businesses
- Aviation companies
- Industrial processing businesses
Under the NZ ETS, many of these organisations must acquire and surrender NZUs to meet their emissions obligations.
In practical terms, the demand for carbon credits is driven by regulation.
As businesses emit carbon, they must either reduce their emissions or purchase NZUs to offset them.
This creates a genuine compliance market rather than a speculative market.
Unlike many investment themes that depend on future technological breakthroughs or changing consumer trends, the NZ ETS is a government-established framework operating within New Zealand today.
Why Forestry Plays Such an Important Role
Forestry occupies a unique position within the NZ ETS.
As trees grow, they naturally absorb carbon dioxide from the atmosphere and store it within the forest ecosystem. This process is known as carbon sequestration.
Because forests remove carbon from the atmosphere, eligible forests earn NZUs under Government-approved carbon accounting methodologies.
These methodologies are based on carbon lookup tables developed and regulated by the Ministry for Primary Industries (MPI), which estimate the amount of carbon stored by forests over time.
Radiata pine, New Zealand’s dominant commercial forestry species, is widely regarded as one of the most efficient plantation species in the world for carbon sequestration.
This means forestry not only produces timber but can also generate carbon credits as the forest grows.
Why Forestry Investment Has Changed
Historically, forestry investing was relatively simple.
An investor planted trees, waited 25 to 30 years for the forest to mature, harvested the timber, and hoped log prices were favourable at the time of harvest.
Returns were heavily reliant on a single event that would occur decades in the future.
The introduction of the NZ ETS fundamentally changed that investment model.
Today, a modern forestry investment (Such as the Awatea Forest Fund) can generate value from three distinct and complementary sources.
1. Carbon Revenue
As forests grow and sequester carbon, they may earn NZUs under the NZ ETS.
These NZUs can be sold on the market, generating revenue for investor distribution (In the case of the Awatea Forest Fund) during the forest’s growth phase, well before harvest. For those investors that want to reinvest and compound their returns over time, a dividend reinvestment plan is available.
2. Timber Revenue
The underlying timber crop continues to grow in volume and value over time.
Timber remains an important component of long-term forestry returns and provides exposure to domestic and international wood markets.
3. Land Appreciation
Forestry land is a tangible real asset with intrinsic value.
Over time, land values may benefit from factors such as scarcity, productive capacity, infrastructure improvements, and competing land-use demand.
A Diversified Real Asset Investment
One of the reasons forestry has become increasingly attractive to investors is that it is no longer dependent on a single source of return. In fact, in the case of the Awatea Fund, an investor gains exposure to seven forestry assets from one investment offer, and:
- Carbon markets
- Timber markets
- Productive rural land
These return drivers are often different from those that influence shares, commercial property, and fixed-interest investments, making forestry a valuable diversification tool within a broader investment portfolio.
Importantly, investors are not relying solely on carbon markets. The underlying forest and land remain tangible productive assets that continue to generate value through timber production and long-term land ownership.
The Awatea Forest Fund – creating wealth, naturally
This investment philosophy sits at the heart of the Awatea Forest Fund.
The Awatea Forest Fund is an Investment that provides portfolio diversification and lower volatility, backed by land. The Fund effectively bridges environmental benefits and investor returns.
As New Zealand continues its transition toward a lower-emissions economy, forestry is expected to remain an important part of the country’s climate strategy and a compelling real-asset investment opportunity for long-term investors.
A copy of the product disclosure statement for Awatea Forest Fund is available at https://invest.rogerdickie.co.nz/awatea-fund and on the Disclose Register at disclose-register.companiesoffice.govt.nz.
Roger Dickie NZ is a licensed manager of this investment under the Financial Conduct Act 2013.
Projected returns are not guaranteed. Returns are based on assumptions and may differ due to market conditions, carbon credit prices, forestry yields, and other factors.
