Some reasonably large changes will need to be made to the Emissions Trading Scheme (ETS), an economist says.
The ETS is the government's main tool for cutting greenhouse gas emissions.
The Ministry for the Environment said it would review the ETS, to see if changes were needed to provide a stronger incentive for businesses to move away from fossil fuels, while also supporting greenhouse gas removals.
No specific plans have been proposed but ANZ agriculture economist Susan Kilsby said the current system encouraged offsetting by planting trees, rather than reducing pollution.
"In New Zealand our ETS is quite unique that we actually include forestry in it. In most parts of the world it's just focusing on reducing gross emissions," she said.
"It's been identified that at the moment it's cheaper and easier for companies to invest in forestry rather than investing in solutions that would reduce their own emissions."
Land conversion was another issue, where farms were being converted to forestry, Kilsby said.
"They have identified that under the current setting we would see somewhere between 410,000 and 670,000 hectares of land converted into forestry by 2035, that's about 2000 farms," she said.
She believed changes were likely to address such issues, although said they may occur over a long period of time.
"I think it's clear that the current system isn't working particularly well so some reasonably large changes will probably need to be made."
Kilsby said while changes to the ETS were likely, it may happen over a long period.