The recently elected Labour Government has wasted no time in setting out its stall for getting Britain building again, but it is not yet clear how they can balance this ambition with achieving net zero and delivering for nature.
The Government has recently written to environmental NGOs asking for support in ensuring their housebuilding policies deliver a ‘win’ for nature.
One of our Natural Capital experts, Christy Wells, assessed whether current policies like Biodiversity Net Gain (BNG) are enough to help the Government achieve its goals, what role farmers and landowners must play, and whether the incentive is really there for them.
Over the last few years, environmental considerations have become ever more prevalent in politics. It is often forgotten that all these policies are intrinsically linked to land, which is in the most part farmed, and privately owned. Landowners would therefore need to be the key adopters of a new approach to nature.
At present, net-zero targets and the new approach to valuing nature have led to the formation of a voluntary carbon offset market and a statutory biodiversity offset market. Over these markets, and beyond them, uncertainty reigns.
Regenerative farming and the voluntary carbon market are hoped to develop hand-in-hand, wherein farmers and landowners can sell carbon credits, generated by capturing carbon in soil, woodland, or peatland, to help corporates offset their emissions.
Even before the change of Government, the relatively new planning policy of biodiversity net gain (BNG) was introduced to ensure the impact on biodiversity was a key consideration in most planning applications.
BNG has created a statutory market for habitat creation and enhancement – often on farmland. But the scale of an offset market is currently much debated. Regardless of offset trading, BNG represents another cost to developers and therefore an opportunity for landowners who propose a way to minimise these costs.
However, at present, neither the voluntary carbon nor statutory biodiversity markets are accessible to the many landowners. While the voluntary carbon market may be valuable if a landowner can sell large amounts of credits at a realistic price in one transaction, the reality for a typical farm is that they cannot access these buyers with the scale of their operations.
There are bespoke cases where two parties can agree, and a growing market for soil carbon offsets but there certainly isn’t a ready-made pool of buyers for whole farm scale quantities of carbon credits, so their use as income generators for an individual farm is limited at present unless they enter schemes with firms offering provenance of credits. Some of these schemes are perceived as “greenwashing” but there are a small number of schemes which are achieving recognition as being science-led.
There is no statutory market for carbon at the moment, unlike the market for biodiversity which is tied into planning applications. However, there is a general market trend towards the ‘bundling’ of ecosystem services that could see Labour advance further policy to deliver for nature beyond biodiversity, including carbon and other social values.
Whether this materialises remains to be seen, but I would speculate that a genuine statutory carbon market is unlikely in the short to medium term unless a Danish-style carbon tax on cattle is introduced. Such policies are controversial, as shown when a similar policy in New Zealand was initially proposed but later shelved by a new government after backlash from farmers.
When it comes to BNG, the policy is not working as well as intended.
At the recent Lincoln Conference on Nature Based Solutions, several eNGOs argued that the 10 per cent net ‘gain’ mandated in BNG was simply a buffer figure to ensure there was no net loss. BNG was therefore seen as a useful tool to fund biodiversity improvements, but not a solution in itself. What is often overlooked is that policy must deliver for development as well as biodiversity. BNG is a policy lurch in the direction of nature.
There are opportunities for landowners to benefit from the BNG offset market, which is currently favourable. However, as the market establishes itself, those players who do not have the business considerations of a typical farmer, such as eNGOs, are likely to price farmers out of the offset market by undercutting them. Those developing habitat banks should live to this possibility and forecast accordingly.
A vibrant offset market was believed to have arisen from BNG policy. The reality is that the market may be accessible to a few well-placed players, but perhaps not the saviour of all of those looking at rising costs and slimming margins. However the voluntary carbon and statutory biodiversity markets develop, it is vital for landowners to truly understand what they are selling, if, and when to sell.
For example, pressure is already coming down the supply chain for more nature-friendly businesses. If landowners have sold the benefits they provide for nature, then compliance may be difficult. An assessment of the opportunity cost on any scheme should be undertaken.
The wider view of nature markets shows some key barriers for investors looking to partner with landowners. The market is seen as high risk with reputational risk being a key inhibitor. Having said that, a majority of FTSE 350 companies are investing in UK nature in some way – but the preference is for short-term investments at present. For a larger pool of investors to get behind them, the market needs to be de-risked. Land requires long-term investment and careful risk management.
There may yet be an increased demand in nature markets thanks to changes announced by various bodies involved in setting governance and reporting standards, though not without their own controversy.
Quite what the market may demand is hotly debated, such as if there will ever be a credit-backed voluntary biodiversity offset market. A key way landowners can secure their ability to engage with a future market is with quality data capture. It could allow them to pivot to access a new market if it emerges. Strategic advice ought to be sought at an early stage for a robust assessment of any opportunities. Data gathering is underfunded at present and would present a significant outlay to landowners.
The Government must balance competing interests and often opposed world views - a virtually impossible task. But landowners should be engaged more than at present, as they are the key adopters of a changing approach to nature.
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