Getting to grips with trading natural capital
As featured in Arable Farming Magazine
Getting to grips with trading natural capital
by Arable Farming Magazine March issue
With new laws on enhancing biodiversity for developers and more businesses looking to offset their impact, Alice Dyer explores the biodiversity trading opportunities out there.
Changes to planning and development controls could give land managers the opportunity to make some extra cash by offsetting the impact on biodiversity from new housing and other developments.
This comes after the Environment Act, passed in November 2021, made it law that most developments in England will be required to deliver a minimum of 10% biodiversity net gain (BNG) to offset damage caused by building works.
Defra says this focus on wildlife and nature aims to ensure new developments are ânature positive, protecting and improving Englands natural environment, while delivering the homes the country needs.
In January 2022, it launched the Consultation on Biodiversity Net Gain Regulations and Implementation the results of which will determine the details of how BNG will be delivered.
Given the cost of development land versus farmland, paired with the fact areas of habitat are less likely to thrive on a busy housing estate, both economically and ecologically, taking BNG off-site makes more sense.
Habitat This means landowners or managers who create or enhance habitat on their land will be able to sell the resulting biodiversity âunits to developers.
And with the new law meaning developers must commit to management funding for 30 years, it could create long-term income streams at higher payment rates than Countryside Stewardship.
Defra predicts BNG will create a requirement for 6,200 off-site biodiversity units annually, with an estimated national average unit price of £20,000, suggesting a biodiversity market value of £135 million a year.
Giving an example of payments, Prof David Hill, chairman and founder of the Environment Bank, says landowners could expect to receive up to £900 per hectare per year, depending on the habitat type and location.
In Greater Manchester, 1,463ha are likely to be required to offset credits, or 37 separate 40ha habitat banks.
The Cambridge Oxford Arc Development, which includes one million houses, is likely to need 14,500ha of habitat banks, so there is a lot of opportunity for landowners.
Farmers on the urban fringe, or in parts of the country undergoing rapid growth, such as the Cambridge area, are at a particular advantage because BNG units normally need to be traded between developers and landowners within the same local planning authority (LPA).
However, at the start, there is expected to be a shortage of off-site units available, meaning developers may have to invest outside their local area.
Angus Collett director of business development at BNG Partnership, which links up landowners with developers, and maps, manages and monitors the BNG trading process, says: In most of the country there is real opportunity for landowners to submit less productive parcels of their land for BNG.
The amount of biodiversity units a parcel of land will produce is widely variable depending on factors including current ecological status, whether the land is in crop production and what kind of habitat will be established.
Per hectare, we are looking at anywhere between three to five units, says Mr Collett.
Unit payment rates currently vary around the country and are set by each local planning authority.
We think the consultation will favour heading towards private markets whereby units and value will be decided.
Currently, we are able to offer landowners up to £850 annually per hectare that is used for biodiversity net gain.
We believe using land for biodiversity and habitat creation will become a big part of regenerative farming and the financial gains from BNG are far higher than any other scheme out there.
There is not a minimum area of land that can be submitted towards BNG it all depends on supply and demand and the number of units needing to be offset.
Larger parcels of land can be split up and sold to provide units for different developments as well as using several different offset sites to offset a single development.
We see there being a large demand when the 10% becomes mandatory across England, says Mr Collett.
With this expected surge in demand, a key update in the consultation is the proposal that land managers can start creating BNG units now, despite the obligation for developers not expected to come into force until November 2023.
Alasdair Squires, of Townsend Chartered Surveyors, says: Habitat banking, whereby biodiversity units are created and held before a sale is agreed with a developer, significantly helps supply as it allows landowners to begin producing BNG now.
This will be retroactive, meaning habitat that was enhanced or created from January 30, 2020, will be eligible for BNG agreements.
This provides confidence that work can begin on a habitat without inadvertently raising the biodiversity baseline.
Land managers should also be conscious of potential restrictions features such as pond creation may require planning permission, or consent if the land is in a Site of Special Scientific Interest.
It is currently unclear whether BNG payments could be stacked with ELMs, but it is expected the same parcel of land may be used for increasing biodiversity and offsetting nitrates for example, as long as there are distinct outcomes and benefits.
Defra says it is working to produce clear guidance on the implications of committing land for habitat creation or enhancement affecting eligibility for Agricultural Property Relief and Business Property Relief.
Farmers leading the way
One group of farmers ahead of the curve, have come together to create their own carbon and nature investment community the Green Farm Collective.
The mission of the six farmers, who met through the Soil Farmer of the Year competition, is to build a community that invests in and offsets personal and business environmental footprints through nature-enhancing projects on their farms.
The Green Farm Collective was established by farmers to act for farmers and ensure âa good slice of the pie as interest in natural capital trading grows.
The fledgling business works together with Trinity Agtech to record carbon, natural capital and the impact of farming practices, and trades through its Natural Capital Markets programme.
Two biodiversity investments will be available and sold as annual or long-term agreements.
Projects will be scoped separately in line with the capital cost of the activity.
Wildflower areas These are environmentally sensitive broadacre farmland managed sustainably to encourage soil health and enhance biodiversity, including field margins, hedges, ponds, trees and wildflower areas.
All farms within the growing group have to be net zero carbon to be involved and carbon will be sold by the tonne annually.
Staffordshire farmer and one of the founding members of the group, Tim Parton, says: We can create tailor-made packages dependent on the business environmental objectives, whether its about capturing carbon or enhancing biodiversity.
This could include days on the farm, farm walks and helping with habitat creation, such as tree planting.
Its about making them part of the journey and working as long term partners into the future.
However, key to this is companies share the same ethos as the farmers in their approach to enhancing the environment.
Mr Parton says: We want to work with businesses that are changing what theyre doing and want to invest in us as part of that journey.
I dont see Government supporting us forever and this is a way for us to support ourselves while still producing food.
What is biodiversity offsetting?
Biodiversity offsetting is where conservation activities compensate for biodiversity loss in a measurable way.
It has the potential to deliver effective, widespread biodiversity gain for the natural environment in a way thats easy for developers to use.
A formula is used to calculate how many âbiodiversity units a developer will need to pay to offset their biodiversity loss.
Offset providers then offer to sell developers these units from their conservation projects.
- Developers will have an obligation to provide 10% biodiversity net gain, which is expected to start from November 2023
- The 10% biodiversity net gain increase applies from the pre-development biodiversity value
- The number of units produced depends on habitat distinctiveness, condition, strategic significance, impact of the development, time to reach desired level, difficulty of establishment, risk and proximity of development site to offset site
- Offset land will be subject to conservation covenants with a 30-year minimum
- Payments from BNG may be able to be âstacked with other environmental benefits/ outcomes on the same land, e.g. selling carbon sequestered by planted woodland and soil, Environmental Land Management scheme payments and nitrate and phosphate offsets
- Defra estimates biodiversity units could be worth £20,000/ unit on average nationally
Pioneering biodiversity gains
Some local authorities have already imposed the requirement set out in the BNG consultation and Government intends to allow planning authorities to set higher percentage requirements should they wish.
Warwickshire County Council has pioneered in this approach and in early 2020 signed a landmark deal with the 1,600-hectare Alscot Estate near Stratford Upon Avon to allow its Alscot Biodiversity Project to offer certified BNG units to developers.
Since then, Alscot has been following a strict 30-year biodiversity management plan which now scales almost 20ha of farmland.
Estate CEO, Emma Holman-West discovered the concept of BNG while researching rewilding and how she could improve green spaces and parkland on the estate.
She says the project fits into the estates long-term strategy to reach carbon neutrality and improve green spaces for future generations.
The objective of our project is to work to secure a future for plant and animal species by the improvement and enhancement of natural grasslands and woodlands, encouraging rare and almost extinct species to thrive.
Through careful management and investment, the estate aims to increase the biodiversity value of the land, working through a process to restore existing meadows to neutral grasslands, assisted by the types and quantity of flora which is planted.
My advice to other farmers and landowners considering entering land into BNG is to firstly set out a long-term strategy for their business and see where that managed land, taken out of any alternative regular income stream such as farming, sits within that plan.
Its a new concept with many risks and unknowns.
The land management is a process-led approach and there is a contractual requirement to invest into the land for minimum of 30 years and the sale of credits is not guaranteed.
Tax is unknown and this is a concern for any business.