Natural Capital: Opportunities for landowners in a new and rapidly developing market

First published in Land Business.

The UK’s land, waters, habitats and ecosystems make for beautiful scenery and are an important part of the nation’s heritage and identity.

In recent years they have increasingly been seen as something else as well: an opportunity to meet ambitious climate goals.

‘Natural Capital’ is an asset that rural landowners can use to generate income or diversify their businesses.

Many projects such as tree planting, peatland restoration, river catchment works, bio-diversity net gain, and rewilding create opportunities – however, because the market is new and developing they also carry risk.

An opportunity right under your feet…

The current value of ecosystem services in the UK is estimated to be £1.8 trillion.

One growing environmental market is carbon offsetting, whereby carbon-capturing projects are assessed, and the amount of atmospheric carbon that has been removed is measured.

The project is then rewarded with carbon credits, typically at a rate of one credit per tonne of CO2. These credits can then be sold.

The offset carbon markets in the UK are largely dominated by two codes: the Woodland Carbon Code, which covers tree-planting projects; and the Peatland Carbon Code for projects restoring peatland.

It’s important to be aware that both codes are voluntary.

They are not backed by laws or regulations, and concerns have been raised that the offset carbon market suffers from a lack of price transparency and standardisation.

…but tread carefully

Understandably, potential investors worry about misleading schemes that don’t deliver the carbon reductions promised.

Lack of regulation also contributes to uncertainty around the tax implications, particularly for landowners because the tax treatment can differ depending on how land is held and used.

For example, when offsetting becomes the primary use for agricultural land, over any grazing or arable use, it may no longer qualify for tax reliefs such as agricultural property relief.

Another concern for all parties, and especially for corporate partners, is ‘greenwashing’ – unsubstantiated claims about environmentally friendly practices which can lead to significant adverse publicity.

Worth the effort

Despite these challenges, Natural Capital presents an interesting opportunity for landowners.

Before entering into any agreement it’s important to carefully consider what will happen if something goes wrong.

In the case of carbon-offsetting projects, they should consider who is responsible for achieving targets, what happens in a no-fault situation where it is not possible to achieve the units expected, and whether any additional units will be kept in reserve.

If you would like to learn more, please contact Katie McNab, or get in touch with Shepherd and Wedderburn’s Rural Property Team.

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