Farms and Estates update: Natural Capital

Published: Monday 14 February 2022

With the focus on climate change and the Government’s target of net zero emissions by 2050, coupled with the loss of income from the basic payment scheme, farmers will increasingly be looking at the natural capital on their farms, and how they can take advantage of this. In addition, there is likely to be increasing pressure from customers who will want to know the carbon impact of the products they are buying, be that the supermarkets or the end consumer.

The starting point will be to develop a carbon strategy, whereby a business understands its current carbon emissions and develops a plan to reduce it. There are a number of tools available to help with this such as the Farm Carbon Tool Kit.

There are many options open to farmers to reduce their emissions. These include simple things such as powering the grain dryer using renewable energy rather than fossil fuels, to changes in farming methods towards regenerative agriculture and considering cropping choices.

For those wishing to go further, there will be options under the Environmental Land Management Scheme (ELMS), where farmers will be paid for work to enhance the environment. Much of this is likely to be an extension of the current countryside stewardship schemes.

For those with unproductive ground, woodland creation may be a viable option, with the aim of sequestering carbon. The Woodland Carbon Code is a voluntary standard for UK woodland creation projects, providing assurance about the carbon saving of woodlands. All projects must be registered on the UK Land Carbon Registry before the start of planting. This enables the amount of carbon that can be sequestered to be calculated, and subsequently sold if desired.

The concept of biodiversity net gain (BNG) has been introduced in the Environment Act 2021. Essentially, it aims to ensure the overall amount of natural habitat is enhanced and left in a better state where development is taking place. The Act requires a compulsory 10% uplift in biodiversity. Where it is not possible to obtain the uplift on the development site itself, it can be offset on local land. This will provide an opportunity for landowners to receive payments from developers to undertake the work on their behalf, for periods of potentially 30 years or more. DEFRA is developing a system to measure BNG. Landowners may be able to meet the targets by enhancing current habitat, or alternatively by taking poorer areas out of production.

Whatever options landowners decide to take there will be several considerations. Currently, markets are still developing and consequently there is uncertainty as to what is the right price, and potentially the structure of any legal agreement. Where land is tenanted, consideration will need to be given to whether it is the landlord or the tenant who has the natural capital rights and is able to exploit them. The tax position is still unclear and the impact on the inheritance tax reliefs, agricultural property relief and business property relief, will need to be considered.

There is no doubt that enhancing natural capital will become an increasingly important income stream for landowners, as well as offering many other benefits. Careful planning will be needed to ensure the best outcome for the business when deciding which approach to adopt.

Content image: /uploads/team/unknown.jpg Nicholas Smail
Nicholas Smail
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