The Green Offset Annual Review

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Annual Review 2021-2022

The Green Offset:

Supporting biodiversity net gain requirements www.

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The Green Offset:

Supporting biodiversity net gain requirements The Green Offset was launched in 2021 providing a simple platform to bring together those seeking land to site natural capital schemes with landowners willing to explore these opportunities. One year on there are now more than 36,000 hectares of land registered on the platform providing offset seekers with a significant bank of land on which to explore offsetting opportunities. We asked Tom Beeley Senior Surveyor in Fisher German’s Rural Property Management division what’s been happening in the emerging natural capital markets.

The total potential supply for England is

17,362,551Biodiveristy Units, covering 9.2m ha of land (Defra, 2021)

Feedback from landowners, developers, and local authorities on the concept of the platform has been very positive and Fisher German are now working with several landowners who have received approaches through the platform to consider offsetting agreements.

Some policy clarity was provided with the Environment Act gaining Royal Assent in November 2021 providing the primary legislation for the introduction of mandatory Biodiversity Net Gain (BNG) as well as Local Nature Recovery Strategies (LNRS) and legally binding environmental targets. Mandatory net gain requirements in the planning system will mean that where a net gain in biodiversity cannot be delivered within a development site, biodiversity offsets will be required to establish compensatory habitats elsewhere within the planning authority or county. These will need to be delivered for 30 years through legally binding agreements but there are many elements of BNG and other natural capital services which require further clarity.

An extensive Defra consultation published in January 2022 provided insight into some of the remaining questions and the secondary legislation now in development. While it is expected that BNG will become mandatory across England by November 2023 several planning authorities are already applying net gain with developers actively seeking offsetting to meet planning needs or in some instance on a voluntary basis.

One of the challenges facing developers is that not all local authorities are currently geared up to manage the delivery of net gain or the process of offsetting which will require additional resource when they are already stretched. This is one aspect which will need to be

addressed to provide a consistent and time sensitive delivery of development.

Liquidity in the supply of habitat credits will also be essential to prevent delays to development and to meet the needs of smaller developments. Habitat banking whereby credits are created in advance of demand has an important role here and perhaps holds the best opportunity for landowners who have specific types of habitats that they would like to deliver on their land. Click here for more information It is also important to understand the concepts in the Defra Biodiversity Metric – the tool used to calculate habitat values of land. In determining a habitat value the metric not only takes account of the area and type of habitat being lost or established but makes allowance for its interconnectedness with existing higher value habitat, condition and, in the case of habitat creation for offsetting purposes, the time taken to reach required condition.

As well as providing a means of funding creation of new habitats, biodiversity offsetting can also be achieved through enhancement of existing habitats for example improvement of existing grassland through re-seeding and changes in management or improving management of existing woodland or hedges.

Understanding the calculator can help to determine the types of habitats to create and the best locations to create them in.

LNRS will also be key in this respect and once developed will play an important role. The recovery strategies will effectively be local plans for nature and although not expected to lead to any land designation, it will be important for landowners to engage in the development of LNRS.

Nutrient Neutrality Alongside BNG, there has been a surge in interest in nutrient offsetting driven by both impending targets for water quality in the Environment Act, but more immediately Natural England’s advice to an additional 74 local authorities with designated habitat sites considered to be in unfavourable condition. The advice from Natural England essentially prevents affected local authorities from granting planning consent for development unless it can be demonstrated that it will be nutrient neutral development.

Consequently, there are thousands of houses and other developments caught in planning moratoriums in these areas. Investment in measures which will deliver measurable reduction in nitrate and or phosphate pollution entering water courses is therefore required. This is likely to include development of managed wetlands to strip phosphate from wastewater outlets or reducing inputs to large areas of agricultural land. This new market driven by tightening environmental policy is creating demand for suitable sites which are more locationally specific than biodiversity offsetting sites in afflicted catchments with projects being taken forward in several areas.

Carbon Offsetting The estimated size of the market for biodiversity offsetting is around

6,700 ha

of land per year.

(Defra, 2021)

Carbon offsetting is a more established strand of offsetting, but has seen a re-emergence in the past 18 months as many corporates commit to their own net zero objectives and seek to secure offset credits to meet their need. Carbon offsetting is mostly delivered through woodland creation under the Woodland Carbon Code, but there is also a Peatland code for accrediting carbon through peatland restoration and emerging opportunities in soil carbon. Whilst there is an existing market for credits landowners need to think carefully about the values being offered and understand the commitment being made.

487 ha

An average of per year of priority habitat is estimated to be lost due to land use development (Defra, 2021)

BNG in the context of agricultural transition These emerging markets also need to be considered in the context of the ongoing agricultural transition which represents the biggest change to agriculture in a generation. With BPS set to be phased out by 2028 and the Sustainable Farming incentive (SFI) and three-tiered Environmental Land Management Scheme introduced understanding how these new forms of public funding will integrate and align with the emerging private markets is critical for landowners. Many farmers will be reticent to commit to private agreements until more detail on the support available under the new schemes is available. Defra have advised that it is their intention to design schemes to enable public and private funding to be integrated and this will surely be essential to the future funding of the sector.

security is firmly back in the spotlight also raises questions and concerns amongst farmers. The recently published Government Food Strategy to some extent recognises this and seeks to provide reassurance that the essential provision of food that land provdies is not overlooked in the rush for delivery of environmental outcomes from all sectors of the economy.

Habitat creation in the right location can deliver multiple environmental outcomes simultaneously and this must be incentivised and prioritised. A good example is woodland in the right location could deliver carbon sequestration, biodiversity, water quality and water management benefits. There is currently a risk that these opportunities for multiple outputs are missed with payments based on single environmental outcomes.

The increased demand for environmental outcomes from land from different sectors at a time when food

Top tips for exploring new opportunities Keep an eye out for opportunities to engage with LNRS in your area Consider which areas of land might be most suited to environmental uses – you may already have a good idea of this or there are plenty of existing mapping tools which can assist Once these have been identified, consider engaging an ecologist to get an understanding of the habitat baseline and to explore the habitat value which might be created and the management plan required to deliver long term habitat enhancement Consider how the plan might be funded and explore which options are best suited to your requirements and are most attractive. There are often multiple funding options available through public grants and private markets of which some can be claimed contiguously.

Register with The Green Offset, it is a simple free to use platform and can be a good first step for landowners to engage with these new markets.

There is a wide range of costs for managing different habitats to increase Biodiveristy Units, but excluding outliers the average nominal cost per hectare is

£34,746

and per BU is £15,648 (2020 prices).

(Defra, 2021)

?

Common FAQs

regarding offsetting agreements which will typically be for a term of 30 years

What happens at the end of the term?

What is the value of habitat units?

When an agreement comes to an end, the land should represent an established habitat it seems unlikely therefore that land will be easily returned to the previous land use at the end of the term. In our view clients in most circumstances should view these land use changes in perpetuity rather than just for the 30 year term.

There is no definitive answer currently and values are open to negotiation, but market analysis published with the Defra consultation suggests values of £20-25,000 per habitat unit are anticipated with an expected market size of 6,200 offsite units per year with a total value of £130 million.

What are the Tax implications?

The Defra consultation acknowledges key questions for landowners regarding APR and BPR relief and that clarification is being sought on how land entered into agreement will be treated for these reliefs. The type of habitat to be created and the shape of any deal will be key in determining tax treatment i.e. does land use still meet the definition of agriculture and is the land still a trading asset, but this is certainly an area for careful thought.

How should these new markets be treated in the drafting of agricultural tenancies?

Landowners and tenants will need to work collaboratively to enter into an agreement on let land, but there is potential for both parties to benefit from opportunities.

The land value this represents is determined by the type of habitat to be delivered and number of units delivered per unit area. We don’t think there is a ‘one size fits all’ value. Instead, landowners will need to consider agreements on a case-bycase basis taking account of existing land use and income, alternative uses, the impact of habit to be delivered, establishment and management costs as well as wider implications for taxation.

The amount paid is also likely to be affected by the shape of the deal made and the level of risk taken by the landowner. For example, leases to a third party who takes on the cost of establishing and marketing the credits are coming forward with the landowner paid a rent or management fee paid. In these circumstances the landowner will not receive the full market value of the credits, but equally is not exposed to the risk associated with establishing and selling credits. Some landowners might be willing or prefer to capitalise the 30-year value into a lump sum payment.

74 Local authorities affected by Nutrient neutrality 1

Allerdale Borough Council

38 Lake District National Park Authority

2

Ashford Borough Council

39 Lichfield District Council

3

Basingstoke and Deane Borough Council

40 Maidstone Borough Council

4 Borough Council of King’s Lynn and West Norfolk

41 Malvern Hills District Council

5 Bournemouth, Christchurchand Poole Council

43 Mid Devon District Council

6

Breckland Council

7

Broadland & South Norfolk Council

8

Canterbury City Council

9

Carlisle City Council

10 Cheshire East Council 11 Cheshire West and Chester Council 12 Chichester District Council

42 Mendip District Council 44 Middlesbrough Council 45 New Forest District Council 46 New Forest National Park Authority 47 North Norfolk District Council 48 North Warwickshire Borough Council 49 North West Leicestershire District Council

13 Copeland Borough Council

50 North York Moors National Park Authority

14 Cornwall Council

51 Northumberland County Council

15 Darlington Borough Council

52 Northumberland National Park Authority

16 Derbyshire Dales District Council

53 Norwich City Council

17 Dorset Council

54 Peak District National Park Authority

18 Dover District Council

55 Portsmouth City Council

19 Durham County Council

56 Redcar and Cleveland Borough Council

20 East Devon District Council

57 Richmondshire District Council

21 East Hampshire District Council

58 Sedgemoor District Council

22 East Riding of Yorkshire Council

59 Shropshire Council

23 East Staffordshire Borough Council

60 Somerset West & Taunton Council

24 Eastleigh Borough Council

61 South Derbyshire District Council

25 Eden District Council

62 South Downs National Park Authority

26 Exmoor National Park Authority

63 South Lakeland Council

27 Fareham Borough Council

64 South Somerset District Council

28 Folkestone and Hythe District Council

65 Southampton City Council

29 Gosport Borough Council

66 Stockton-on-Tees Borough Council

30 Great Yarmouth Borough Council

67 Swale Borough Council

31 Hambleton District Council

68 Swindon Borough Council

32 Hartlepool Borough Council

69 Test Valley Borough Council

33 Havant Borough Council

70 The Broads Authority

34 Herefordshire Council

71 Vale of White Horse District Council

35 High Peak Borough Council

72 West Berkshire Council

36 Hinckley and Bosworth Borough Council

73 Wiltshire Council

37 Isle of Wight Council

74 Winchester City Council

For further information contact: David Kinnersley Head of Agribusiness

Tom Beeley Senior Surveyor

Alex Watts Senior Surveyor

07501 720405

07970 698729

07584 707294

david.kinnersley@fishergerman.co.uk

tom.beeley@fishergerman.co.uk

alex.watts@fishergerman.co.uk

www.thegreenoffset.co.uk Follow us:

Figures quoted within this article are provided only for guidance and strictly on a non-reliance basis.

All facts have been sourced from Defra Biodiversity Net Gain: Market Analysis Study February 2021

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