Agribusiness News December 2024 – Management Matters: Carbon – Would You Credit It?

Carbon & Biodiversity Credits

What is coming down the line for carbon and biodiversity credits for farmers and land managers in Scotland?  Recent events and publications continue to build the momentum and infrastructure required to develop a fair and functional marketplace for farmers delivering these public goods.

Scotland level

On 5 November 2024, Scottish Government published their Natural Capital Market Framework, a one-stop-shop for answering the different questions about how a natural capital market is going to function in Scotland.  One of the document’s three high-level objectives is to ‘enable Scotland’s farmers, crofters, and land managers to be rewarded for providing nature-based benefits by participating in high-integrity natural capital markets.’ Key actions to support this ambition are:

• Ensuring new rural support works seamlessly with private investment in natural capital
• Exploring ways to cluster small, farm-scale projects together to achieve the necessary scale and share risks and rewards equitably
• An ongoing project to empower crofters to participate in peatland restoration
• Developing standardised contracts, which will be publicly available and include accompanying guidance, to remove this barrier to participation and manage risks for both buyers and sellers of carbon or other units

The Market Framework is based on engagement and these actions are meant to target key barriers experienced by farmers and crofters in accessing carbon and nature markets.  While it may not yet be time to dive headlong into these markets, the results of the above actions are meant to be deployed by 2026 and aim to make this a safe and profitable space for farmers to claim rewards for positive environmental stewardship.  This is in line with Scottish Government’s vision, ‘that tenant farmers, smallholders, crofters, new entrants, and land managers have equal access to participate in high-integrity natural capital markets, should they choose to engage.’

UK level

The UK Government is also in support of funnelling as much private investment into regenerating nature as possible and announced the UK Government Principles for Voluntary Carbon and Nature Market Integrity at COP29. These principles are aligned with those already in place in Scotland.  Principle 2 is that investors should ‘use high integrity credits.’ This emphasis on integrity will boost demand for UK nature credits because the credits produced domestically adhere to stringent requirements for measurement, reporting, and verification (MRV) and can be traced back to their source, to make sure that the emissions reduction/removal is permanent.

According to a survey of large UK businesses, nine in ten have purchased carbon credits, spending an average of £2 million per business.  Most of the credits these businesses have purchased to date have been from avoided ‘cheaper’ emissions projects, such as renewables, energy efficiency / fuel switching, and waste management projects.  However, many businesses expect to shift their strategy to buy more credits from more expensive carbon removals projects in the future including farmer/crofter accessible projects such as afforestation, biochar, and potentially marine CO₂ removals – expected average investment of £20 million per business.

In addition, the respective governments of the four UK nations are currently deciding whether carbon projects should play a role in the UK Emissions Trading Scheme (UK ETS).  While the Woodland Carbon Code and Peatland Code have so far been limited to the voluntary carbon market (where businesses buy credits to meet their own, self-imposed net zero targets), the ETS facilitates trades among businesses with statutory targets set by UK Government.  This compliance market achieves some of the highest prices per tonne of carbon in the world and would represent a more consistent base demand for carbon credits from UK farms.  Taken together, there should be continued, strong demand for Scotland-grown carbon removals in the coming years.

 

Brady Stevens, brady.stevens@sac.co.uk