Emerging carbon markets available to farmers in Scotland

The Woodland Carbon Code is a quality assured standard for woodland creation projects in the UK to create carbon credits. In Scotland, the scheme is administered by Scottish Forestry. Essentially, the code allows the owners of new woodlands to calculate the total carbon sequestration that their woodland will achieve over the lifetime of the trees. Project duration is at least 40 years and should not exceed 100 years. Projects involving clearfelling shall have a minimum project duration equal to the shortest clearfell rotation in the project, which is more than 40 years.

Guidelines and certification process

To ensure that carbon credits claimed by the woodland creation meet the standards of the code, it must be measured, reported and validated by an independent third-party. The WCC was developed by the Forestry Commission in partnership with the Woodland Trust and Department for Environment, Food and Rural Affairs, and is endorsed by the UK Government as a leading standard for carbon capture through woodland creation in the UK.

An overview of the steps to develop a project (Woodland Carbon Code, 2026).

The first step is to verify the eligibility of the project prior to registering it on the UK Land Carbon Registry. This must be done before establishment works and planting begins. Refer to the Woodland Carbon Code website for the latest guidance to ensure projects comply with timing and type of activity, the site type, compliance with legislation and meets the additionality criteria.

The next stage is validation which typically occurs within three years after planting. This is completed by an approved third-party validation and verification body to ensure the project is legal, permanent, and additional. Additionality is tested in two ways: the legal test and the financial test.

The Legal Test

Legal test refers to whether there are any laws, planning decisions or other legally binding agreements that require the woodland to be created. In such instances the woodland is not additional. Compensatory planting to replace areas of woodland felled does not pass the legal test either.

The Financial Test

The financial test demonstrates that without carbon finance, woodland creation is either:

a) Not the most economically attractive option for that area of land (i.e. woodland creation is less profitable than grazing).

b) Not economically viable on that land at all (i.e. woodland creation is not profitable).

Checking if the woodland creation is additional must demonstrate that without carbon finance, the project would not be financially viable. Projects with other sources of income, such as government grants, timber income or charitable donations, are eligible provided the financial test is passed. Areas that fall under Nutrient Neutrality schemes should record benefits that are additional to those already delivered by the programme.

Furthermore, validation ensures that the carbon sequestered from the woodland project is greater than the carbon sequestered from the land’s previous use. Validation determines the predicted number of carbon credits generated by the new woodland known as Pending Issuance Units (PIUs). These can be bought and sold but cannot be used by a company to offset emissions as the woodland hasn’t actually sequestered any carbon yet. They can only be bought by companies looking to offset future emissions.

The final stage is verification, where after 5 years, and then every 10 years after that, the woodland project is verified by a third party. As the woodland develops, PIUs are converted into Woodland Carbon Units which reflect the actual amount of carbon sequestered.

The Peatland Code is similar to the Woodland Carbon Code, in that it provides a standard to comply when undertaking peatland restoration projects to enable landowners to receive carbon credits. Peatlands store a massive amount of carbon when in good condition. However, when peatlands dry out, and bare peat is exposed, they emit carbon. Approximately 80% of Scotland’s peatlands are currently degraded, emitting approximately 15% of Scotland’s total greenhouse gas emissions. Peatland restoration therefore aims to restore peatlands to stop these emissions.

Guidelines and certification process

A peatland restoration project must first be added to the UK Land Carbon Registry under the IUCN Peatland Code. To accompany this, a site survey is required to assess the peatland’s eligibility, alongside a restoration plan, timescale (minimum 30 years), and an estimate of reduction amount of carbon emissions. The duration of the project should not exceed the peat resource on site, as eroding peat deplete over time. For peatland to be eligible it must be actively eroding, drained or modified, and have a minimum peat depth of 30 cm.

Following this, an approved third-party validation and verification body validates the project. The first is a validation of the project plan. This requires documented evidence that the peatland restoration is legal, permanent and additional. The project must also pass the legal and financial test as described in the previous section about the Woodland Carbon Code. Other funding streams are allowed such as Peatland Action funding. Non-carbon income (that can be a public grant or other private income) can cover up to 85% of peatland restoration works and management costs, with the remaining 15% of the funding coming from carbon finance. At this stage, PIUs are issued which predict the number of carbon units the restored peatland is expected to yield. These PIUs work in the same way as the Woodland Code.

Once restoration works are complete, third party validation will confirm that restoration was carried-out in line with the project plans within one year. Then verification should occur as a minimum on the 5^th year post restoration, and every 10 years thereafter. PIUs are converted into Peatland Carbon Units (PCUs) after verification.

Overview of the validation and verification process under the Peatland Code (Peatland Code Guidance Version 2.1, 2024)

Alongside the existing carbon codes, there are many other emerging carbon markets being trialled across the UK. These operate in the same format as the Woodland Code and Peatland Code but are achieved through alternative land management practises. We’ve included the Hedgerow, Soil, Agroforestry, Salt Marsh and UK Seagrass Carbon Codes as well as Wilder Carbon and Woodland Water Code.

Hedgerow carbon code

The Game and Wildlife Trusts are trialling a Hedgerow Carbon Code on three arable farms in England. They are developing a tool to enable the carbon stored in a hedge to be calculated and verified. The code is currently under development but could offer an alternative stream of funding for hedgerow creation/restoration, proving that the creation is additional, and the carbon sequestered is accurately calculated.

Soil carbon code

The concept of soil carbon is one gaining traction in the rural sector. Land management practices can be employed to build soil carbon, which could be sold as credits to buyers. The UK Farm & Soil Carbon (FSCC) is still in development with a large consortium led by Farming & Wildlife Advisory Group South West undertaking a project to demonstrate the commerciality and application of FSCC in the UK [5].  There are other soil carbon schemes actively used by farmers in the UK such as the Soil Capital programme where farmers can sell Soil Capital Units, which differ from carbon credits and represent environmental benefits from practicing regenerative agriculture [6]. The process may be less rigid than some of the existing codes mentioned above, which may be more appealing to some landowners, but may also have a narrower market of potential buyers.

Agroforestry code

Agroforestry is the integration of trees into productive agricultural land instead of simply having woodland blocks. The Soil Association, Woodland Trust, Finance Earth, Organic Research Centre and Scottish Rural College (SRUC) are currently exploring the feasibility of developing a carbon code for agroforestry. This could allow for carbon funding to be achieved without taking fields out of agricultural production.

Wilder carbon

Wilder Carbon developed a nature-based carbon mechanism that delivers carbon benefits through restoration of native habitat in the UK. It is underpinned by a “minimum intervention” approach and could provide a funding mechanism for landowners aiming to restore and achieve biodiversity improvement. There is no minimum project size requirement as different habitats produce varying biodiversity outcomes. A farm focused advisory board is currently being considered to improve the Wilder Carbon Technical Standards Board [7].

Saltmarsh Code

The UK Centre for Ecology & Hydrology is leading a consortium to develop and pilot a UK Saltmarsh Carbon Code. Two business cases were completed for two sites in the Firth of Forth, providing evidence that both sites would be investable under the Saltmarsh Code with sufficient additional capital and operational grants as well [8].

Woodland Water Code

The Woodland Water Code is being developed by a consortium led by Forest Research, funded by Defra’s Forestry Research and Development Programme. Woodlands provide many ecosystem services which include improving water quality, reducing flood risks, and providing shade. A Woodland Water Code is a promising way to attract private investment in woodlands which deliver these co-benefits and might be attractive to corporations benefitting from these services. The project is currently in Phase 2 that will run until March 2026 which will focus on delivering a standardised methodology aligned with UK best practice and BSI standards [9].