4 minute read
FUNDING
An effective financial incentive to significantly boost tree planting?
On 4 November, government launched a £50million Woodland Carbon Guarantee scheme to encourage farmers and landowners to plant more trees and help tackle climate change. Successful participants will be offered the option to sell Woodland Carbon Units to the government over 35 years at a guaranteed price set by auction, providing new income for land managers who help businesses compensate for their carbon emissions.
This is great news, but what could be the wider implications on woodland creation, and the emerging forest carbon market? Within the wider context of climate change policy, how effective is this financial incentive to give planting in the UK – in particular in England – the boost it needs? Two of our members give their perspective.
Our members comment
John Lockhart Chairman Lockhart Garratt Ltd
It is excellent to see an initiative coming forward that aims to fairly recognise the real value of the carbon sequestration that will be secured by the creation of new woodlands. This new guarantee is very much a starting point and so we hope to see a resulting stimulation of the market. However, the success of the scheme will depend on the levels of funding that can be secured, which will need to recognise the alternative revenue opportunities that can be secured from the land and the cash flow and timing requirements associated with a conversion to a long-term investment in forestry, including the validation and certifications costs associated with carbon.
One critical issue will be the risk of excluding woodland supported by the Woodland Carbon Guarantee from other payments, possibly through the Environmental Land Management Scheme (ELMS), for the wider suite of public goods they will deliver, such as air and water quality, recreation, flood alleviation, landscape and biodiversity.
Undoubtedly, investors and companies looking to mitigate their carbon emissions, see real value in locally based woodland creation for the whole suite of public benefits it delivers and as such it must be hoped that the Woodland Carbon Guarantee would see real shift in the expectation of value for locally secured carbon offsets.
We are still at early days, but we are also seeing a real appetite for new woodland creation, to mitigate development impacts, both for carbon and more widely. If the Woodland Carbon Guarantee is able to establish a baseline of value for woodland carbon it is hoped that this would see a real shift in the woodland carbon market in the UK.
James Hepburne Director of Forest Carbon Ltd
I am hesitant to comment before the first auction has taken place and we can see what volume is offered and what price is achieved (if indeed this information will be made public).
But I am prepared to say that I am not pleased about this government intervention in an emerging market for the following reasons:
The Woodland Carbon Code (WCC), and indeed this voluntary market itself, owe their existence to the initiative and 13 years of hard work by our business, Forest Carbon Ltd.
The UK’s Clean Growth Strategy commits the government to “create a stronger and more attractive domestic offset market that will encourage more businesses to support cost-effective emissions reductions, such as through planting trees”. We see no evidence of this action. We now have mandatory carbon reporting for 12,000 UK businesses but no obligation, or even encouragement, for businesses to offset as indicated in the Strategy.
Even without government action, 2019 has seen a rapid increase in demand from businesses to support woodland creation (through the purchase of woodland carbon credits), especially in the south of England. As a result, transaction prices (in the carbon market) are beginning to rise. This is why we believe the timing of this initiative is inept. It will not raise the voluntary market traded price. Only sustained private sector demand will do that.
This is a voluntary market so businesses are not obliged to buy. If the price of English domestic offsets rises beyond what they consider affordable, or the government buys up most of the available supply, they have a choice: • Buy from Scotland where supply is plentiful and the price will be lower
• Buy overseas verified carbon credits where the price is lower • Do nothing.
Government could greatly improve planting rates in England by following Scotland’s example and introducing a more welcoming and workable grant scheme without spending yet more money and imposing further administrative burden on farm businesses. Achieving registration, validation and successive verifications under the WCC is no small or inexpensive matter. Forest carbon does all this for them and pays for it. Government should allow the WCC to flourish by stimulating demand. This is how markets work, not by this heavy-handed intervention. If the Guarantee is successful in driving up woodland creation by land owners who are prepared to wait for a long time for their money I will be as pleased as anyone. But this will not help those who need cash up-front to enable them to cross the threshold.
