Naturemarket sweep

31 March 2023

Amid the wave of government announcements to mark “Green Day”, the catchily named Nature Markets: A framework for scaling up private investment in nature recovery and sustainable farming (the Framework) is of particular interest. In order for the UK Government to meet its nature recovery targets set out in the Environment Act there is a broad consensus that the British countryside needs significant green investment. The Framework sketches out how this might look – a series of interlinked, self-regulating, highly structured nature markets and associated financial products for a range of environmental credits, from woodland carbon to saltmarsh and seagrass to biochar.

The purpose is to increase capital flowing into nature restoration and preservation schemes and correct undervaluation of natural services, often termed ecosystem services, like carbon sequestration, biodiversity, clean water and natural flood management. There is wide investor interest in investment in nature restoration and preservation, yet the industry that looks after our land (agriculture) faces a financial and ecological reckoning. Government has substantially cut subsidies leaving farmers with significant revenue gaps, however on the other hand, agriculture (which, according to DEFRA, contributes 11% of UK Net greenhouse gas emissions) is substantially behind other sectors in reducing its emissions. Lydia Collas at the thinktank Green Alliance told Farming Today that “the agriculture sector is probably 10 years behind the energy industry in terms of decarbonising. The trouble is there is no comprehensive and recognised marketplace for private funding to pay farmers for ecological services”.

The Government hopes the Framework will help provide one (or many) sources of funding. It points to the promising but immature markets for woodland carbon, peatland, biodiversity net gain and nutrient credits as models for other environmental services. Clearly the Government expects investment to be highly structured and based around nature markets for the sale/purchase of regulated credits. It gives little consideration to the possibility of more fluid or bespoke agreements between landowners and investors. Emphasis on “stacking” (multiple credits from the same land) and “additionality” (showing the environmental improvement against a baseline) plus the appointment of the British Standards Institution “to expedite a pipeline of investment standards” evidences the Government’s focus on how these markets will work in practice and demonstrates their urgency.

At the same time as turbo charging private investment, the Government is further signalling the end of direct subsidies. “We will continue to keep grant offers under review so that publicly funded grants do not crowd out private revenue opportunities”, it says.

Whether the Framework will break the dam holding back investment into ecosystem services provided by the UK countryside remains to be seen, but it will certainly encourage the development of nature markets and (hopefully) give investors and landowners confidence to fill their trollies full of credits.

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