Cultivating a nature market that works for UK farmers

The UK’s Biodiversity Net Gain (BNG) scheme is at risk of being under-supplied with credits due to structural barriers to farmer and landowner participation in nature markets – but these issues can be addressed through targeted policy changes that will further support the delivery of a credible, high-integrity market.

By converting land for biodiversity preservation or carbon sequestration, the BNG scheme and nature markets are providing new revenue opportunities for farmers and landowners, whilst playing a crucial role in preserving natural capital.

A new paper from Barclays, Creating New Nature Markets that Work for Farmers, details the driving factors behind the hesitancy amongst farmers and landowners to issue biodiversity credits and take up this opportunity, outlining two recommendations to UK Government to further the development of a well-functioning nature market:

(1)    Support navigation of land use trade-offs. Given the 30-year land lock-up that the BNG scheme requires, farmers and landowners need more support in making judgements as to the relative value of their land over this period:

• Government should publish an overarching Land Use Framework, as DEFRA originally planned for publication in 2023, providing strategic direction on how government proposes to manage complex trade-offs between competing priorities such as food security, emissions reductions, nature and biodiversity preservation, and health.
• Communications are needed to build understanding of the requirements and revenue opportunities from BNG, raise the profile of the BNG scheme, and support landowners in making land use decisions.

(2)    Provide urgent clarity on policy gaps and guidance. To bring more credits to the market – needed by housing developers that are mandated to use them – the new government must confirm its commitment to the BNG scheme and finalise remaining gaps in the policy framework:

• Offer clarity on the treatment of BNG for inheritance tax purposes and VAT.
• Natural England to oversee the continued build out and delivery of the BNG register, working with Department for Environment, Food and Rural Affairs (DEFRA) to establish a market oversight body to ensure integrity and consistency of the BNG scheme as applied across England.
• DEFRA to provide clarity on the status of land at the end of a 30-year credit and review the 6-monthly timeframe of evaluating the prices of credits, to avoid creating a ceiling for market price.
• Government to consider if local authorities have access to the funding, staff and training needed for them to deliver, monitor and enforce the BNG scheme, key for its credibility and integrity.

Committing to the BNG scheme and addressing the current gaps in the policy framework would provide the new government with an opportunity to demonstrate their commitment to nature and support for the agricultural sector’s transition.

Adam White, head of agriculture, Barclays UK said: “Whilst there is openness to farming alongside preserving and restoring nature, the Biodiversity Net Gain scheme is currently leaving farmers with a dilemma: take the opportunity early and risk tying up land at non-competitive prices, or miss out on securing a steady long-term revenue stream from their land.

“Our policy paper ‘Creating New Nature Markets that Work for Farmers’ details a number of policy changes needed to deliver credible and well-functioning nature markets that give farmers the confidence and tools to engage in these new opportunities.”

BNG scheme

The BNG scheme that was launched in February requires new property developments to deliver a minimum of 10% uplift in biodiversity, with house builders predominantly relying on nature markets to meet this requirement. By converting land for biodiversity preservation or carbon sequestration, nature markets could provide new revenue opportunities for farmers and landowners whilst playing a crucial role in supporting the BNG scheme.

Barclays has recently launched a first of its kind collaboration with the Environment Bank to help England-based farmers understand opportunities in the BNG market, and to help Barclays’ corporate clients, including UK-based housebuilders, that are seeking to fulfil their BNG scheme obligations to explore opportunities and their options in the biodiversity credits market.