Negotiating the green maze

21 Jul 2022

carbon credits

With increasing climate concern, corporate businesses are looking at rural options to offset their carbon.

“Farm and rural businesses should be aware of the carbon offset assets and potential that they have, but be cautious in how they maximise them,” says Peter Harker, partner, and a member of the firm’s Land and Rural Practice Group.

In particular, Peter is keen to raise awareness around the open market trading of sequestered carbon and nitrates, and offsetting phosphates, highlighting that rural businesses should not “jump head first” into these without due consideration of all factors of concern.

The Soil Carbon Code is being developed to encourage the open market trading of sequestered carbon. The aim is to create a universal method of calculating soil carbon sequestration, allowing consumers to have confidence in what they are purchasing, but also validating how much of their emissions are being offset.

However, standards still vary around the UK, with some methods suggesting a hectare of land can sequester two tonnes of carbon each year whilst others suggest this could be as high as five tonnes a year per hectare.

On nitrate trading, Defra has a ‘pilot’ scheme for use by property developers if their construction is likely to increase nitrogen loading on a particular site. Developers must ensure they put plans in place to prevent damage to the local environment in order for a planning application to be considered. In this situation, landowners and farmers can provide ‘ecosystem services’ to help the developer directly or indirectly.

Direct methods of support include creating interceptor wetlands, which prevent runoff into waterways, or indirect methods such as taking land out of high nitrogen use, and not using fertiliser on nitrate leaching fields. Whichever method is chosen, Natural England advises that the scheme should be in place for 80 – 120 years and is in the same catchment as the development. The government has plans for an online auction service where landowners can list what possible environmental improvement areas they have on their land and then developers can bid to use these nitrate improvements to offset any increase in nitrogen loading their site might cause. This scheme is currently just being piloted in the Solent (Hampshire) catchment area but is likely to be rolled out to other areas around the UK.

Phosphate offsetting is another factor a developer must consider. Before submitting a planning application, the developer must assess how much phosphate pollution will be produced and must put a plan in place to reduce the effects on site. If this is not possible, they must offset any net gain. Phosphate offsetting projects are similar to nitrate offsetting projects, with developers paying landowners and farmers to take land out of production to reduce any runoff. A pilot for this is currently underway on the Somerset Levels with other schemes likely to be trialled across the UK in phosphate vulnerable zones.

The provision of ecosystem services brings its own issues and opportunities with regard to tax. Peter says:

“The tax treatment of any payments received by landowners and farmers for ecosystem services will be determined by the precise nature of what is being undertaken and equally what expenses can be offset will also be dictated by the facts. Also, where there is a major change in land use or management approach, it is always important to understand whether this might have an impact on the inheritance tax reliefs available over that land.

“Where the benefits of income generation from ecosystem services are considered, this might also provide an opportunity to look at wider tax planning, such as passing assets onto the next generation before the land value increases from these new opportunities.”