• To alleviate the housing crisis, the (ex) housing secretary has said we need to “build baby build” (more houses)

• To achieve clean power by 2030 we’ll need loads of new power lines, solar farms, nuclear power stations and onshore wind.

• Because of the Ukraine war, the NFU says it’s a national security priority to grow much more of our own food.

• And the environmentalists - including me - would like to make more space for nature, so the government has (somewhat vaguely) promised to protect 30% of the country for nature by 2030.

Back in 2022, the House of Lords clocked that the many simultaneous demands being put on land might become an issue and recommended that government start thinking about this in a more strategic way. They suggested the government create a sort of ‘Land Use Framework’. Henry Dimbleby (founder of Leon restaurants and non-exec Director at Defra at the time) said we should do it too, in his excellent National Food Strategy. Lots of people agreed that this was a smart idea.

Defra decided to take them up on their recommendation. They launched a consultation on a Land Use Framework in 2025, then published a final report earlier this year. Not to be outdone, Scotland published one too. There are some good ideas in these reports (and some quite fluffy ones). So far though, they have not tangibly influenced policy in areas like planning or land use subsidies. But I do think they have the potential to help us to use land in a smarter way in the future – for example by better targeting land use subsidies and tax reliefs (see the “Aligning incentives with spatial priorities” section on page 40).

I think the coolest part of the land use framework is actually in the analytical annex to Defra’s original consultation report. Starting on page 29, there’s a series of beautiful bivariate choropleth maps that compare the suitability of land across the country for different uses. Hats off to whoever in Defra made these - they are great.

The problem is that they are just static images in a PDF report. It would be really neat if there were an actual tool that people could use to visualise competing land uses in this way.

So I made GBLandUse.org !

I basically copied Defra’s style of bivariate maps and added in a bunch of other options. At the moment, readers can choose from thirteen land use layers – like farm productivity, woodland creation potential, peatland, solar yield etc – and the site will compare the suitability of land for each of these across the country. Defra’s maps only covered England, and Scotland didn’t really use maps in its land use framework (oddly), but GBLandUse covers all three nations (where the data is available).

Here’s a 30 second video showing how it works:

The full methodology behind the site is described here. I should say that this is an independent tool – it’s not endorsed in any way by Defra or ScotGov.

My favourite maps

I think a few of the maps are particularly striking.

This first one (above) compares Britain’s prime agricultural land with the areas that could be planted with native lowland woodland. There is a very high degree of crossover here: 5.3 million hectares score very well on both agricultural productivity and lowland woodland potential. But this is a trade-off we probably do not want to make in favour of nature – we should be using Britain’s best quality farmland to produce as much of our own food as possible.

But this next one (below) shows that there is surprisingly little crossover between Britain’s prime farmland and some of our other excellent habitat restoration opportunities. The red layer is based on Natural England’s priority habitat network model, which shows where we could restore or expand existing reserves of semi-natural habitats. These are mostly heathlands, bogs, fens, species-rich grasslands, saltmarshes and some ancient woodlands.

The map shows that, in theory, a trade-off decision could be made in favour of nature. We have over 1 million hectares of opportunities to restore England’s priority natural habitats without sacrificing any prime farmland:

That’s not to say that there is no trade-off to be made at all. While it’s not prime farmland, we do currently use quite a lot of this land for the rough grazing of sheep and cattle (see map below). This can be a difficult type of farming because the land isn’t very productive – hill farming businesses are consequently often loss-making and have historically been heavily supported by government subsidies. I’ve talked about this in another essay, but it’s useful to visualise it on a map too. Across England alone, there are over 1 million hectares of land currently used for rough grazing that we could set aside for priority habitat restoration. As these farms don’t produce very much food, changing how we use this land wouldn’t have a very significant impact on food security – so I think it could be a trade-off worth making. (That’s not to say that all the livestock should go: low-intensity grazing of some animals, such as rare breed cattle, will in some cases be exactly what’s needed for these habitats to thrive).

This last map (below) compares the land we currently use for rough grazing across England, Scotland and Wales with the parts of the country that show good potential for new upland woodland creation. While we shouldn’t be trying to plant trees on the peatland at the top of our uplands, a lot of the land beneath the moorland line would be a great place to plant some more trees – though to do that we would probably need to remove the sheep from these areas. That’s a similar trade-off decision to the one I mentioned above, but this time it would be making space for new woodland habitats as well as the heathland and bogs prioritised by Natural England.

Those are the four maps that I personally have found most interesting. But maybe you’re interested in other things - like comparing solar yield potential with improved grassland areas, or mapping priority habitats with existing peatland extent. I’d particularly like to add some layers for house building and infrastructure potential too - if anyone knows any good datasets then please let me know.

Hopefully it’s a useful website! If you have ideas for how it could be improved or things I should add, please write to me at tom@gegg.uk.

We don’t have loads of woodlands in the UK. Our level of forest cover is only 13% - that’s much lower than Britain’s neighbours on the continent, who have on average almost three times as much as us. Neither do we do a great job of maintaining our trees: only 7% of the UK’s native woodlands are in good condition. Some of our woodlands are slowly degrading because of pressures from invasive species like rhododendron. Some are suffering from disease. In others, tree growth is suppressed by deer overgrazing, meaning that our woodland populations are gradually getting older and older, because there aren’t any young trees replenishing the stock.

A sad story in the Guardian about this problem

Rhododendron is gradually suffocating what’s left of Scotland’s Atlantic rainforest

Money has been found to create *new* forests, with the government now offering some pretty generous capital grants for tree planting. But no subsidies are currently available for maintaining the woodlands we already have. Carbon finance doesn’t help much, because the offset payments require new, additional projects to be created that wouldn’t otherwise have happened - so this money can’t be used to look after existing trees. Unless the woodland is commercial - e.g. it can earn enough money from timber production to pay for its upkeep – then the money for crucial maintenance is often just not there.

When I used to talk to landowners and farmers about how we could help them to fund new tree planting, they would often say something along the lines of “what about the woodland I’ve already got – why isn’t that worth funding?”. One particularly witty guy said: “how about I just burn these trees down then, and you can pay me to plant some more”.

Our existing woodlands need proper funding to be maintained in good condition. So someone needs to figure this out. The economist Dieter Helm has a useful way of describing the solution to this problem: the “capital maintenance charge”. Natural capital assets like woodlands should effectively be permanent – they can carry on going forever, if we look after them properly. But this will only happen if someone pays for their upkeep: they need long term maintenance budgets. In his book ‘Natural Capital: Valuing the Planet’, Helm proposed that as a society we should be paying a capital maintenance charge for every piece of infrastructure - both man-made and natural - that we benefit from, and that this charge should be deducted from our national income figures before our GDP is calculated. I quite like this idea.

But how would we pay for it?

How trees are a bit like trains

Another thing we seem to struggle with in the UK is funding railways. They are expensive to maintain, and they often fail to cover their running costs through ticket revenues alone. This has led to them being successively privatised and then renationalised while we search for a suitable funding model. But an income deficit isn’t necessarily a sign of bad management at the train companies (though I’m not saying they were brilliantly managed either). Their funding challenges reflect a trickier structural problem: that much of the value that railways generate is not captured by ticket sales.

When a passenger pays for a ticket, that ticket should reflect the direct value to that person of being transported from location A to location B (hopefully on time). But the railway is also providing another kind of value. Shops at this passenger’s destination gain a potential customer, employers gain a potential worker, and the passenger herself also benefits from the opportunity to commute to many distant places quickly and easily, even if she doesn’t have a car. This can open up new job prospects and connections to distant friends and family. All this means that the indirect, spillover value from our railways is pretty substantial, though it is often others that actually collect this value: the shops through increased sales, the employers though access to a larger workforce pool, and the homeowners through higher property values (houses within 500m of a station attract an 8.0% premium). Oxford Economics tried to quantify these indirect benefits, and estimated that for every £1 of activity on the UK railway system, a further £2.50 of income is generated elsewhere in the economy.

An LNER advert about one of the indirect benefits of railways.

Woodlands are similar to railways in this way. They do provide some direct value: they can produce timber, and perhaps some carbon removal payments if the trees were planted in the last 15 years. These can be considered as private goods. But most of woodlands’ benefits are diffuse. They provide society with lots of valuable ecosystem services like reduced flood risk, better air quality, more biodiversity and recreational space to walk the dog in. These are more than just marginal co-benefits: they make significant contributions to the wellbeing of people that live near them. They are public goods.

The ONS actually did a similar exercise to the one Oxford Economics did for trains. They found that for every £1 of direct value we get out of woodlands, they also generate £23 in public goods.

We have already figured out how to price the indirect benefits of our woodlands

Living close to a woodland is pretty likely to boost your house value. LRG – a property research company - found that homes located within 50 metres of woodland attract a 6% price premium on average across all of England and Wales, and that this uplift has gone up a lot since covid. In the capital, Savills data for London shows a 15% price uplift for homes within 100 metres of a park or common. The woodland price premium doesn’t only affect houses in super urban areas either - it goes up to 15% too in Bournemouth, Christchurch and Poole, County Durham and North East Lincolnshire.

So, the good news is that we have already found a way of accounting for the indirect benefits of woodlands! Just like railways, they are capitalised into nearby property values. The bad news is that not much of this value flows back to the people who actually maintain the woodlands. If this value cannot be captured by the person responsible for it, then the rational economic response will be to do less and less of it over time. That’s not great.

How some railways capture value from their indirect benefits

This excellent essay by Matthew Bornholt and Benedict Springbett describes how some railway operators have found ways around this problem. In Japan, railway companies don’t just run trains - they develop housing, retail, offices, and commercial property all around their railway stations. The president of the Tokyu Railway Corporation has described his company not as a train operator but a “city-shaping company.” The majority of revenue for Japan’s railway companies now comes not from running trains, but from the wider ecosystem that their infrastructure enables. By doing this, Japanese companies have figured out how to successfully capture a big chunk of the indirect value that their railways are providing: they are collecting the property value uplift and the boosted revenues from nearby businesses and services. This is the same value that train operators in Britain have mostly seen flow to nearby landowners and businesses instead.

A selection of side businesses operated by legacy private railway companies: 1. Seibu Chichibu Station Hot Spring Resort; 2. Hanshin Koshien Stadium Museum; 3. Hotel Hankyu International; 4. Hankyu Takarazuka Revue Theatre; 5. Tokyu Hospital-Okayama Station; 6. Nankai’s Sayama New Town; 7. Keio Store (supermarket); 8. Tobu Edo Wonderland Resort; 9. Abeno Haruka’s Station Terminal Complex (all from this Works in Progress article).

In London, TfL is beginning to copy the Japanese model. It is the landowner and a joint venture partner in the new Earls Court development: a 44-acre residential and commercial development sitting between three of TfL’s tube stations: Earl’s Court, West Brompton, and West Kensington. I went to visit it last week – they run cool tours of the building site once a month. Rather than just running the trains and watching others profit from the connectivity it provides, the Earls Court JV will enable TfL to capture some of the land value uplift that its railway infrastructure creates. This is a pretty smart move, in my opinion.

Render of the new Earl’s Court development (note the TfL sign in the foreground).

Could a similar value capture mechanism work for woodlands?

In those TfL and Tokyu Cooperation examples, the railway operators use direct land ownership to capture the value of their railways’ indirect benefits. This model might work for some woodlands too, if the landowner already also owns a massive estate around the trees - as is sometimes the case in Scotland. Anders Polvsen for example rents out the properties on his estates at premium prices, as part of an immersive nature experience built on 20 years of successfully restoring native woodlands. But if you don’t own the land around the woodland, then it will be quite expensive to buy it, especially as most of the value uplift from your well-managed forest will already be baked into the price you’ll have to pay.

There is a different model though, that doesn’t rely on land ownership. London’s Crossrail project (now the Elizabeth Line) was partly funded by a 2p business rate supplement on larger commercial properties across all of London. It raises about £250 million a year, and by 2026 had contributed nearly £7 billion towards the building and maintaining the Lizzie line. This tax surcharge was pretty chunky because it had to fund the construction of a major new piece of infrastructure for London. The UK’s woodlands don’t need this kind of massive injection of funding for capital works - they require a far more modest amount of money for capital maintenance.

I think a proportional property tax would be a fair way to fund woodland maintenance

I am a big fan of reforming council tax (and stamp duty for that matter). Today, council tax calculations are bizarrely pegged to the value of what every property was worth in 1991. If the house was built after that, then that’s not a problem… the council will just have to figure out what the new house would have been worth 35 years ago, if it had existed back then (lol). Many economists from both left and right have said that council tax needs to be replaced with a proportional property tax, based on regularly updated house values.

A proportional property tax would be levied on the value of houses today - including any uplift bestowed by nearby woodlands. This would mean that a small percentage of the value we have put on these public goods - via boosted property prices - would now be re-allocated via local government taxes. The same principle could be applied to local businesses, some of whom will also be benefiting from woodland public goods – like an electricity provider’s substation that is protected from flood risk by trees. For companies, this tax collection would probably best be done by replacing business rates with a land value tax.

Only a very small proportion of the income collected from reformed property and business taxes would be needed to cover the capital maintenance charge for local woodlands. This money could be distributed to woodland managers through regular annual payments, based on some kind of performance criteria for good woodland maintenance.

Some nice pics of houses next to woodlands. Maybe they could contribute towards their upkeep.

To look after our infrastructure, we first need to value it properly

The broader issue here is not really about trees or trains specifically. It is about how we look after our infrastructure - both natural and man-made. If we are going to keep these assets in good condition for a long time, then they need to be funded with long term maintenance budgets, not just chunks of upfront capital. Railways, woodlands and lots of other kinds of infrastructure provide valuable public goods to society. This indirect value is often priced – but the money is collected by others: namely nearby home and business owners. Perhaps we could rethink how this value is distributed, and find a way to spend some of it on looking after our woodlands a bit better.

Part 1: Allowing natural regeneration to happen in the uplands is a massive nature recovery opportunity.

There is another Britain, to many of us the better half, a land of mountains and moorlands and of sun and cloud. It is equal in area to lowland Britain but its population is less than that of a single large town. It lies now, as always, beyond the margins of our industrial and urban civilisations, fading into the western mists and washed by northern seas, its needs forgotten and its possibilities almost unknown.

WH Pearsall, 1950.

British people love open hillsides. From the fells of the Lake District to the Scottish Highlands, these vast expanses of grass, heath and moorland are some of our most beloved national landscapes. They are the UK’s uplands: sweeping, wet, windy open areas found above 250 metres in altitude and collectively covering about a third of the country. Many of these places have been shaped by centuries of hard work by a small population of farmers and the significantly larger number of animals they raise.

In this essay, I’m going to make the case that some – not all, or even most – of our open, grazed uplands could be allowed to regenerate into a mosaic of different habitat types, including native woodlands, scrub thickets and healthy peatlands. I think this is one of the biggest opportunities we have to support the recovery of nature in Britain.

Uplands (in blue) cover about a third of the UK

Uplands in the Yorkshire Dales

What do we do with our uplands today?

We graze a lot of sheep.

The map below shows where Britain’s sheep are found today: mostly they’re on our hills and uplands. High-altitude land is generally not very productive for farming: the slopes, poor soils and high exposure to rain and wind mean it’s no good for growing crops or doing intensive livestock farming. So we use generally it for extensive, low density grazing instead.

We keep most of our sheep on the uplands.

It’s quite tricky to work out how much land we actually use for upland sheep farming, because each devolved government measures land use in a slightly different way. Back in 1976, the Hill Farming Research Association calculated that we use about 3.95 million hectares as rough grazing for sheep. George Monbiot also had a go at calculating it - he reckons we have sheep on between 4 and 4.8 million hectares of land.

I tried to work this out myself (please skip ahead if boring). I used the Government’s Severely Disadvantaged Area (SDA) land classification as a proxy for the uplands: SDA is farmland classified as the most constrained by altitude, climate, slope and soil quality. It’s not a perfect match, but it’s a fairly good proxy for the uplands. We have a total of 10.2 million hectares of SDA land in the UK.

In most upland landscapes, sheep and cattle are run together. So I’ve used livestock headcount statistics to estimate how much SDA land is used for sheep grazing:

Based on this maths, I reckon we are using just under 4 million hectares of land for upland sheep farming. This is a bit lower than Monbiot’s estimate, but more or less the same as the Hill Farming Research Association said 50 years ago.

All of the land in the UK adds up to about 24.8 million hectares. So, that means we are using about 16% - or a sixth - of the country for upland sheep farming. That’s quite a lot!

How much of our food do we get from sheep farming?

Last year, Britain produced 274,000 tonnes of mutton and lamb (that includes sheep farming on both the uplands and lowlands, where the grass will be much more nutritious). Our imports and exports are mostly balanced - so we are largely self-sufficient, outside of seasonal fluctuations.

Lamb contains roughly 2,500 kilocalories per kg. So that means the UK gets roughly 685 billion kcal per year from sheep farming: enough for a daily amount of about 28 kcal per person. British people need to eat on average 2,250 kcal each per day. So we get just over 1% of our calories from UK sheep farming.

This gives us a picture of how much sheep farming contributes to the average Briton’s diet. It’s not very much.

We use 16% of the UK to farm sheep on the uplands, but this only produces about 1% of the calories we eat. That seems like a poor deal to me.

So I made an infographic!

We also have a lot of deer on our uplands.

It’s not all about sheep. We’ve got quite a lot of deer on the uplands too – mainly Red, Roe and Sika.

Red, Roe and Sika deer can be found across the uplands (there are also quite a few in the lowlands)

As with sheep in places like Yorkshire and Cumbria, deer have become an icon of the Scottish Highlands. There are around 1 million wild deer in Scotland today, up from around 500,000 in 1990. We have so many deer mainly because of a lack of natural predators (spoiler: we killed them all), but also because some sporting estates feed them in the winter, and ironically because tree planting efforts over the last few decades have created more habitats for them to shelter in.

Deer – an icon of the highlands.

There aren’t any official statistics on how much of our food we get from deer. Arguably we should eat much more wild venison to help get the population numbers back under control (a leaked copy of the Tory Government’s National Food Strategy said this too, but then it was bizarrely deleted from the final published version). Right now though, I feel fairly confident in saying that wild venison contributes next to nothing to the diet of an average Brit.

How do sheep and deer shape the UK’s upland landscapes?

Some herbivores are selective browsers: they prefer eating certain plants over others. Cows are not selective; they’ll eat pretty much any plant. Sheep and deer are much pickier, and they especially like nibbling tender young saplings and seedlings. Over long periods, grazing by selective browsers can change entire landscapes: by eating only certain types of plants, the deer and sheep leave behind fairly uniform plant communities, with fewer, shorter species and not many successful new trees or bushes. This has a knock-on effect on other animals too - fewer trees and flowering plants means fewer insects, which in turn affects bird and mammal populations.

Britain’s sheep and ever-growing numbers of wild deer have helped to create the iconic upland landscapes we are so familiar with today. They also maintain these ecosystems in stasis - preventing different, more complex habitats from emerging. Partly as a consequence of this, the UK has one of the lowest rates of tree cover in Europe.

Do we want a sixth of the country to always look like this, or could we mix it up a bit?

What would happen if we reduced the number of deer and sheep in the UK?

In places where sheep flocks have been removed, upland habitats can quickly begin changing: taller layers of vegetation emerge and tree colonisation begins - in many cases without anyone actually planting a thing. Likewise, reducing deer pressure in Scotland (by shooting them) shows similar results: trees start to grow again when deer densities drop from 10-20 per km² to fewer than five per km². Stopping all grazing completely isn’t necessarily best though - in some places the total exclusion of livestock can allow a few fast growing grass species to dominate. Keeping non-selective grazing species like cattle on the uplands can help habitats to regenerate with a more diverse mix of species.

Here are some great pictures from Rewilding Scotland and Trees for Life, showing what happens in places where grazing pressure has been reduced (sometimes unintentionally) – note the fencelines running down the middle of each photo.

And here are some photos from NatureScot’s Invereshie reserve in the Cairngorms. The left-hand pics were taken in 1973 and the right-hand ones are from 2023, after 50 years of culling deer:

Some places are starting new upland regeneration projects – we should do more of these!

My friends William and Charlie at Sylvestris are getting some brilliant new Scottish natural regeneration projects started. One of these is Dalnacardoch, which was managed as a sporting estate with relatively high deer numbers until the Durrell Wildlife Conservation Trust took over in 2024. Their early surveys have shown show that tree saplings – although very small and heavily supressed by constant nibbling - are spread across the estate, with many found more than 1km away from existing seed sources. When the grazing pressure is lifted, these saplings will be able to grow into proper trees.

Green squares represent areas where saplings are growing in Dalnacardoch – many are already very far from seed sources (the orange hatched areas show existing woodlands).

Upland regeneration could be a massive contributor to the UK’s climate and nature goals.

We currently graze sheep on four million hectares of the UK’s uplands. If we allowed perhaps half of this – two million hectares - to regenerate naturally like the projects I’ve described above, we could easily meet the scale needed to deliver the UK’s flagship nature and climate targets for the land sector. Two million hectares of regeneration would be enough space to achieve:

• The Government’s Net Zero target to plant 750,000 hectares of trees by 2050. That’s based on a goal of 30,000 ha / year over 25 years. This is an ambitious target - which we have continually missed – but it doesn’t all need to be done through active tree planting. In many places we could create the conditions for native woodland species to naturally colonise upland habitats.

Plus:

• The Climate Change Committee’s recommendation to put about 870,000 hectares of the UK’s peatlands back into good condition by 2040. That’s 55% of peatlands, up from 26% today. A large part of our uplands are moorlands with peaty soils: this is the UK’s biggest natural carbon store. Trees won’t grow here because of waterlogging and acidity - instead, we need to restore these valuable bog habitats to good condition. While a lot of this work will require manual intervention to reprofile exposed areas and block drainage ditches, cutting grazing pressure on peatlands helps too. It reduces erosion and compaction, which in turn helps sphagnum mosses to recover, steadies water tables, provides cleaner water for reservoirs and helps with flood regulation.

Plus:

• The 2021 Environment Act target to restore 250,000 hectares of wildlife-rich habitat outside protected sites and halt the decline in UK species abundance - both by 2030. While open grasslands will remain important habitats for species like skylark and snipe, regenerating some of our upland habitats will help many other types of wildlife. Taller scrub, woodland edges and varied grasslands mean better nesting, feeding and cover for lots of struggling species. Birds like black grouse and cuckoos have bounced back in long term low grazing trials in Loch Lomond, thanks to bigger insect populations. Mammals also get a boost: hazel dormice have done well in Lake District regeneration projects and water voles recover where riverbanks stop getting trampled. More floral diversity on areas with reduced grazing benefits endangered butterflies and moths too.

Those three headline nature and climate targets add up to a land requirement of 1.87 million hectares (less if we allow for some overlap). Of course, some of the work will need to happen in the lowlands too. But in terms of creating the huge amount of space needed for nature to recover, it seems to me that the uplands are where our biggest opportunity lies.

So I made another infographic!

This is probably our single biggest nature recovery opportunity.

We are using nearly four million hectares of the UK to graze sheep on the uplands, and our unchecked population of deer roams over much more. This massive use of land only provides us with about 1% of our food.

If we keep these flocks and herds of herbivores on the hills, then they will always remain as open grasslands. And that’s probably what we should do in some of our favourite upland landscapes. But we could dial down the grazing pressure in some of these places and allow habitats to regenerate. Encouraging nature to return on half of the land we currently graze for sheep would be more than enough to deliver the Government’s ambitious climate and nature targets. All this could be done with a relatively small trade off in food production.

I think restoring our uplands could be the single largest nature recovery opportunity we have in the UK right now. We should give it much more attention!

Part 2: Public investment could offer upland farmers a new, fair deal to regenerate natural habitats.

This second part of the essay goes into the economics of natural regeneration, and how we could pay farmers to change how they manage some of the uplands. I think this could be one of the UK’s best value-for-money solutions for nature recovery.

The economics upland farming are pretty bad.

For the last 400 years, Britain’s uplands have been dominated by sheep. In the 1600 and 1700s, our booming wool trade and textile industry drove the expansion of sheep farming across the hills (not without controversy). By the 20^th century however, synthetic fibres and international competition had started to undercut Britain’s upland farmers and the business model was looking shaky. Counterintuitively, this actually led to more sheep. With the decline in wool prices, sheep farmers tried to stay afloat by increasing the number of animals they kept as they shifted toward meat production. Many of Britain’s slower-maturing, locally adapted wool breeds were swapped out for larger, faster-finishing continental meat breeds.

This new strategy still wasn’t working. In 1942, the Government commissioned the Scott Review of Land Utilisation in Rural Areas, which made this lovely hand-drawn map of good quality farmland across England and Wales - pointedly not colouring in the uplands.

In the 1970s, the Common Agricultural Policy (CAP) came to the rescue: new European subsidy payments provided a fresh, steady revenue stream for upland farmers. Initially these CAP subsidies were paid out based on livestock numbers, leading to another massive surge in sheep flock sizes (as well as the famous butter mountains and wine lakes elsewhere). Subsidies were then simplified in the 1990s to a flat annual rate paid per hectare.

Britain’s sheep population soared under the Common Agricultural Policy

After Brexit, Michael Gove’s ‘public money for public goods’ reforms to English farming subsidies has meant that the economics of sheep farming are looking precarious again. The old flat rate CAP subsidies (£240/ha/year) are being phased out and replaced by a much smaller ‘low input grazing’ payment under the new ELMS Sustainable Farming Incentive (£151/ha/year). This option wasn’t actually included at all in the original ELMs subsidy menu, but was added after DEFRA officials yielded to a campaign by the National Sheep Association and the National Farmers Union.

The screenshot below is from a 2024 DEFRA report on farming incomes in England, showing that over two thirds of upland sheep farming income is made up of old basic payment subsidies, which will be fully phased out by 2027. Without subsidy payments, upland sheep farming is (thoroughly) loss making.

In Scotland, a recent magazine from Scottish Land & Estates showed a similar – but worse - picture north of the border:

So, the economics of upland sheep farming have been perilous for a while, and farmers have been largely kept on life support by subsidies.

Similarly to sheep, the economics of managing deer populations for sport are not fabulous. A study from the Universities of Edinburgh and Aberdeen found that just 16% of sporting estates report being “always or usually profitable”. Understandably, the government doesn’t provide subsidies for deer shooting. Instead, these estates will often combine upland sheep grazing with deer stalking, enabling them to access government support and boost revenues / minimise losses.

Why do we keep providing taxpayer support for upland farming?

When challenged on why we should keep providing subsidies to upland farming when it produces so little food for the nation, the strongest defence I’ve seen is the social-cultural argument. It goes something like this: government payments allow hill farmers to continue their historic livelihoods - which in turn preserves some of Britain’s most iconic landscapes. Without the taxpayer support our uplands would be empty, aside from the occasional Airbnb.

Rory Stewart, ex-MP for Penrith, makes this case very well:

“Our small, rural farms are vanishing. Two-thirds of our farming families have gone in the last few decades. As they disappear, the basic structure of rural life is broken: farm-houses become expensive homes in empty valleys, our small village schools are forced to close, and services are increasingly centralised in our nearby towns. Without support, the character, culture, and history of our rural areas will be lost forever. This is why I am determined to support our farming communities, who are under such extraordinary pressure from a dozen directions; be it new environmental regulations, high fuel costs, or the vast, powerful forces of the supermarkets. Living, rural communities need to be seen as part of everyone’s British identity – farms are not only businesses, but bearers of culture; the legacy of more than a thousand years of cultivation”.

Rory visiting a hill farm.

I have some time for this argument. But if the main reason for providing taxpayer subsidies to upland farmers is because we want to keep them on the hills, then we should see these payments primarily as rural income support rather than sustaining food security. We could continue to provide this help - but it doesn’t necessarily have to be tied to sheep farming.

How could we fund a change in our uplands?

So if the economics of sheep farming and deer sporting are rubbish and all we need to do is take these animals off the hills to create some exciting new habitats, then why isn’t natural regen happening everywhere?

Basically, because of cashflow.

Any farmer giving this a go would need to forego their dwindling sheep farming subsidies (vanishing in England, although still going strong in Scotland and Wales). If the neighbouring farm or estate still has sheep on it, then a new fence will be needed to keep them out of the vacated area. Estates trying to tackle their deer numbers will need to hire extra stalkers, pay for ammunition, set up specialist larders and buy quadbikes to haul carcasses off the hills.

All of this needs to be undertaken with the prospect of earning very little near term revenue from these messy new habitats, aside from selling some extra venison - mostly for a pittance. There is the potential to make money from selling carbon removal credits via the UK’s Woodland Carbon Code, if at least 400 tree saplings per hectare emerge within the first five years (the WCC’s minimum threshold). Carbon revenues will take quite a long time to materialise though; most successful nat-regen projects expect to log significant carbon removals only after about 15 years.

Until then, if you’re in Scotland there’s a fairly miserly annual contribution of six quid per hectare from Scottish Forestry to help with deer management. There’s also a slightly chunkier one-off payment of £600 / ha for areas where the regen has worked – but you’ll only receive this if your new trees grow within a 50m buffer from existing seed sources, and it’s only paid retrospectively in year 5. If the regeneration fails, landowners will just have to make do without. If the trees do grow but they’re further than 50m from seed sources (like they are in Dalnacardoch), then you’re unlikely to get any help with that either.

If the government is reluctant to take a punt on this stuff, then it’s understandable that barely any landowners have tried to do it. Those that have are mostly fabulously wealthy – like Anders Polvsen (CEO of ASOS) - who took deer and sheep off his estate in the Cairngorms 20 years ago. It was fairly controversial at the time:

But his estate now is transformed - here are some before and after pics from 1993 and 2019:

Anders Polvsen’s Glenfeshie estate, including patches of naturally regenerating woodland. Quite beautiful imo.

We could use public investment to pay farmers to host upland natural regen, if they wanted to.

If you’re not a multi-millionaire willing to sink your fortune into restoring nature, then abandoning farming for something like this looks pretty unappealing right now. The prospect of carbon market revenues are too distant and uncertain for most landowners (and indeed private investors) to take a punt on. We could just swap all the sheep subsidies for regen payments, but that would likely cause an uproar among farmers. New money is probably needed for those that would like to change land use. I think patient public investment could be the right fit.

Recently, I’ve been developing the idea of a British Carbon Removal Bank: a government owned vehicle that would invest in new, native woodlands to accelerate progress towards UK climate and nature targets. I’ve described how it could work in this essay. I won’t repeat loads of the detail again, but here’s a quick summary:

• The Carbon Removal Bank would provide landowners with funding to cover all the costs of creating and maintaining new woodlands. The Bank would fund all tree planting and management costs over a period 40 years. The landowner wouldn’t have to spend anything.

• The Bank would also pay landowners a reliable, regular income. The Bank would pay landowners an annual income in exchange for hosting a carbon removal project – this is to compensate them for the opportunity cost of giving up farming. Payments from the Bank would be roughly equal to sheep subsidies.

• The Bank would deploy public money as an investment, not as a traditional grant or subsidy. In exchange for funding all project costs and paying landowners an income over four decades, the Bank would claim the right to 40 years of carbon credits. These credits would be allocated to the public balance sheet, and could be sold to businesses in the future to help neutralise their residual greenhouse gas emissions. This means that the government will be able to earn its money back.

Here’s a diagram showing how the Carbon Removal Bank would work:

I originally thought about the Carbon Removal Bank idea as a way to fund tree planting. But the model could easily be adapted to support natural regeneration too. This approach would actually be far cheaper and much more capital efficient investment than manually planting trees.

The Bank could offer the same basic deal to landowners: they would get a stream of regular income payments for 40 years, roughly equal to what they used to receive in sheep farming subsidies. The Bank would also cover all project costs. The difference in this case is that instead of investing in the capex-heavy process of ground preparation, buying saplings, installing tree guards etc, the Bank would simply ask the landowners to stop sheep farming and start shooting some deer – thereby creating the right conditions for natural regeneration to begin.

The cost of doing natural regeneration in Scotland.

So far, I’ve modelled the economics of natural regen projects in Scotland, with help from William and Charlie at Sylvestris.

First, I needed to work out what Scotland’s upland farmers currently receive in subsidies for sheep farming. This is actually quite fiddly – farmers currently get four different payments for sheep farming (which I imagine is a total headache). These are:

• The Basic Payment Scheme (a hangover from the EU CAP, which Scotland has kept just in case it decides to rejoin the EU one day): £9.42 / ha / year for Region 3;

• Greening Payments: £4.30 / ha / year;

• Less Favoured Area Support Scheme: £52.16 / ha / year for ‘standard more disadvantaged land’;

• And finally £63.49 per head of sheep under the Scottish Upland Sheep Support Scheme. Each sheep needs about 4 hectares of grazing land, so that’s about £15.87 / ha / year.

In total, this adds up to £81.75 per hectare per year.

So let’s say the Carbon Removal Bank would need to pay farmers £82 / ha / year to take sheep off the hills. This annual payment should increase to stay in line with inflation (which the subsidies have rarely done) – let’s say a rise of 2.5% a year.

Besides getting rid of sheep, the Bank would also need to cover the cost of getting deer numbers down. After netting out some income from venison sales, this works out at about £15 / ha / year to pay stalker salaries and provide all of the gear and ammo. If the farmers decide to shoot the deer themselves, then it’s extra revenue for them. Other costs will include regular vegetation and herbivore impact surveys to monitor whether the regen is working or not. If the surveys reveal that herbivore browsing levels are still too high, then the stalkers will need to shoot more deer. Some enrichment planting or ground scarification could also help the saplings get going, if they aren’t taking off on their own.

Doing all of this stuff would create the right conditions for trees and other natural habitats to regenerate. Then there’s an element of hoping / praying that nature will do the rest.

How much carbon does natural woodland regeneration sequester?

Natural regeneration will create a massive diversity of habitats, from restored heath and moorlands to scrub and woodlands. Each are valuable in different ways. However, the areas that will grow trees are the most interesting from a purely financial perspective, as they are the ones that can generate revenue through the UK’s carbon market.

The Woodland Carbon Code is fairly conservative when it comes to projecting carbon removal from naturally regenerating trees, which is fair enough. Scottish Forestry assume a very low yield class of 2 or 4, which means that 2 to 4 cubic metres of biomass will grow on each hectare every year (for comparison, Sikta Spruce plantations are normally YC 14 and above). This gives nat-regen a very slow carbon removal curve. The good news is that no greenhouse gas emissions are caused upfront by soil disturbance or machinery use, which is a challenge with active tree planting.

Naturally regenerating woodlands do remove carbon, but current sequestration models are very conservative - we expect them to do so at a much slower rate than tree planting.

The Carbon Removal Bank’s returns from a high-risk bet on natural regen

I’ve made a financial model [download link here] to calculate the returns that a British Carbon Removal Bank could expect to make from investing in Scottish nat-regen. (The link is to a google sheets file, but the spreadsheet will look better if you download it and open in Microsoft excel).

One of the key variables in the model is the regen success rate. For example - the Bank could be paying a landowner to remove sheep and deer from a 500-hectare area. New habitats will emerge across all of that land, but not all of it will host enough new trees to meet the minimum WCC threshold of 400 saplings / hectare. So we need to assume that only part of the total project area will be able to generate carbon credits. The second key variable is the market value of carbon credits when they are eventually sold, which will determine the revenues that the Bank will earn over 40 years. Here I have used a mix of UK government and private sector carbon price forecasts (all of the price curves can be found in the assumptions section of the financial model).

This graph shows the projected income for a hypothetical 500-hectare, 40-year Scottish natural regen project. In this example, the woodland regen success rate is set to half of the total project area, the yield class to a conservative rate of 2, and the carbon price follows the Government’s own Net Zero-aligned carbon pricing scenario.

The good news is that it’s profitable! However, it takes a very long time to make that profit: about 30 years. So the rate of return is far from mind blowing (the results for actively planted woodland are better).

Projected income (in real terms) for a 500 ha, 50% success rate, YC 2 nat-regen project. Not bad, but it does take ages to make any revenue.

As the key variables can change a lot, I’ve done some sensitivity analysis too. The tables below compare the Net Present Value under different combinations of the regen success rate and carbon pricing scenarios. In each case I’ve calculated the NPV using Treasury green book real discount rate of 3.5%.

In several scenarios, the project will have a negative NPV (this doesn’t necessarily mean it’s loss making - just that the Treasury could have made more money investing its money elsewhere). But even in these cases, it’s still important to understand whether the nat-regen investment would be better value for money for the taxpayer than today’s subsidies for upland sheep farming. At the moment, the Scottish Government is paying farmers an annual grant of £81.75 per hectare, with zero return for the public balance sheet. The gives an NPV of -£1,750 / ha over 40 years.

The green cells in the sensitivity tables below represent a positive NPV for public investment into natural regen. Yellow cells deliver a negative NPV, but are still better value for the Scottish taxpayer than today’s subsidies for sheep farming. Even with all of the inherent risk involved in taking a punt on a natural regeneration project, this would be a better deal for the taxpayer than the current system in nearly all scenarios.

Here’s a sensitivity table with trees set to a very low yield class of 2: this is what we can expect growth rates to be in high altitude areas. By the time we reach a regen success rate of 20%, the returns beat the status quo in nearly all carbon pricing scenarios:

At yield class 2, about 20% of a natural regen project would need to turn into woodland to provide better value for money to the Scottish taxpayer than sheep subsidies.

And here the table is again at yield class 4, which is the growth rate trees could achieve in lower altitude areas. Just 10% of the project area needs to grow some trees for the NPV to beat sheep subsidies:

At yield class 4, only 10% of a natural regen project would need to turn into woodland to provide better value to the taxpayer than sheep subsidies.

A new funding deal for upland farmers, and decent value for the taxpayer

I don’t think we should abolish support for sheep farmers and rewild all of Britain’s uplands. Instead, I think we need to offer farmers a second, fair funding deal to do something different - if they so choose. Public investment via something like a British Carbon Removal Bank could do this. The deal I’ve described above would mean that landowners switching from sheep farming to nat-regen would get all of their land management costs covered, plus they would get guaranteed income payments over 40 years. That’s a pretty low risk deal - hopefully some of them would go for it.

This funding would preserve rural livelihoods even as sheep farming declines: jobs and families would remain in the uplands, and new roles would emerge in ecological monitoring and deer management. As these natural habitats mature, there will probably be some decent ecotourism opportunities too.

From the government’s perspective, this money would not need to be found by raiding the existing agricultural subsidy budget - which has failed to grow in line with inflation for ten years and is notoriously tight. As it’s an investment rather than another grant, it can be funded by new borrowing via HMT’s Financial Transaction framework. When the carbon credits are sold, this investment should pay itself off over the long term. This would make funding natural regeneration cost neutral or even profitable for the taxpayer.

Conclusion

For a long time, Britain’s upland farmers have been struggling to make a living raising sheep on our lowest productivity land. I think restoring some of the four million hectares we currently use for sheep is probably the UK’s single biggest opportunity to do nature recovery, with minimal impact on food security.

This needs to be done in a way that is fair for farmers and for taxpayers. Through something like a British Carbon Removal Bank, we could use public investment to offer upland farmers a fair, long-term funding deal to steward new natural habitats. This would be a very capital-efficient investment and one that has a good chance of being cost neutral or even profitable for the Treasury.

I think this would be a great way to bring back nature in the UK!

In this essay, I’ll talk about why the UK government’s goal of unlocking private investment into tree planting has been difficult to deliver, based on my experience of trying to do it for the last five years.

Costa Rica has been much more successful at this than we have: it’s replanted more than one million hectares of lost rainforest over the last three decades. Inspired by Costa Rica’s model, I am proposing a different way to achieve our woodland targets: setting up a publicly owned ‘British Carbon Removal Bank’.

The British Carbon Removal Bank would replace our current grant-based funding system - it would still invest the money in planting trees, but would now also pay landowners an annual income to host woodlands. In exchange, it would own the right to a portion of each project’s carbon credits. As we approach the 2050 net zero deadline, the Bank could then make its money back by selling removal credits to businesses seeking to neutralise their remaining carbon footprints.

I believe the business case for the Carbon Removal Bank is robust. I have run the numbers on the economics and found that it could deliver much better value for money for the UK taxpayer than our current system. In many scenarios, the Bank’s investments would actually generate a net profit for the public purse.

It’s a better deal for upland landowners too. The Carbon Removal Bank would help them to make the transition away from marginal farming by providing them with a low risk, steady income over multiple decades - in exchange for helping us to reach net zero.

Why the UK is failing to hit its tree planting targets.

The UK has set ambitious woodland creation targets. We also have a consistent track record of missing them. Our rate of woodland planting was over 20,000 hectares per year in the 1970s and 80s, but we have never returned to those levels, despite ambitious targets and new funding.

I’ve been enjoying Carbon Brief’s regular size comparisons of the tree planting gap:

To bring this to life in a less abstract way, here are some pictures of newly planted trees and a mature British woodland. This is what we’d like to see more of:

Hitting the tree planting targets matters. Nature-based carbon removals represent a significant chunk of the ‘net’ in the UK’s plan to reach net zero, as this chart from the Climate Change Committee’s 7^th Carbon Budget shows:

Land use changes (mostly woodland planting, but also reductions in farming emissions and peatland restoration) have played a very small role in the UK’s emissions reductions so far. But as we get closer to the Net Zero deadline, the CCC expects them to do much more of the heavy lifting. Over the final seven-year stretch before 2050, land use changes represent a third of the emissions abatement work we need to do to get to Net Zero.

In fact, the CCC would actually like the government to do quite a bit more than Westminster’s annual (missed) target of 30,000 hectares:

How do we pay for new woodlands?

Mostly with taxpayer money. For decades, the state has picked up the bill for tree planting and early-years maintenance costs. While it’s nice to get costs covered by the government, landowners still need to generate some revenue to make swapping farmland for trees worthwhile. Traditionally, the main way to do this was by selling timber. Our timber industry is pretty much hooked on fast growing softwoods, so many landowners have planted Sitka spruce monocultures that are eventually clear-felled.

The other option is to grow mixed, native forests. In Britain, these woodlands typically produce slow growing hardwoods, whose quality is often fairly poor due to nibbling by grey squirrels and deer. There’s not much value in clear felling them, and selective logging is mostly only good for firewood. All in all, native woodlands have hardly been a money spinner. The few landowners planting these were doing it because they were passionate about wildlife.

However, about 10 years ago, Scottish Forestry set up the government’s Woodland Carbon Code. Since then, new native woodlands have (potentially) been able to generate some decent revenue - if landowners were willing to take a plunge into the voluntary carbon market. This new opportunity has massively boosted interest in planting native, mixed forests – as this map of projects registered with the carbon code shows:

So, problem solved? Not quite.

Although on that map it looks like half the UK is covered in new woodland, these projects are mostly very small. The chart below, from the CCC’s seventh carbon budget, shows that the pace and scale of our tree planting still needs to really pick up.

Why tree planting by landowners is still not nearly enough

Despite the new opportunities presented by the grants + carbon credits model, uptake from landowners remains well below what’s needed to hit our net zero targets. More landowners are planting trees, but it’s a struggle to move from small projects to big ones, and from the early adopters to mainstream uptake. There are many reasons why this is hard. To name a few:

• Cashflows from carbon are slow and lumpy. Farming produces a steady (if often small) annual income, supplemented with annual subsidy payments from government. Woodland carbon projects do not. British trees take 20+ years to get to the point where they are producing carbon credits. Asking farmers to swap regular income for a multi-decade bet on future carbon prices is a big ask.

• Tree planting costs are going up. In England, recent grants have been (remarkably) generous and cover all upfront planting costs. In Scotland - where the biggest woodland opportunities are - the government has been rather less lavish. Rising costs in the forestry supply chain have opened up a gap between grants and actual costs, meaning that Scottish landowners now need to contribute their own money to cover tree planting bills. Unsurprisingly, many don’t want to do this.

• Borrowing money is tricky. Scottish landowners could theoretically dip into their overdrafts to fill the funding gap the early years, but their loan repayments will need to start long before any carbon revenue kicks in. ‘Pending Issuance Units’ can be sold in early years, but these should not be recognised as true revenue; they’re basically IOUs for future carbon removals. So, selling PIUs to pay off an overdraft is essentially swapping one liability (bank debt) for another (customer deposits). This sort of accounting gymnastics isn’t super appealing for most people.

• Advance buyers are rare. Some estates have managed to get the future buyers of their carbon credits to pay in advance. The Universities of Edinburgh and St Andrews have done this - funding some brilliant projects in Atholl, Corrour and Ardtornish. For more mainstream corporate buyers however, paying for something 20 years in advance feels a bit weird. So it’s not very scalable.

• The liabilities can be scary: If you have forward sold some of your carbon credits as PIUs, and then something bad happens to the woodland later – like a fire or a drought – then those PIUs will be lost, and the WCC won’t replace them. That means the landowner could be on the hook for refunding the buyer. After credits have been verified, the WCC will make good any shortfalls with the buyer if the woodland is damaged – but then it expects landowners to replace these credits over time. So either way, carbon sales leave landowners with uncomfortable long-term liabilities.

Add all these problems up and planting native woodlands remains a pretty unappealing prospect for most landowners. The true believers have gone ahead, but most have stayed on the fence.

Could investors be the solution?

Looking at this situation, several people (including me) believed that these problems could be solved by getting investors on board. Pension funds could pick up some of the slack from government by investing in creating new woodlands.

The UK’s biggest natural capital investors - like Oxygen Conservation and Gresham House - have so far focussed on buying land. But another way to do it is for investors to partner with existing landowners and treat woodland projects more like a renewable energy or infrastructure project. Capital can then be deployed directly into the project itself. These investors could pay farmers a steady annual income – covering the lost revenues from farming and protecting them from the risks and liabilities of the carbon market, in exchange for a slice of the profits from future carbon sales.

I think that this is a more efficient use of capital for pension funds than shelling out millions on day one to buy land. It also focusses investment on productive activities that will help to boost the rural economy (planting and managing woodlands), without needing to allocate a big portion of the capital to land acquisition (which pushes up prices and is arguably not a productive use of capital).

Challenges in Attracting Private Investment

However, it’s difficult to raise capital for an investment model that doesn’t rely on a land acquisition. There are a few reasons behind this.

• Investor problem 1: macro stuff. 2024–2025 has been tough. Right now, interest rates are high and investors are being cautious. It’s expensive to borrow money for new or untested ideas - like natural capital. Investors want low-risk options.

• Investor problem number 2: the cashflow gap. Just like farmers, investors aren’t keen on the forestry cashflow gap. Revenues from woodlands are much slower to materialise than those from infrastructure or renewable energy investments. As soon as a wind farm or office block has been constructed, electricity sales and office rents start to roll in. This is not the case for forestry.

The solution to this problem, in my opinion, is to do the same thing as regular timberland investment funds: build a portfolio made up of different aged projects. Some projects within the portfolio could be brand new, with saplings only just in the ground – these will deliver long term cashflows in a few decades’ time. Investors could also buy into some projects that are already several years old, with semi-mature trees – these will deliver earlier cashflows. Overall, investors building a portfolio of woodland projects with different ages will therefore get a more normal looking cashflow profile.

• Investor problem number 3: market risk. UK pension funds are fairly risk averse. They need to generate reliable, if not especially exciting, returns for their pension holders. Single-digit IRRs are fine if revenues are predictable. But the voluntary carbon market is not especially predictable:

Investors’ response to this market uncertainty has generally been to ask developers to line up a buyer for their carbon credits in advance. This can be arranged via a ‘Forward Purchase Agreement’: a contract signed now to deliver a fixed quantity of credits, at a fixed price, in the future. Investors will feel reassured that carbon market fluctuations won’t cause them a headache, and they can go ahead and put in the upfront capital needed to get a project started.

In principle, this should be do-able. Many corporates with Net Zero commitments acknowledge that they will need a bucket load of carbon removal credits as they get closer to the 2050 deadline. But that’s 20 years in the future. They need to prioritise other measures now - like reducing their avoidable emissions – as this SBTI graphic shows:

Some companies – such as the members of the Symbiosis coalition - have set more ambitious mid-term plans, and are looking to secure carbon removal credits for the 2030s. This is a great opportunity for faster growing tree planting projects in the tropics, but unfortunately no good for the Brits. Our trees just don’t grow fast enough to meet this demand.

Still, it would be great to see more of this:

The investor expectation that a buyer can be lined up in advance creates a fiddly chicken-and-egg problem that my friend Ross has talked about recently. Projects require upfront capital investment to begin. Investors want to see buyers signed up before committing. But corporate buyers are generally quite bemused by requests to sign up to a transaction that will take place 20 years in the future. Very few companies think that far ahead. In fact, the average lifespan of a S&P-500 listed company is only 15 years. So it’s a big ask.

Can institutional investment still work?

Theoretically it is still possible to get investors on board – if the risks are reduced to a level that pension funds can stomach. A carbon market revival and an outbreak of long-term planning by climate conscious companies would solve the chicken and egg problem I discussed above.

Barring that, “de-risking” investments likely means more government support. Several policy options are under discussion; all of these involve some kind of mixing of public and private funds (aka blended finance), with the public money shielding private investors from the risks they are uncomfortable with. These measures include:

• Floor Price Guarantees: The government guarantees to buy carbon credits at a fixed price, thereby greatly reducing market risk for investors. NatureScot is trialling this with Scottish peatlands, and the Forestry Commission in England has been trying it out via the Woodland Carbon Price Guarantee.

• Contracts for Difference: This is the same model that underpins private investment into British renewables. Under this approach, government subsidies top up revenues from private buyers to ensure that project receives a minimum overall ‘strike price’ for every megawatt hour of electricity - or in our case, tonne of carbon - sold. DESNZ has recently confirmed that this will be the chosen subsidy model for the UK’s engineered removal projects too. The diagram below shows how CFDs work for renewable energy.

  

• First loss capital: In this model, upfront public investment would be mixed with private capital to cover the upfront costs of new projects, and would provide a protective buffer for the private investors. If projects do not generate the expected returns, the government would take the hit before the other investors do. DEFRA is putting £30 million of first loss capital investment into the UK Nature Impact Fund.

For the last few years, I have been supportive of these ways of using public money to de-risk private investment. In each of these cases, if project does go well then there is an opportunity for the public purse to benefit – either by getting money back if market payments exceed strike prices agreed under CFDs, or via a return on any capital it has invested into projects.

But over time I have become worried that government could be asked to do too much to de-risk private investment. Any use of these tools needs to be subject a solid value-for-money test. At worst, they could end up looking like our PFI schemes for hospitals.

If private investors do not want to invest in nature projects, then the government doesn’t have to bend over backwards to persuade them. Instead, it could invest its own capital.

A British Carbon Removal Bank

A public sector investor, with its patient capital and larger risk appetite, should be able to overcome the challenges that are hampering the woodland investment case for pension funds: delayed cashflow and market risk. This is why I think we should set up a “British Carbon Removal Bank”: to invest in woodland carbon removal.

A British Carbon Removal Bank would not require massive amounts of new borrowing by the Treasury. The Government’s existing woodland grants could simply be repurposed as investment (Resource-DEL to Capital-DEL): the Bank’s investments into new woodlands should aim to be cost neutral at a minimum, and could even generate a return for the taxpayer.

Several other people in the sector are thinking along similar lines - my version is a variation on these ideas. Craig McKenzie at the University of Edinburgh has proposed a public fund to buy PIUs from woodland projects. Laurie Macfarlane from Future Economy Scotland has suggested replacing the existing grants with soft loans from government, to be repaid when carbon credits are sold. The Green Alliance has also proposed that the Government should pay farmers a steady income for carbon removal services.

In my version of this idea, the British Carbon Removal Bank would behave a bit more like an equity fund, offering the same deal to landowners as I described earlier:

• All tree planting and fencing costs covered.

• Chartered forestry advice covered.

• Maintenance for 40 years covered.

• Liabilities for project failure covered

• Carbon audits and verification for 40 years covered.

• Plus: an annual per-hectare income for 40 years.

If they wanted to, landowners and their chosen forestry advisors would still be in charge of designing and managing the tree planting projects – as long as they met an agreed minimum spec set by the Carbon Removal Bank. In exchange for this deal, the Bank would have the right to the first 40 years of carbon removal credits from each project it invests in. The landowner would keep all of the remaining credits.

The Bank would hold on to its carbon removal rights while the credits are gradually verified, which will mostly take place between years 15 and 40 while the trees are growing at full clip. Then it has a couple of options. It could sell these credits onto the voluntary carbon market. Or, if removals have been fully integrated into the UK Emissions Trading Scheme by this point, the Carbon Bank would sell credits to the industrial ETS participants.

So, the British Carbon Removal Bank would operate something like this:

Figure: A British Carbon Removal Bank.

In this model, finance from the private sector does still play an important role, but it moves downstream. It acts as the eventual source of revenue for the Bank when companies buy its credits, rather than investing upfront capital - which is a role that the private sector has been reluctant to play. Revenues from selling credits would enable the Bank to make its money back and, in many scenarios, make a profit (see analysis below). These profits could be returned to the Treasury, or shared with farmers and communities.

In practice, the British Carbon Removal Bank wouldn’t need to be a standalone entity. It would probably fit best inside an existing public investment vehicle, such as the National Wealth Fund, perhaps the Low Carbon Contracts Company, or one of the state-owned forestry companies like Forestry & Land Scotland and Forestry England. The latter has actually recently set up a new a woodland partnership scheme to collaborate with English landowners on timber production. An expansion of this scheme would be a great place to start. It could extend to other nations, include a focus on carbon as well as timber, and ensure a large enough budget is available to offer landowners competitive incomes.

This has already been done – in Costa Rica.

This public investment model is similar in several ways to the approach taken by Costa Rica since the mid-90s. The Costa Rican government launched what is now one of the most respected environmental policy experiments in the world: it basically started paying landowners to plant rainforests. Landowners could sign long term contracts with the state, under which they agreed to plant trees (or manage existing forests more sustainably), and in return they were paid a fixed amount per hectare per year. The payments were managed by a dedicated public fund: the ‘Fondo Nacional de Financiamiento Forestal’, or FONAFIFO. Here’s a diagram of how it works:

FONAFIFO’s money comes from a mix of sources, but the core is from polluters via a cut of national fuel taxes, alongside water-use fees from hydropower companies (who benefit from better upstream watershed management). Over a million hectares were eventually brought into the system. Since FONAFIFO was launched, Costa Rica has witnessed a dramatic reversal of deforestation: forest cover rebounded from a low of around 20% in the 1980s to over 50% today.

Costa Rica’s total land mass is 5.1 million hectares. The maps above show that rainforest cover fell from 75% in 1940 (3.8 million hectares) to 21% by 1987: just 1 million hectares left. By 2010, forest cover had rebounded to 52%: that’s about 1.6 million hectares of lost rainforest restored.

The principles behind FONAFIFO and the British Carbon Removal Bank are similar: a government-owned fund that pays farmers to reforest land, using money collected from the country’s largest polluters.

Would landowners go for it?

From my experience of talking with landowners about tree planting, I think the British Carbon Removal Bank deal would be pretty appealing to them.

The reason farmer uptake has been low in the past, despite generous grants from DEFRA, is that funding has only covered the capital costs of tree planting, but not the opportunity cost of switching away from farming. Some landowners (mostly large estates) have been willing to take the long-term bet on carbon revenues, but most farmers have not been comfortable with letting go of their annual income.

Farmers have been pretty clear about this with DEFRA. When officials asked their opinion as part of the consultations on a new Land Use Framework in England, they found the following:

The Carbon Removal Bank can unlock tree planting uptake by plugging the cashflow gap: it should pay landowners an annual fee to make up for lost farming incomes. The Bank’s income payments could be pitched at roughly the same amount as the government’s current upland livestock support payments or, ideally, something much closer to the old subsidies under the pre-Brexit CAP regime. That would be about £100 / hectare / year for the Scottish uplands, and £200 for England (I’m not sure about Wales and Northern Ireland – haven’t worked there).

These trees would likely be planted on some of our marginal uplands, which are currently mostly used for sheep grazing. To meet our woodland targets, only a relatively small amount of these areas would need to be planted. Converting less than a fifth of Scotland’s ‘less favoured area’ grazing land would be enough to achieve Scotland’s tree planting goals for the next 25 years (more on this in future blog post).

The finances for upland sheep farming businesses today are fairly dire. Here’s a recent DEFRA report on farming incomes, showing that over two thirds of sheep farming income is made up of basic payment subsidies (which are declining fast), and the farming work itself is loss making.

In Scotland, a recent magazine from Scottish Land & Estates showed a similar – but worse - picture north of the border:

So, the economics of sheep farming are challenging (to put it mildly). In comparison, a deal with the British Carbon Removal Bank looks attractive. All costs are fully covered, landowners receive a guaranteed income, and they get upside potential from the credits post year 40.

This model presents very little risk for landowners – their regular payments would look and feel fairly similar to traditional grants from the government. Although if they damage the woodland, they should have to give the money back, just as they would with a regular woodland capital grant.

Who should pay for carbon removal, anyway?

There’s quite a lot of debate over who should actually pay for woodland carbon removal – especially in Scotland, where investors have clashed with communities over unequal land ownership.

Traditionally, economists use the concept of public goods and private goods to think about who should pay for different kinds of things. Public goods benefit everyone - one person’s use of them won’t reduce what’s left for others, and you can’t you stop people using them even if they won’t pay (they aren’t “rivalrous” or “excludable”). Private goods can be claimed by a single person, and if they use them up then that means there’s less left for everyone else.

So where does native woodland fit? It’s not super clear cut.

A native woodland planted to remove carbon and help stabilise the climate benefits everyone in society. That makes the woodland look like a public good. The private sector won’t want to pay for something it cannot stake a claim to. But as a society we still want these things to happen - so public goods are normally paid for by the Government, with grant money.

But the woodland owner could account for carbon removal via the Woodland Carbon Code, and sell carbon credits (for a profit) to private companies – who are under pressure to price and pay for their pollution. Then we have effectively created a good that is rivalrous and excludable: only the end buyer of the credits can claim that they have netted out their polluting activities. This woodland starts to look more like a private good. In principle, this means private investors should fund it.

Ok. But what happens if the numbers don’t stack up on a carbon project? If the returns are too low or the risks are too high, then the investors won’t invest. Free market economists would say that’s ok - the UK should just import our carbon removals from somewhere else, where they can do it cheaper.

But if we still want woodlands to be planted in the UK - because they generate lots of other benefits too (“positive externalities”) - then the government needs to get involved. There are a couple of options for how it can do this:

• It can treat these woodlands as pure public goods again, and give the landowners grants (which never need to be paid back). Landowners and investors can combine this free money with carbon market revenues to reach a more attractive level of profit.

or

• It can treat these woodlands as a private good that comes with lots of wider public benefits. Instead of just boosting investors’ returns with free money, the Government could fund projects through public investment. It will recognise that the private sector needs help to make these projects happen, but in exchange for this help the taxpayer should get a share of the returns.

I’m in favour of the second approach – which is why I think we should set up the British Carbon Removal Bank. If the private sector won’t do it alone, then the Bank can invest to make these things happen. But in return, it should earn the taxpayer a share of the upside when it does.

The business case for a British Carbon Removal Bank

To test whether the economics of this idea would stack up, I’ve made an open-source financial model. Feel free to download it and test the results under different assumptions: here’s a Google Drive link.

The model compares the costs and potential revenues for the Carbon Removal Bank under several different scenarios - from trees species choices, location and landowner payment rates to capital and operational costs and carbon price scenarios.

The model should work at any scale. In the results shown below I have set it up to show the numbers for 40 projects, each averaging 250 hectares, for a total of 10,000 hectares planted.

So far, the model can do projects in England and Scotland. I could add functionality for Wales and Northern Ireland later too, if there is interest (just message me). There is also a function to add community benefit payments, either as royalties or profit shares.

Assessing British Carbon Removal Bank investments in England

The picture below shows my key assumptions for woodland creation in England – although there are well over 50 in the workbook, so check out the assumptions tab if you’d like to see the full detail.

The cashflow profile of a project, from the perspective of the Carbon Removal Bank, will look something like the graph below: significant spend in early years, and then a long time-lag before recognising revenues because of the slow tree growth rates and carbon verification timeframes.

I’m measuring the results in terms of Net Present Value for the Carbon Removal Bank’s investments, per tonne of CO2 removed. These values vary quite a bit depending on two key metrics: the Bank’s chosen discount rate and the price at which the carbon is sold.

This sensitivity table shows the NPV results from a 40-year investment, based on a range of carbon scenarios and discount rates.

In most scenarios, the Carbon Removal Bank’s investments deliver a positive Net Present Value: the dark green cells. However, there are scenarios where the investments deliver a negative NPV. This isn’t the same thing as losing money - it means that for a given discount rate, the government could have made more money if it invested its capital elsewhere. Below the table, I’ve included the NPV of the ‘Business As Usual’ situation, in which DEFRA gives out woodland grants with zero return to taxpayer. Cells in yellow mean that the Bank’s investments are delivering a negative present value, but are still beating the current grants system. Red cells are not good – this is where the Bank yields worse value than the status quo.

In all scenarios except one (Bloomberg’s voluntary carbon market collapse scenario), the NPV for the Carbon Removal Bank beats DEFRA’s current approach.

I tested quite a few different carbon pricing forecasts - here’s an overview of the main ones:

Assessing British Carbon Removal Bank investments in Scotland

And here’s the same model, but set up this time for Scotland. Key assumptions are as follows:

The cashflow graph is similar, but with lower costs and smaller revenues because of a lower overall carbon removal yield. Trees grow more slowly north of the border due to Scotland’s high latitudes and poorer soils.

The results for the Carbon Removal Bank’s investments in Scotland are as follows:

Currently, the Scottish government offers fairly low value grants for woodland creation: around a third of what DEFRA is giving out. But still, in the majority of scenarios - bar the collapse of the voluntary and compliance carbon markets and the use of high discount rates - the Carbon Removal Bank’s investments deliver better value than Scotland’s current approach.

In my view, the overall business case for a British Carbon Removal Bank is robust. It offers:

• Better value for money for the taxpayer. For both Scotland and England, investing public money into woodland projects, in exchange for the right to 40 years of carbon credits, will deliver significantly better value for the taxpayer than the current grant system under nearly all scenarios.

• Very good wider social and environmental returns on investment. The results above focus purely on the financial returns to the Carbon Removal Bank. If we were to account for the wider public goods of nature restoration and carbon removal, then we could use a method more similar to how the government makes decisions on infrastructure or health spending. In this case, we could use the social value of carbon forecast for the value of each tonne of CO2e sequestered. This has been calculated by DESNZ, and ranges between £240 and £700 by 2050 (in £2025). Using the Treasury Green Book’s social discount rate, the return on the Bank’s investment rises to a present value of well over £100 for every tonne of carbon dioxide removed.

Here’s that analysis for England:

And for Scotland:

• Worst case scenario: What happens if corporate demand for carbon removals falls off a cliff edge, and nobody buys any of these credits? This could be because we have given up on trying to tackle climate change (very bad scenario) or because have somehow solved it (a rather good scenario). If demand does collapse and the British Carbon Bank cannot offload any of the millions of credits it will have accumulated, then its investment into tree planting and paying farmers will represent a financial loss to the Treasury. To put a number on these potential losses: the Carbon Bank’s woodland investments will cost the taxpayer between £62 and £78 per tCO2 removed, in real terms. Alternative engineered approaches like carbon capture and storage are set to cost between £110 and £160 per tCO2 sequestered, and the Government has committed to spend £21 billion on these. In comparison, the Carbon Removal Bank still seems like pretty good value for money to me.

Conclusion

After nearly 5 years of trying to get investment into woodland creation, my conclusion is that something needs to change if we are going to deliver the UK’s tree planting targets. Private investors could still step up; if the carbon market outlook is buoyed by more long-term buyer commitments, then capital could begin to flow. But right now, pension funds are reluctant to take the plunge. The government could try to fix this by stepping in with generous support packages to protect investors.

Or the government could invest its own money directly.

I believe that a British Carbon Removal Bank would unlock woodland creation at scale. Many of the companies I have spoken with fully acknowledge that they will need to buy a great deal of carbon removals in the 2040s, but they just aren’t ready to invest now. It’s too far in advance, and in the short term they need to focus on reducing their emissions. Investing in carbon removal is a very long-term opportunity, and what’s needed now is patient, risk-taking capital to get trees in the ground today. This is what the British Carbon Removal Bank would do.

Private finance would still play a crucial role. When the Bank is ready to sell its portfolio of carbon removals, purchases by companies seeking to neutralise their residual emissions will enable it to net out its investments. In most scenarios, the Bank will make its money back and turn a profit - this could be returned to the Treasury, or shared with farmers and communities.

For landowners – particularly those struggling to make ends meet from farming on marginal land – I think the Carbon Removal Bank will be able to offer a better deal than they have seen before. It would cover all of the costs of creating woodlands, bear the risks and pay farmers a regular income that beats the sheep farming revenues. This should encourage many more landowners to put trees in the ground.

Overall, I think British Carbon Removal Bank could deliver our woodland Net Zero targets, enable farmers to make a decent living by removing carbon, and potentially even deliver a profit for the taxpayer.

If Costa Rica can do it, so can we!

I would love to get feedback from others in the sector – please feel free to comment and critique.

On the one hand, I’ve spent the last 15 years working on environmental problems - I would love to see nature make a comeback in Britain. On the other hand, I’ve recently been reading a series of bizarre stories about how we’ve wasted time and money on endless polarising debates about fish discos, bat tunnels and kittiwake hotels. The upshot of these arguments is that every new building project seems to produce epically long environmental assessments: if laid end to end, the planning paperwork for the new Bristol to Portishead railway would apparently be 4.5x longer than the track itself. Meanwhile, we are failing to actually build the clean power, railways, houses and safer roads we need. There must be a better way to build things without wrecking nature.

This is the balance that the Government has tried to strike with their Planning and Infrastructure Bill. In a nutshell, the new rules would allow builders to bypass complicated measures to assess and mitigate their projects’ environmental impacts. They would instead pay into a national ‘Nature Restoration Fund’ – to be managed by Natural England - which would pool their money and fund projects that will compensate for builders’ impact on nature.

Some people think this is a great idea. Others hate it. Reactions range from George Monbiot saying that “Labour’s great nature sellout is the worst assault on England's ecosystems in living memory” to Britain Remade claiming that it’s essential, because “we now live in a world where building anything is illegal in large swathes of the country”.

I respect both George (his book Feral inspired me to do my job), and groups like Britain Remade, who are figuring out how we can get good at building things again. In my opinion, there’s room for a bit more common ground between the two sides.

This essay will lay out what I think that common ground could look like. I may be (likely am) wrong on some points – please correct me in the comments, and it would be great to hear other people’s ideas on how to make the Planning Bill work too.

The problems: why Labour’s “win-win for the builders and nature” might fail to deliver.

The environmental charities and ecologists are especially worried about Part 3 of the new Planning Bill. So, to start with I’ve paraphrased their concerns here:

• Problem 1: Language in the Bill is currently rather vague on whether nature compensation plans need to be underpinned by scientific evidence. A judgement call on whether they will work or not seems to rely on the Housing Secretary of State’s opinion on a plan’s ‘likely’ efficacy. This means that we could end up with poorly designed, cookie-cutter nature projects rather than carefully created habitats based on robust ecological science.

• Problem 2: The Bill states that compensation payments must cover the cost of conservation measures, but it also says that they cannot be priced so as to make developments economically unviable. So there is a risk that developers just pay “cash to trash”, while avoiding the true cost of their impact on nature.

Uh oh.

• Problem 3: If we allow builders to simply pay up and move on, then there is a risk that compensation projects are not properly monitored over time. They may go wrong after a few years and fail to deliver the long-term environmental outcomes that were promised.

• Problem 4: If the compensation projects do fail to deliver the environmental outcomes they promised, then it’s not clear who will be held responsible for fixing it (as Alexa Culver’s legal note showed, at the moment it’s unclear who will be liable if these projects turn out to be rubbish).

• Problem 5: The latest amendments to the Bill confirm that compensation projects must deliver “an overall environmental improvement”, rather than just netting out any damage caused by builders. But how can we properly quantify and compare different environmental impacts, or prove there really has been an uplift?

• Problem 6: The NRF promises to deliver bigger, better and more joined up nature projects. But there’s a risk that these projects are located in the wrong places, or too far away from where the development is happening – meaning a net loss for nature in the local area.

• Problem 7: There is very likely to be a time lag between builders causing environmental damage and a new compensation habitat reaching maturity – many of the more complex projects will take several years to get properly established. During this time, there will be a net loss of nature in the area.

• Problem 8: The Bill appears to be giving Natural England several jobs: it will need to play its traditional role of a regulator and an arbiter of compensation plans, as well as now collecting compensation funding from builders – some of which could be used to cover its own costs. This creates some tricky conflicts of interest.

• Problem 9: This is the really hairy problem. The Bill does away with the prevailing principle that builders should minimise any harm to nature before they turn to compensation (this is called the mitigation hierarchy ). It also appears to jeopardise some of the species protections in the Habitat Regulations, which require builders to avoid all harm to European protected species, like newts and bats. The government has said that these rules slow the planning process down too much, and that the relatively open-ended nature of the mitigation hierarchy has led to mountains of EIA paperwork. But these changes mean that protected species and habitats could now be at risk (you can read the Guardian’s fairly apocalyptic take on this here).

Fixing these problems: how to deliver an actual win-win for builders and nature.

I think we can fix many of these problems and deliver something that looks reasonably close to Labour’s ‘win-win’ soundbite.

Fundamentally, the Government’s proposal to create the Nature Restoration Fund (hereafter the ‘NRF’) is a good idea. Collecting compensation money from infrastructure developers, who don’t want to and should not be doing environmental projects, and instead using that money to pay ecology experts to deliver nature projects makes sense to me.

However, I believe that for the NRF to succeed, it needs to plug into England’s existing Biodiversity Net Gain system. Doing so could address many of the problems listed above:

Fixing problem 1: Scientifically robust design for nature compensation projects.

The Bill states that the NRF will collect compensation payments from infrastructure developers based on a new, bespoke levy system. Instead of creating a brand-new system to quantify and put a price on environmental impacts, the NRF should use the UK’s existing methodology for measuring impacts on habitats: the Biodiversity Metric.

The Biodiversity Metric was developed by Natural England, is based on peer-reviewed ecological science and has been piloted over several years. It entered into law through the 2021 Environment Act. Developers and ecologists already know how to use it.

The metric tool itself is a rather retro-looking spreadsheet (with macros!). It calculates the value of each site based on a massive list of British habitat types, then it factors in considerations like the site’s relative scarcity, condition, size and the time required to get established. After crunching the numbers, it spits out a number of “biodiversity units”, which are used to quantify the site’s relative environmental value.

If the NRF used the Biodiversity Metric as the basis for the levy system, it would be able to systematically quantify the impact of new building projects on habitats, and then use the metric again to calculate the amount of compensation work required. England’s Biodiversity Net Gain system is regarded as a robust, scientific approach to compensating for impacts on nature.

Fixing problem 2: Delivering compensation schemes at a reasonable cost.

To work out how to fairly price Biodiversity Units, the NRF should gather ideas for new nature projects from land managers and ecology experts, and ask them how much it will cost to deliver them. By running a competitive tender process to collect proposals, the NRF could then choose to award funding to those that can deliver the types of habitat restoration they need, at the most reasonable cost. This means that farmers, professional nature project developers and wildlife charities could all propose their own projects and have a chance to win funding. This tender process would look somewhat like the reverse auctions that EnTrade has run in the past.

Open competition would allow the NRF to find the most economical way to deliver the environmental outcomes they need. Pricing for each project would be laid out in terms of cost to deliver and maintain each biodiversity units. This would be better than relying on Natural England to centralise the project design process and set its own budgets – which runs the risk of bloated costs.

Equipped with this portfolio of crowdsourced projects and budgets, the NRF would then present builders with a straightforward pricing list: this would be the levy system. The list would state for anyone to see how much it will cost to buy different types of Biodiversity Units in their local area. This is what the builders will need to pay when they compensate for the environmental impact of their projects.

This would look very much like the existing offsite BNG system - but with a more transparent system for connecting suppliers and buyers thanks to the open tender process.

Fixing problem 3: Monitoring the long-term delivery of nature projects.

The Biodiversity Metric includes a robust measurement framework, which would form the basis of an independent third-party audit system. Auditors, like the Soil Association or ecologists from local planning authorities, can periodically check projects to make sure that the expected environmental outcomes really do materialise over time. For full transparency, the biodiversity units expected from every project and their audit results could be published in a public registry.

The NRF could pay for this layer of independent oversight by factoring it into the prices of Biodiversity Units. Once the builders have paid the levy, then they would not need to worry about long-term monitoring – it would now be the NRF’s responsibility.

Fixing problem 4: Making sure someone is liable if compensation projects fail.

It would be best if NRF deployed its funding by paying for environmental outcomes, rather than paying for inputs. This means that the NRF would essentially become a large scale, government-backed buyer of Biodiversity Units, rather than a grant funder of conservation activities. This is an important distinction: any NRF money received by owners of nature projects would be contingent on them actually delivering the results (which would need to be verified by auditors).

Banks and investors could provide the upfront capital that nature projects will need to get work started, in exchange for a financial return when the project is mature and Biodiversity Units are sold to the NRF. Alternatively, the NRF could provide upfront funding to projects via advance payments, but then project owners should then be liable for delivery – if they fail to generate the outcomes they promised, they should give the money back, or source some replacement biodiversity units.

By issuing results-based funding agreements, the NRF would make the owners of nature projects accountable for delivering environmental outcomes, rather than the infrastructure developers – who could just pay up and get on with building things.

Fixing problem 5: Delivering environmental uplift.

I’m personally not 100% sold on the idea that infrastructure projects should have to go beyond compensating for their direct impact by also paying for net gain. I think we need to get better at valuing good infrastructure projects for what they are - new homes, clean energy capacity, public transport – and less for their side benefits (e.g. an extra 10% uplift in biodiversity).

But, if we do want to go down this route, then it would be relatively straightforward for the NRF to add a net gain adjustment to the calculation of environmental outcomes. This would work just like the current Biodiversity Net Gain system, which just adds a 10% uplift to the number of Biodiversity Units that builders need to purchase from compensation projects.

Fixing problem 6: Delivering bigger, more joined-up nature projects.

Historically, lots of habitat compensation projects have been delivered ‘onsite’ by the builders. Planning authorities have tended to prefer this. . But this report by David Hill and this paper by Sophus Ermgassen at the University of Oxford provide evidence that many onsite habitat projects are just rubbish. It’s often better to go offsite, and put the project somewhere where it will have a much bigger impact on nature.

Here’s a random example found on Twitter of a fairly terrible on-site project:

The NRF is designed to pool the money that would have been spent on individual onsite measures, and instead distribute this funding to more ambitious nature restoration projects within the wider local area. This is where Natural England’s Environmental Delivery Plans (EDPs) would come in – these plans should highlight where it would be most impactful to do nature restoration in a region, and how individual projects could be linked up to create habitat corridors. If a nature project is located in an area identified as highly impactful by an EDP, then it should get higher points in the NRF tender process, and therefore have a better chance of being awarded funding.

Pro-building and environmental campaigners alike are worried that Natural England will cause delays by taking ages to create new complex new EDPs. But it should not be too difficult to do this. Since the 2021 Environment Act came into force, Local Planning Authorities have already been developing something very similar: the Local Nature Recovery Strategies. Natural England should be able to just pick these strategies up and run with them. Here is one the Wildlife Trusts have been working on with local authorities in the Black Country:

Fixing problem 7: Delivering up front environmental benefits.

Another contentious part of the new Bill is that there could be a long-time lag between habitats being damaged by the builders, and the completion of the new compensation project. In the meantime, nature would lose out.

This time-lag challenge could be fixed by creating habitat banks. Habitat banking is when the nature projects are created in advance of a compensation deal – so that that they are fully up and running and ready to provide environmental outcomes when an infrastructure project starts in their region.

If the NRF was able to forecast the demand for compensation projects well in advance (for example, by drawing on Local Authorities’ planning application pipelines), it could act early to lock in a corresponding future supply of Biodiversity Units. Winners of the NRF tenders would be awarded outcome-based payment contracts, via long-term forward purchase agreements. These types of contracts promise to pay an agreed price for a fixed amount of goods to be delivered at a point in the future. This guarantee of future sales would in turn allow the land managers to secure the financing they need to get their projects up and running – banks and investors would now see the project as much less risky, and therefore more likely to be ‘bankable’.

If the NRF seeded a nationwide portfolio of habitat banks, then as new building projects come through the pipeline over the years it would be able to immediately supply them with ‘oven ready’ Biodiversity Units from mature nature projects. This solves the problem of the long-time lag.

The NRF could actually start drawing on habitat banks immediately – several have already been created under the current Biodiversity Net Gain scheme. Here’s an example of one that the Environment Bank is setting up (including a sketch of what they expect it to look like when it’s ready).

Natural England has also started to build up its own bank of ‘last resort’ statutory Biodiversity Units (though it’s proposing to charge bafflingly high prices for them).

Fixing problem 8: Resolving Natural England’s conflict of interest.

Natural England played a leading role in developing the Biodiversity Metric. It is also well placed to lead on the EDPs, using its environmental expertise to prioritise where it would be best to locate habitat compensation projects.

However, I’m not convinced that Natural England should directly manage the NRF itself. As several people have already pointed out – this would place Natural England in a sticky conflict of interest. As NRF revenue could potentially be used to cover the running costs of an agency known to have been struggling for cash for several years, staff could be incentivised to inflate the fees charged to builders in order to help balance Natural England’s books.

In order to avoid this temptation, and to operate in the way I’ve described above, the NRF should be kept separate from Natural England. It would be staffed by people with the legal and commercial experience needed to develop agreements with land managers and builders, manage the funds it will invest into projects and carry out robust natural capital accounting. Importantly, the NRF team should also act as a clear point of accountability for the successful delivery of environmental outcomes.

The NRF would therefore operate a bit like this:

The rough step-by-step process for NRF operations would look like:

1. Nature projects submit proposals to the NRF, which selects the best value projects and signs them up as suppliers. The NRF signs forward purchase agreements with suppliers to buy their biodiversity units at a fixed price and time in the future.

2. If land managers need upfront funding to get their nature projects started, they can raise capital from investors off the back of their NRF forward purchase agreement.

3. The NRF buys Biodiversity Units when they are ready, from mature nature projects.

4. The NRF sells these Biodiversity Units to builders, based on a transparent pricing list.

5. Oversight of nature projects – including commissioning third party auditors - is managed by the NRF.

6. Once builders have paid up, they move ahead with their development.

Full transparency – I would quite like to be part of this team! It would be a fun and impactful job. But there are many good organisations who could do this. The Government could tender it out and choose whichever organisation they decide is best placed to manage the NRF.

The bigger problems: What to do about the mitigation hierarchy and protected species?

It’s harder to see a solution for the two other big challenges in the Planning Bill – the argument over whether or not to apply the mitigation hierarchy and maintaining protections for rare species. The current iteration of the Bill has got rid of them or significantly watered them down. Ecologists want to bring them back.

Will the mitigation hierarchy really be dead?

Many in the environment sector are worried about the scrapping of the mitigation hierarchy principle. If this decision-making framework is no longer built into the planning system, then developers might just give up altogether on trying to reduce their impact on the environment. They could trash nature, then just pay the NRF to deal with the problem, even if more sensible solutions could have been found through sensitive building design.

However, it would be strange for builders to behave like this. If information on the price of environmental compensation is transparent and readily available – e.g. through Biodiversity Unit pricing lists - then developers will be able to choose the most economically viable option for them.

If costs less to pay the NRF to deliver a compensation project, then builders will choose to do that. But if the prices on the NRF list are high, then developers will prefer to minimise their impacts on nature in the first place, by changing their project design. So, the mitigation hierarchy would live on – but as a commercial decision-making framework rather than as a planning rule.

Protected species – could we think about them at the plan level instead of site-by-site?

Some impacts cannot be compensated for – regardless of the cost – such as the loss of site-loyal species. In this case, a compromise could be to apply the mitigation hierarchy at the wider scale of the local plan, rather than doing it at the project level.

To follow a plan-based approach, local planning authority ecologists would look at the full area under their jurisdiction and identify the sites most likely to host protected species. They could then discourage building in these areas, so that developers don’t put forward proposals to build in these places. Meanwhile, EDPs would focus on restoring and expanding these valuable habitats (building on Lcoal Nature Recovery Schemes).

Shifting mitigation work to the plan level would of course require some chunky, up-front resourcing for planning teams. CIEEM recently suggested that integrating better ecological planning at the plan level would help to avoid a lot of conflicts with developers (though they would still want to maintain the project level mitigation hierarchy and species protections too). The Tony Blair Institute and the IPPR have also suggested that making these decisions the level of the local plan could be a better way forward.

This article by Catherine Howard also makes a convincing argument that a lot of time and effort could be saved by switching the focus of protected site / species assessments from the current open ended approach (“the applicant must prove that the project will not have an adverse impact on species / site X’’) to a more focussed one (“opponents must prove, using scientific evidence, that the project will have an impact on species / site X”).

Bonus benefits: the NRF would give a major boost to the UK’s nascent nature market.

DEFRA has been trying to get a nature market – whereby land managers would get paid by businesses to restore nature – off the ground for several years now.

But attempts to turn this concept into reality have proven difficult, mainly due to a couple of big problems:

• Uncertain levels of demand: land managers are struggling to find buyers for the environmental outcomes their projects are producing. So good projects aren’t getting funded.

• Complexity for project owners: land managers face a maze of confusing rules, liability risks, and unclear contracting mechanisms when they try to do a deal with a buyer. This puts a lot of people off.

The NRF would address these problems by acting as an anchor participant in the nature market: buying Biodiversity Units from land managers across the country, and selling to the builders. It would provide the demand boost needed get the nature market moving. It could also offer standardised contract terms to all buyers and sellers – simplifying the market and building trust among land managers and builders.

To note - even with the NRF playing an anchor role in the market, this would not prevent private, direct transactions continuing to take place between landowners and buyers should they wish to do so.

The NRF could trade other environmental outcomes too.

The language in Part 3 of the Planning Bill focusses on compensation for impacts on ‘Environmental Features’ writ large. In this essay, I’ve simplified this scope to just focus on habitats, measured via the Biodiversity Metric. But if the NRF manages to make this work, it could gradually layer in compensation mechanisms for other types of environmental outcomes too.

For example, the NRF could expand to include compensation for water quality, by using Natural England’s nutrient neutrality methodology. Or it could cover carbon storage, by using the UK’s Woodland Carbon Code. It could also manage compensation for some non-site loyal protected species: the district licensing scheme has shown that strategic habitat compensation can work for newts. Combining several environmental outcomes would make everything a bit more complicated. The NRF would need to figure out how to properly ‘stack’ these different outcomes while making sure land managers aren’t getting paid twice for the same thing, or overcharging developers. But it could work.

Conclusion

We can move past divisive arguments about choosing between bats and working families - it’s possible to make this new planning system work for builders and nature.

I believe the best way to do this would be for the Nature Restoration Fund to plug into the UK’s biodiversity net gain market. This approach would draw on ecological science and economic competition to fund the best nature compensation projects at the right price. It would assign clear accountability for delivering environmental outcomes to those with the right skills and incentives to do so. And it would allow the builders to get on with building things.

My understanding is that most (maybe even all?) of the fixes I’ve described in this essay could be put in place without requiring major changes to the Planning Bill in its current form. We would just need to get the delivery details right in forthcoming secondary legislation.

I’d be really interested to hear what others think of these ideas. Please do comment and tell me what you think.