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Jeremy's Blog 10th September 2021: Carbon and Other Deals

This article by Jeremy Moody first appeared in the CAAV e-Briefing of 9th September 2021.

The fledgling world of transactions for environmental commitments is very young and potentially very innocent. It may match the early days for solar panels after Feed-in Tariffs were introduced in spring 2010 when initial activity moved faster than understanding or clearer perspective on value, opportunity and risk.

We see a shifting balance from agreements for running payments for actions (common in agri-environment agreements) to agreements that are expressed more as sales of change in land use, such as for carbon, biodiversity or water management, to benefit third parties. The latter may have different consequences since the rights or obligations created may then be under the control of others, limiting what can be done on the land by its owner or occupier.

Across the United Kingdom, there is growing interest from private finance in seeking to buy benefits for its purposes, whether as processors, supermarkets, developers, investors, water companies and others. These agreements may be in addition to Government payments (“stacked”), alongside them (“blended”) or instead of them.

While biodiversity gain agreements may more obviously offer possible value, much discussion is about carbon, making it a good example to explore, even if its value is low at present. What might “selling” carbon mean?

In principle and subject to the terms of any particular agreement, its natural meaning is that the rights to use that volume of carbon now belongs to the purchaser who can enforce the creation and retention of that volume of carbon by the landowner or farmer. That will not help reduce the carbon footprint of the farm because it is used to mitigate someone else’s carbon; the owner is bound to provide that carbon to the buyer the length of the agreement. Potentially a fetter on farming soil, this might matter less if it is for trees the owner wants to plant, provided those trees will last out the agreement - or the century’s life of CO2.

With the issue of additionality, that agreement could limit the owner’s access to other schemes if what they would buy is being created anyway under this agreement

Transactions are about the right deal on the right terms at the right price – a matter for advice and judgment. The last Woodland Carbon Guarantee Scheme auction set a carbon price of £17/tome. A hectare of 80 year old oak trees has perhaps 200 tonnes of carbon. Is there a risk of selling too much for too little?

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