Jeremy's Blog 1st September 2023: Nutrient Neutrality - Meaning of the New Regime

This article by Jeremy Moody first appeared in the CAAV e-Briefing of 31st August 2023

We have yet to see what the true effect of the Government’s proposed changes to nutrient neutrality might be. The combined package of legislative amendments (yet to pass the House of Lords), measures and funding is intended to achieve both the unlocking of house building and improved quality of water courses. That package represents a move from a single tool, requiring nutrient neutrality only from additional development, to using a wider range of tools across the sources of nutrients.

It should not be taken to mean that policy is less concerned about loss of nutrients into water. Last year, the Government set demanding targets under the Environment Act for reducing nutrients in water, whether from farming or wastewater – those targets stand. However, the effect of legacy EU law and the “Dutch N” decision is that the issue is disproportionately carried by new housing, already enough of a policy problem for our housing shortage without this issue. The nutrient loss from new housing is a relatively small part of the problem but, as the additional factor, has carried the brunt of the policy. Michael Gove told the Sunday Telegraph a month ago that the balance of the law was wrong.

Over 100,000 new houses are seen as blocked in the affected catchments. Overstretched planning departments froze when first confronted with the issue. Efforts went into finding ways to manage the issue, whether designing solutions into new large developments or by off-site agreements. Markets began to emerge using credits to find and unlock value, though offsetting is the last option in the mitigation hierarchy. While involving larger developers with costs, this has been much more difficult for small builders who may be the real winners from these changes.

With other measures in the Levelling Up and Regeneration Bill already requiring wastewater treatment plants to have low discharges by 2030, the package for change has several components:

• legislation relieving new housing development proposals from Habitat Regulations assessments where their nutrients might affect protected sites; this change clears the decks for the new approach
• replacing that requirement with new wider legislative powers to regulate nutrient issues
• developing and funding Natural England’s other tools, the Nutrient Mitigation Strategy, in part promoting wetlands and woodlands, and Protected Sites Strategies, still looking for contributions from larger developers
• measures and funding, more carrot than stick, to help farming with nutrients, enlarging DEFRA’s coming two slurry store schemes and aiding equipment but also more inspections

as well as SuDS and a River Wye Action Plan. These issues are not going away and there is much work to come in this.

For markets, this announcement brings issues of timing and a warning.

If enacted, the new legislation would only commence when the Government chooses. That might depend on when it is ready to use its new regulatory powers. The Government has only said that “it is expected that developers could begin construction on these homes in a matter of months” – easily into 2024. Developers with well-advanced negotiations might prefer to continue rather than wait an indefinite period for rules not yet known and start again.

The warning is that, whatever might actually happen to emerging frameworks and credit schemes, many such markets only exist because of regulation and so are vulnerable as regulations change. Valuers will know this from experience: both creatures of regulation, English entitlements had value 6 months ago and milk quotas existed a decade ago.

While proper neutrality by offsetting is seen to require 125 year commitments to nutrient depletion, other solutions from a larger tool box could now change the basis that has given them some value. Markets will adjust again to new circumstances. We will see more as new regulations come forward but have now been given a sense of risk for some of these environmental markets.