Additional income streams – what natural capital and government schemes are available to you?

Tuesday, 5 March 2024

This article lays out options to farmers wanting to gain additional income for their natural capital. It also explores the new areas that are opening within the natural capital space and ways to generate income aside from producing carbon credits.

As has been well documented by AHDB, there are different types of nature market schemes out there and they can often be tricky to navigate to find what works best for your farm. With the funding gap widening with the loss of Direct Payments, many farmers are looking to diversify their income.

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Tom Price

Retail and Consumer Insight Analyst

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Regulated carbon schemes

The two specific regulated, voluntary schemes available are the Woodland Carbon Code (WCC) and Peatland Carbon Code (PCC). These are government backed but are not applicable to soil-based carbon sequestration.

This allows the planting of new woodland to generate independently verified carbon credits. Pending Issuance Units (PIUs) can first be sold to demonstrate the quantity of potential future sequestration. However, the full value of woodland carbon sequestration can only be received once these credits have been verified and turned into Woodland Carbon Units (WCUs) through measuring the actual sequestration levels.

This scheme generates carbon credits by sequestering greenhouse gases through storing carbon in peatland. Much like for the WCC, the PCC generates PIUs, and once a project is verified, Peatland Carbon Units can be sold.

Read more about regulated carbon schemes:

Understanding regulated carbon markets

Price disparities between carbon markets

Unregulated schemes

Soil carbon sequestration

Since soil carbon sequestration does not fall into the government-backed schemes, unregulated voluntary schemes have emerged to fill this gap. More and more voluntary carbon sequestration schemes are popping up as organisations look to offset their carbon emissions through purchasing carbon credits produced by these schemes. Since there are no government-set regulations, the quality of credits between the different schemes can vary. This tends to be reflected in the price of the credits generated.

If you’re looking to get involved in a scheme, it is important to consider the following:

  • Monitoring and verification methods required
  • Cost and length of each project
  • The price of the credits now and how this could change in the future

Read our article on what to look out for to ensure the scheme is right for your business. Since you can only sell each credit once, it is also important to consider your own on farm emissions as you may be required to make claims about your own carbon footprint in the future.

New and novel schemes

Most carbon schemes are targeted at arable farmers due to a focus on soil carbon sequestration to create additionality to carbon stocks. However, schemes and trials are popping up related to livestock farming. Avoidance credits have been generated in the UK for livestock emissions prevented through utilising specific feed to reduce ruminant gases. And some schemes have implemented grazing practices as part of a regenerative approach to farming to sequester carbon as well as rebuilding soil health. While some of the schemes linked to livestock farming may be in the trial phase, they seem to be becoming more widely available.

Some schemes are taking on a holistic approach to produce credits from carbon sequestration – not just through soils, woodland and peatland, but also through wetlands and marine habits and other methods. Some are also producing avoidance credits through limiting emissions, and starting to net-sequester carbon through restoring natural areas as part of nature-based solutions. Some even require biodiversity improvements to go hand-in-hand with this.

With the ever-expanding ways to produce carbon credits, we have started to see alternative schemes to the government-backed WCC and PCC which claim to produce similar credits but use different auditing and measurement systems. This does provide choice to landowners for which schemes to get involved in, but it also makes choosing a scheme more confusing.

Read more about what to look out for when choosing a scheme

Biodiversity improvement and BNG credits

In line with the UK government’s Green Finance Strategy, which aims to improve environmental outcomes through mobilising finance for environmental projects, private investment and support is available. Some banks are offering green finance loans to help you reduce your carbon footprint and become more energy efficient, and private investment is also available for habitat creation.

The Biodiversity Net Gain (BNG) initiative has come into effect from January, working to increase the biodiversity of new development sites by a minimum of 10% compared to baseline, pre-development levels. BNG is mandatory for all new developments regardless of whether this improvement is seen on or off-site. For off-site biodiversity improvements, farmers can often lease their less productive land to developers and/or gain payment from these organisations for managing and improving the habitat in line with the management plan to improve the biodiversity. Often, the organisation renting the land covers the set-up and management costs. The habitat improvement also helps create biodiversity units once additionality has been proven. These can be sold to meet BNG requirements, such as ensuring the habitat improvement is secured for at least 30 years.

It is also worth mentioning nutrient neutrality. Property developers can pay landholders to reduce nitrogen or phosphate run-off in local waterways to mitigate the impact of new property development. The permanence periods can range from 80 to 125 years.

For more information visit the Green Finance Institute website.

Generating additional income without producing credits

It is also possible to generate additional income through environmental improvement without producing carbon credits, through on-farm practices.

In a similar way to how farmers and land managers can generate additional income from sequestering carbon or reducing emissions, they can now participate in other voluntary schemes. These schemes measure the improvement in soil carbon stocks and provide compensation for this through payments (rather than through selling credits), met through adopting specific on-farm practices. Some schemes even provide payments for water and biodiversity improvements.

It is worth considering what sustainable practices you already do on farm, now and going forward, and reviewing the schemes emerging across the industry. However, with both sets of schemes being similar, it is important to carefully research and consider which can provide the best value for money should you wish to get involved.  

Schemes also exist which produce novel products linked to low carbon farming and which can be sold at a premium, rather than being used to produce carbon certificates. Through incentivising to produce lower carbon produce through being paid a premium, rather than generate certificates, this helps tackle some of the uncertainty surrounding the quality of credits.

In addition to this, it is worth exploring natural flood management and water quality schemes. Read more about these on the Green Finance Institute website.

Government schemes for environment improvement

Additional government funding is also available through Environmental Land Management Schemes (ELMS) to help manage and improve the environment which can also have benefits for your on-farm productivity as well.

Farmers can receive three types of payment:

Where next?

There is a myriad of schemes through which you can gain additional income, but it is important to take the time to consider what is out there, what is best for your business, what you are currently doing on farm, and current/potential supply chain commitments for your business. It is important to gain expert advice to help do this.

While many of these natural capital schemes can be entered into individually, some of the payments can be stacked to help provide additional benefits and payments for improvements on the same parcel of land. Though importantly, these payments need to deliver different environmental outcomes, as farmers cannot be paid for the same public good twice - this is called double counting.

For more information, visit the AHDB carbon markets webpages and the Green Finance Institute’s information hub on nature markets.