Andy Drane

Most landowners will fully recognise the importance of their natural capital assets, such as woodlands and peat bogs, which provide a highly effective solution in promoting greater environmental sustainability. These land-based assets provide a natural means of removing carbon from the atmosphere by storing it biologically and biochemically.

A growing number of large corporate organisations, including Standard Life Investments Property Income Trust, are now working with landowners to utilise these and other natural capital assets to offset their own carbon emissions to support UK net zero aspirations. Planning consents for larger projects are also increasingly requiring carbon offsetting.

We are seeing a surge in activity with Scottish landowners who are contracting with larger corporations which will typically finance upfront costs of tree-planting and pay for maintenance through an annual management fee. In return, the landowners commit to planting and maintaining newly-created woodlands for a fixed period as part of a private arrangement entirely independent from the formal carbon codes.

This emerging trend brings new revenue stream opportunities for many UK landowners. Carefully-managed carbon capture projects using natural capital assets have the potential to create greater value for landowners than wind, solar, hydro and other renewable energy developments. Financial assistance through a number of grants to support the creation and maintenance of forests and the restoration of peatlands enhances this opportunity.

Programmes such as the Woodland Carbon Code and the Peatland Code provide further guidance and support for landowners who wish to use their natural capital to offset carbon. There is a financial benefit from selling the carbon credits that are generated through these schemes. These credits can also be used to offset a landowner’s own carbon emissions.

There are, however, risks with both codes which require professional advice and careful consideration as they require a commitment of up to 100-year management plans. This removes land from other forms of productive activity for generations, which could prove a burden for future generations.

An initial assessment of land assets is the first step in enabling landowners to determine their carbon sequestration potential. It will also help quantify the value of carbon credits which could be used by the landowner themselves, or legitimately traded to offset or create additional revenue streams.

Following this initial assessment, there are further key factors for landowners to consider. The process should begin with a long-term land strategy to help determine the impact of planting trees and an estate’s land values - planting on fertile agricultural land will have a different impact from planting on rough moorland, for example. The land strategy should also consider the opportunity for other diversified land uses such as leisure and tourism.

It’s also important to understand how many carbon credits can be generated from offsetting activity and how this will impact on alternative uses for land. Along with the potential need for funding to cover initial planting costs, investment in insurance cover for silvicultural risks including disease and storm damage of natural capital assets is another key issue to consider.

As carbon capture projects typically require a long-term, often multi-generational commitment, experienced legal advisers have a vital role to play in guiding landowners through key planning and contractual issues from the earliest stages of the process. This includes helping determine whether natural capital projects are effective as well as financially viable, and also ensuring they are structured to comply with key Government-backed certification programmes, which includes both the Woodland Carbon Code and the Peatland Code.

Andy Drane is a partner at Davidson Chalmers Stewart