Extracts from an article on the AHDB website by Jess Corsair, Senior Analyst (Trade & Policy)
CARBON markets and other private environmental markets and are expected to expand rapidly over the coming decades as businesses are required to meet environmental targets. Prices in these markets are likely to increase, as both quality standards are introduced, and as demand for offsetting increases as businesses have to clearly demonstrate their carbon reduction credentials.
What are the challenges for tenants who want to engage with private markets?
Agricultural Holdings Act 1986 (AHA) tenancies and Farm Business Tenancies (FBTs) nearly always restrict land use to agricultural use only. As such, any environmental projects can only be achieved within an agricultural context, such as increasing soil carbon rather than land use change projects such as tree planting and peatland restoration which will require the consent of the landlord.
The time period in private market agreements can also be restrictive, and it can often be expensive or difficult to exit the scheme early if there were any unexpected changes in the tenancy.
What to look out for and how to get involved
As with most things regarding private environmental markets, the eligibility for tenants depends on the scheme. Some will be available for tenants to join freely, others will need landlord’s consent, and others may require a tenancy agreement for longer than five years.
The two regulated schemes in the voluntary market – the Peatland Carbon Code and the Woodland Carbon Code – have rules written for tenants looking to enter the market.
The Peatland Carbon Code requires written consent from the landowner, including agreement that the obligation for delivery of the project shall be transferred to the landowner should the tenancy end before conclusion of the project.
For the Woodland Carbon Code, where land is tenanted, the landowner shall also commit for the project duration and beyond. The tenant cannot enter into a woodland creation scheme on the holding without written consent of the landlord.
The general advice is for tenant farmers to engage with and involve landlords as soon as possible if they want to enter the private environmental markets. It is important to come to agreements about the responsibility of the carbon and other environmental goods, considering the contracts will require long-term commitments.
Restrictions in tenancy agreements can be a challenge, but tenant farmers could be involved through activities that could be carried out alongside farming, such as carbon sequestration and nutrient neutrality.
The Rock Review suggests that whilst the ownership of pre-existing natural capital vests in the landlord, the more important consideration is how that natural capital is managed and enhanced which specifically relates to the activities of tenants. Tenants therefore should be rewarded for the maintenance and enhancement of national capital on land. However, there may also be scope for joint landlord/tenant agreements both in the public and private sectors.