With the carbon market beginning to take shape throughout the United Kingdom, we are starting to see tensions emerge around competing priorities for land.
For example, when land is ear-marked for a carbon offsetting or sequestration project as opposed to using it for other economic purposes.
This is not a new issue. There is a finite amount of land and many widely differing views on what it should be used for; an often-cited case is forestry vs agriculture.
We need more timber and as such more trees - but should we also ringfence more land for agriculture, improving food security in times of international uncertainty?
We have in recent years seen an increasing number of transactions where land has been purchased with a view to implementing a forestry or woodland planting scheme.
This began largely with hill ground and as such sheep farmers were able to sell their properties to forestry investors for a significant premium in value - well beyond the grazing or agricultural value.
As sheep farming can be heavily subsidised with tight margins, this was for some a once in a lifetime opportunity to cash in.
Inevitably that drove the prices of hill land to increase, and investors began to look more widely. In some cases, land which was suitable for arable crops was purchased with a view to putting that land into a forestry or woodland scheme.
This has all further fuelled the debate of whether greater protections or incentives should be given for one land use over another, to balance market activity.
It is striking to note the significant tax reliefs and benefits which are available to forestry activity and in contrast the few similar benefits available for agricultural activities. That is notwithstanding the Scottish Government's aim of trying to encourage more land to be let for agricultural purposes.
It is important to observe that two such uses are not always competing and there can be opportunities to proceed in tandem.
Where land is acquired for planting it can take several years before any investor will be able to proceed and plant trees in the ground. The land will need to be looked after in the meantime and continued agricultural use can be a benefit.
There is also the possibility to phase or rotate that agricultural use as any planting project proceeds.
Lastly, any planting project will have areas designated as open space and so again there will be opportunities for alternative use.
There is however still the point that once a planting scheme is in the ground it will be many decades before it is harvested and replanted, with many schemes required to endure for 100 years to achieve full carbon sequestration - restricting the ability to use the land for other purposes during that time.
We are also seeing tensions between competing carbon or habitat management type uses.
Many landowners are reasonably well advanced in their own projects for peatland restoration, woodland planting and similar activities.
Those landowners might also be approached by a third party looking to either undertake a renewables development on their or nearby land or undertake habitat management, compensatory planting or peatland restoration activities so as to offset a development elsewhere and perhaps also satisfy a planning condition of that development.
There are two predominant issues here. The first arises when a landowner has planted trees or restored a peatland, registering units under the Woodland Carbon Code or the Peatland Code, and the developer wishes to disturb that project to undertake a wind farm or similar development.
The value of the lost woodland carbon units or peatland carbon units could be significant - and also difficult to calculate relative to any future increase in carbon values.
With the carbon market beginning to take shape throughout the United Kingdom, we are starting to see tensions emerge around competing priorities for land.
There may also be liability issues where the landowner has sold the benefit of those units on to a third party. This needs to be considered and factored into negotiations as soon as they commence.
The second issue is that any developer undertaking planting or restoration work may sterilise the ability of the landowner to claim carbon credits on that area in the future. The developer's works are ordinarily pursuant to a planning obligation and as such are generally not eligible to be registered with the relevant codes for carbon units to be claimed.
In some instances, this had led to landowners and developers agreeing to divide up the land, ringfencing some for the landowner's initiatives whilst designating other areas for the developer.
The landowner might also seek a right to claim units on the developer's works in the future, should they become eligible. That may lead the developer to consider whether such a claim would impose additional or competing management requirements, over and above that required by any planning condition.
The final tension of note is simply how best to utilise any carbon units that are available.
We have seen some significant transactions with landowners selling all of the carbon units from a particular project at the outset to a third-party investor. In that case the landowner has taken all the upside in year one, but the land has to be managed for the project for another 50 or 100 years.
This land may be viewed by some as a burdened asset for the next generation or an incoming owner. Further, if there is an issue with the trees growing or a reversal of the peat restoration then some units could be lost.
It may be sensible to keep a portion of units in reserve as a hedge – or simply as a hedge to take advantage of any future increases in value, given the still relative infancy of the market.
Whatever the case, the project and any related agreements or documentation will require to be fully compliant with the relevant governing framework detailing the methodology and quality assurance standard - such as the Woodland Carbon Code or Peatland Code - to maintain the integrity of the units. The documentation must also be sufficiently robust to cater for any worst-case scenarios.
These types of issues and tensions are similar to what we might see when land use is being changed for any other purposes or project.
The considerations themselves are not new, though in some cases we are working with rules or statutes that were not written with carbon schemes in mind or with regard to current opportunities in the sector.
It is accordingly important to obtain the right advice from the outset when considering any such venture.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
