Regenerative farming is a buzz word at the moment. With a host of incentive schemes popping up to encourage farmers to do more to protect the environment and language of all its own – think carbon credits, rewilding, sequestration, and more – it’s no wonder there’s a good deal of confusion around.
Add to this the indecision over ELMS – the government’s flagship framework designed to fund food production and environmental restoration at the same time – and it’s easy to see why many farmers are left wondering what the future will look like, how they will access funding and when clear guidance might finally be available.
With such uncertainty, it can be tempting to look at one of the many voluntary carbon credits schemes to bolster farm income. These schemes often promise new revenue streams from carbon trading which enables large companies to offset their greenhouse gas emissions with the purchase of carbon credits.
It sounds tempting, but are these schemes all they’re cracked up to be?
How does carbon trading work?
Carbon trading involves farmers or other landowners sequestering carbon into soils, crops, or other vegetation to become net carbon negative – that is, they absorb more carbon than they produce. Tree planting schemes have become very popular for this among non-farming landowners, but farmers can achieve it by planting a range of different crops including cover cropping, companion crops, various forms of grass leys, field margins and other vegetation, or by peatland restoration for upland farmers.
The amount of carbon sequestered is then measured by the organisation or business running the carbon trading programme, and this is converted into carbon credits which can be sold on carbon markets. The standard measurement is one metric tonne of carbon sequestered is equal to one carbon credit.
Carbon credits tend to be bought by governments or companies unable to completely cut carbon from their operations or supply chain to offset their emissions. The money, minus a commission for the company running the scheme, then goes to the farmer.
So far, so good. So what could possibly go wrong?
Are carbon credit schemes worth it?
In our view these schemes, as laudable as most of them might be, should be approached with caution.
There are a number of reasons for this.
Firstly, the carbon credits market is yet to be regulated by government or the Financial Conduct Authority (FCA). There is some voluntary regulation in place, but nothing as robust as a properly funded, independent body like the FCA.
This leaves them open to abuse and there have been a number of high-profile scams in the past. Although these tend to be directed at the carbon credit purchaser rather than the producer, they have nevertheless left a bitter taste for all parties.
There have also been issues around accurately measuring the amount of carbon emitted by the company wanting to buy carbon credits, and the amount sequestered in soil by farmers. Whereas measurement techniques are getting more accurate, this is definitely something that needs to be taken into consideration when looking at these schemes.
Another important consideration relating to schemes not underpinned by the Woodland or Peatland codes is whether there are any covenants and legal protection in place to protect you and your business should the scheme fail for reasons beyond your control. Without these, you could be vulnerable.
The financial implications of carbon credit schemes
As well as the drawbacks listed above, there could be some potential financial pitfalls relating to these schemes as well.
With the farce currently surrounding ELMS, the government hasn’t been clear on how voluntary carbon credit schemes might affect agricultural property relief (APR) and business property relief (BPR). Although it is expected a solution will be found that leaves these important tax reliefs in place, that is yet to have happened.
Another more serious concern we have been hearing about is that some banks may take a dim view of farmers entering into these schemes, which can have consequences for refinancing.
Although they would never admit it publicly, there is a sense among parts of the banking community that voluntary carbon trading might restrict the uses land can be put to, making banks less willing to lend based on that land.
This could have major impacts on a farm business if it becomes commonplace, and something farmers need to take very seriously if considering one of these schemes.
As a result, Ian Parker, Agricultural Expert and Director of Whitley Stimpson, advises caution when looking at voluntary carbon trading.
“Although they might promise a long term revenue stream, there are still a number of potential issues with these schemes,” he said.
“Our advice to farmers is to look before you leap. There are undoubtedly some good schemes available, but the lack of regulation and the potential impact on access to other forms of finance could store up serious problems.”
If you’re considering getting involved in a carbon trading scheme and would like some advice, get in touch on (01295) 270200 or email email@example.com.