There has been much interest generated in the possibility of selling carbon credits for sequestering carbon by woodland creation (under the Woodland Carbon Code) and peatland restoration (under the Peatland Carbon Code). At present active peatland restoration or new woodland creation activities are required. This is known under the WCC as “additionality” – the mere presence of peatland or existing woodland on your land will not qualify for existing assurance schemes.
It is anticipated that similar voluntary assurance schemes relating to other forms of carbon sequestration (soil, hedgerows etc.) will follow as the markets for environmental and ecosystems services grow.
However, as these markets are relatively new, and the values of both carbon units and wider environmental benefits which may be associated with such activities are not yet clear, farmers and land managers should be wary about entering into these schemes at present.
Should you sell off carbon credits?
When considering to enter into a scheme to sell off carbon credits, make sure to consider the following:
· Experience and profile of investor there have been much publicised criticisms of carbon sequestration schemes being used for so called greenwashing – could being associated with one of these have an adverse reputational effect on your business?
· Quality of project proposed – does it (or will it) fall under the parameters of the Woodland Carbon Code (WCC) or Peatland Carbon Code (PCC)? Does the investor have the tools and skills to structure the project so that it complies with the relevant assurance code?
· Term of project – the longer the term is, the more risk of losing out on higher carbon values in the future. Woodland can easily prove to be a 50+ years project. This may involve tying in future generations or purchasers.
· Risk – can you deliver what you are contracting to? Contracts often refer to Pending Issuance Units (PIUs) a promise to deliver a carbon credit in the future, based on predicted carbon sequestration. If you cannot meet the relevant criteria, you may not be able to deliver on that promise. What about the implications of adverse weather conditions or natural disasters?
· Other terms of contract – are there any that mitigate your risk? Is there any “sink fund” across other projects?
· Wider implications – if you sell your PIUs, you will not be able to use these to off set your own activities/emissions and any activities carried out to deliver the scheme will most likely not be eligible for subsidy in relation to your own farming activities.
· Accountancy and tax implications - if agricultural activities cease, APR will no longer be available.
What is the position on Tenanted Holdings?
Briefly, the TFC has issued interim guidance on the subject of securing tradeable carbon credits on agricultural holdings. Under the law as it stands, where activities under a carbon credit scheme are not agricultural Landlords also require to consent to any such projects and Landowners asked to do so should also consider the implications of being bound to the whole term of any project in the event that the tenancy ends.
Ultimately entering into a Carbon Credit scheme could be beneficial, however it is essential to consider all moving parts of the contract to determine whether or not is right for you. Our expert team of agricultural solicitors are on hand to find the best solution for you and guide you through the process.
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