At its simplest, the idea behind environmental markets is appealing. 聽
The private sector could pay British farmers and growers for environmental goods such as carbon storage, water quality and biodiversity. Or, to put it another way, businesses could pay to offset their pollution or to enhance their green credentials.聽
It would be a win-win. Farmers would be rewarded for protecting the environment and supporting net zero goals with less reliance on the public purse.聽
So where鈥檚 the catch? Or should that be catches? 聽
鈥�These markets however can鈥檛 be turned on at the flick of a switch and will take time to develop and mature.鈥�
NFU Chief Economist Rohit Kaushish
Limited demand
At the moment, there is limited demand from buyers for the environmental benefits farmers can deliver. The only notable examples are small pockets emerging from water companies looking at nutrient mitigation and housing developers looking to purchase biodiversity and nutrient offsets to meet their statutory obligations.聽
On top of this, these markets are very localised and unlikely to reach a scale any time soon where they will be accessible to the majority of farming businesses. This might change if the agri-food chain looks to source more sustainable agricultural produce.聽
Recent developments have also seen regulators withdraw the use of nature-based solutions for catchment nutrient balancing. In addition, any potential softening of biodiversity net gain obligations of developers could also weaken demand from these already small markets.聽
Questions and challenges
Alongside the limited demand, there is the question of how these markets would be regulated and controlled to ensure they are fair and work alongside other income streams such as ELMs or SFI.
This is a very active area where the NFU is engaging with the British Standards Institution and green finance initiatives to help develop an appropriate governance framework that works for farmers and growers. Much work is ongoing to crack this challenging area and some positive progress is being made.聽
There also remain challenges around metrics. Can everyone agree on how these positive environmental outcomes could be accurately measured and valued?聽
Finally there is a question of timescales. Companies buying environmental benefits may require them to be in place for decades to offset their own long-term negative impacts on the environment. This places significant obligations and risk on farmers which could mean that they need to maintain habitat over multiple family generations.
皇家华人is working with a range of market participants to understand how these risks could be better managed and shared between those who are set to benefit. 聽
Filling the funding gap
Ultimately, these markets serve a very different purpose to the Defra farming budget and have limited potential to fill the funding gap as budgets are cut, given they are at such an early stage of development with many fundamental building blocks still needed to be put in place.
Over time these markets may deliver a larger number of localised opportunities, offer a valuable source of income and may even deliver greater value or market access to farmers if embedded in supply chains. 聽
These markets however can鈥檛 be turned on at the flick of a switch and will take time to develop and mature. By contrast, government budget cuts would have more profound short- to medium-term impacts which such markets will not be able to address. 聽
