The Government have announced that Biodiversity Net Gain (BNG) will go live on 12 February 2024. We caught up with one of our associates, Tom Beeley, a natural capital expert, to find out what impact this new legislation could have on developers and how landowners can use BNG as an opportunity to diversify their income.
From this date major developments in England, unless otherwise exempt, will have to demonstrate delivery of net gains in biodiversity. BNG aims to ensure that development leaves biodiversity in a measurably better state than before development took place intending to deliver positive outcomes for nature and better places for local communities.
Confirmation of an implementation date is a significant milestone for both BNG and the delivery of the Government’s Environmental Improvement Plan. BNG should ensure that new development contributes to the recovery of nature and will be fundamental in helping the country meet its target to halt the decline in species abundance by 2030.
BNG will be mandatory for new planning applications for major developments made under the Town and Country Planning Act (TCPA) 1990 from 12 February, subject to a few confirmed exemptions. Major development includes residential developments of 10 or more dwellings, or where the site area is greater than 0.5 hectares. It is anticipated that mandatory BNG will apply to applications for smaller-scale development from 2 April 2024.
Developers will need to use the statutory Biodiversity Metric to assess habitat loss resulting from development and the number of biodiversity units they will need to achieve the necessary 10% net gain in biodiversity. A biodiversity unit is determined by a combination of the habitat type, size, distinctiveness, and condition. Developers will use the metric to work out how many units they must compensate for.
Developers can achieve a net gain through compensation within the development site. Where this isn’t possible, they will be required to provide suitable offsite compensation (offsetting) on their own-, or third-party land. As an option of last resort offsets can be purchased from the government's statutory credit scheme, although these are deliberately priced to be unattractive.
The net gain in biodiversity will need to be provided for at least 30 years requiring long-term management and a legally binding contract for delivery.
The developing market for biodiversity offsetting driven by BNG provides an opportunity for landowners to diversify into habitat provision. Diversified income is available for those willing and able to enter into long-term agreements to manage land in a way which can demonstrate an uplift in habitat value. This can include the creation of new habitats on existing agricultural land for example converting poor-performing arable land into grassland or improving the management of existing habitats such as permanent pasture or woodland to enhance the ecological condition. Location is important with sites which improve the interconnectedness of habitats scoring more highly through the offset calculations.
Offsetting provides another option and can integrate alongside existing farming and stewardship options with some types of offset such as grasslands allowing for continued, lower intensity grazing as part of the long-term management.
Whilst there is no minimum area required, there are economies of scale to be achieved with offsetting schemes and small areas of less than 10 acres are likely to be costly to assess and manage.
It is important to recognise that these are long-term, legally binding schemes with no insubstantial costs to establishment and operate. Alongside costs of habitat assessment and legal contracts in setting up offsetting schemes, there will be costs of managing schemes in line with a contractual management prescription, monitoring costs and costs of sales. With a minimum term of 30 years most offsetting projects will be intergenerational and are likely to be regarded as permanent land use changes. As with any long-term projects careful tax planning may be required.
The are numerous habitat banks in development across the country, with offsetting expected to be on a reasonably local basis due to planning policy and the approach to offset calculation. However, it remains to be seen how the market will perform once BNG is fully introduced with uncertainty over unit demand, supply, and pricing.
Whilst some landowners are exploring the development of in-hand habitat offsetting projects, there are now a range of ‘habitat bank’ developers entering the market offering a range of joint venture or long-term lease arrangements to deliver schemes which may suit some landowners.
BNG is a key part of the government's commitment to its Environmental Improvement Plan to halt biodiversity decline and is seemingly here to stay. It gives landowners the chance to explore new nature markets with opportunities to fund long-term environmental projects. It is also expected that developer approaches to delivering habitat will need to adapt in the face of BNG requirements. Overall BNG represents a step change in how habitat provision is delivered and funded and should result in significant market change. There remain questions over how BNG policy will operate in practice, and we should expect policy to evolve as developers, landowners, local authorities, and other stakeholders work through the process.
Overall BNG would seem to provide further opportunities for farmers and landowners to diversify into environmental land management. However, Landowners considering providing habitat for BNG should be aware that these are long-term, legally binding projects with significant complexity. Whilst values paid for habitat offsetting are potentially attractive there are t costs in delivery and the market remains uncertain. Fisher Germans Natural Capital team are already assisting several clients with BNG projects and is available to discuss the options for those who would like to explore this market further. We have developed The Green Offset, a dedicated platform to help developers and landowners explore the market for offsetting.
Find out more about our natural capital consultancy services here.
