Natural Capital and Land Recommendations for a Just Transition

The Scottish Land Commission (SLC) published Natural Capital and Land: Recommendations for a Just Transition in June 2022.

The report makes recommendations to the Scottish Government on how investment into Scotland's land and natural capital can be attracted in a "fair and effective" way.

The backdrop to the SLC report is the concept of a "just transition". The Just Transition Committee was established in 2019 to advise on how just transition principles can be applied to climate change action. The Committee's Interim Report from 2020 summarises the meaning of a "just transition":

“The imperative of a just transition is that Governments design policies in a way that ensures the benefits of climate change action are shared widely, while the costs do not unfairly burden those least able to pay, or whose livelihoods are directly or indirectly at risk as the economy shifts and changes.”

The report contains 3 sets of recommendations which the SLC considers will shape land markets and emerging natural capital markets in the public interest.

Creating Effective Market Frameworks

These recommendations look at putting in place regulatory steps in order to improve accountability and participation in the land market and the carbon market. The SLC highlights that the land market in Scotland has relatively little regulation, and the carbon market currently has no regulation.

The SLC refers to its previous work which set out its view that the risk of concentrated land ownership is the concentration of power and localised monopoly power. The SLC claims that emerging new financial value associated with carbon will result in the benefits of Scotland's land becoming further concentrated and that this strengthens the case for measures that improve accountability in land ownership.

Recommendation: the land reform bill includes the proposals previously put forward by the SLC - a public interest test for large-scale land transactions, an obligation to prepare and engage on a management plan and increased implementation of the Land Rights and Responsibilities Statement.

NB – the Scottish Government's Land Reform in a Net Zero Nation: Consultation Paper was released on 4 July, and includes these measures.

The SLC note that there are a large number of people and communities who are unable to participate in the land market, thus limiting the diversity of the land ownership, because they are unaware of the opportunities for land acquisition.

Recommendation: a mandatory requirement for prior notification of intended sales for land holdings above a threshold.

The SLC sees a need for more widely available data regarding land market conditions, so that it can inform public policy and support an effective market through transparent information.

Recommendation – regular land market reporting is established between the SLC, Registers of Scotland and the Royal Institution of Chartered Surveyors and other relevant partners.

The SLC also advises that early consideration should be given to the regulation and governance of carbon markets and other natural capital markets. The SLC makes reference to the risk of poor environmental outcomes as a result of insufficient regulation and inequitable distribution of the benefits.

Recommendation – when establishing market design for carbon and natural capital markets, particular consideration should be given to standardisation and pricing in measurement, accreditation and pricing; buyer verification that will ensure land is not used to offset avoidable emissions; embedding community benefit requirements as a condition of market participation and sufficient independent oversight to monitor compliance.

Governance and leadership

In addition to looking at the function of land and carbon markets, the SLC considers that there is a need to focus on land governance arrangements – referring to the way that land rights and decision making are structured.

The SLC identifies that land held by public bodies should lead the way in terms of public interest land ownership and more diverse structures, with specific reference being made to the SLC collaborating with Crown Estate Scotland to bring together community owners, potential investors and Crown Estate Scotland.

Recommendation – a proactive approach to supporting collaborative ownership which includes the public estate providing leadership in developing collaborative models, with SLC and the Crown Estate collaborating to pilot facilitation of community led acquisition and re-stablishing the Community Land Ownership Leadership Group.

Regional Land Partnerships have been piloted by the Scottish Government in five areas. The SLC has previously advised the Scottish Government that Regional Land Use Partnerships are an opportunity to broker finance and direct it towards regional priorities.

Recommendation – empower Regional Land Use Partnerships as a means of aligning land use priorities.

Fiscal and Tax Policy

The SLC considers the role of public support in creating favourable conditions for specific land uses, with specific reference to woodland expansion. The report notes that there is a risk that public funding fuels land values in an already buoyant market.

Recommendation – the targeting of public finance for land use is kept under review in order to maximise public value, with consideration to be given to adjustments in eligibility and intervention rates to better target public grants and increasing the conditionality expected in return for public finance.

The SLC considers that taxation policy can shape decisions relating to land use. In January 2022, the SLC set out recommendations to the Scottish Government relating to taxation and land reform and these included establishing a programme to bring all land onto the valuation roll, and further consideration of increased rates of Land and Buildings Transaction Tax and the use of reliefs and exemptions in a way that would support diversification of ownership.

Recommendation – consideration is given to the role of taxation as a means of securing public value from financial value associated with carbon.

Conclusion

The SLC summarises that its recommendations are aimed at creating "conditions for the land and natural capital markets to function well".

However, it is interesting to take a step back, and consider the drivers behind the shaping of the land and natural capital markets. The report concludes that the land and natural capital markets should be shaped to "help deliver the Scottish Government's land reform programme and establish high integrity and value led natural capital markets".

Clearly the SLC not only sees the current operation of the markets (in particular the emerging carbon market) as strengthening the case for land reform, but also that the markets can help deliver the land reform programme. We can expect that discussions relating to the land and natural capital markets will play a key part in the land reform debate, as it picks up pace with the publication of the Scottish Government's land reform consultation earlier this month.