The storage and sequestration of carbon is on the radar across many industries at a global level. The UK is driving a green finance initiative with the aspiration of stimulating the carbon markets to improve greenhouse gas emissions and help tackle climate change. One sector which has already seen the impact of this is forestry.

The Woodland Carbon Code is such an initiative which – in simple terms – creates a market for the purchase of carbon credits or units (and this term is explained below) to fund new tree planting. It is managed across the UK by Scottish Forestry on behalf of the counterpart bodies in England, Wales and Northern Ireland.

Woodland creation sequesters carbon dioxide from the atmosphere and adds to the societal and environmental benefits that result from responsible woodland creation. The code describes itself as the quality assurance standard for UK woodland creation projects that claim carbon sequestration benefits, and allows those who have generated carbon to offset emissions against the planting of trees.

How does this work?

Landowners wishing to undertake woodland creation seek to register or validate their projects with the code. The code is designed to promote woodland creation which would not otherwise be taking place. This means that, generally, commercial forestry plantations won't be verifiable projects – to qualify, a scheme must be shown to only be economically viable with the benefit of the carbon sales.

The code generates carbon units. A carbon unit is one tonne of carbon dioxide removed from the atmosphere. These units are held in the UK Woodland Carbon Registry. As well as guaranteed (verified) carbon units, the registry also holds pending carbon units. The code describes these as a promise to deliver a carbon unit in the future. These can allow potential investors to plan to compensate for their future emissions and support future woodland creation.

Landowners have an investment asset to sell at the point that a project is validated (see below) and the promises to deliver a carbon unit are registered. Potential buyers will be able to view a project and units can be offered for sale via the registry. The code has published that companies in the UK are paying between £7 and £20 per promise to deliver a carbon unit and have reported that, as only a comparatively fewer number have been sold, it is not yet clear what price a verified carbon unit can expect to attract. A network of carbon resellers is also emerging and their contact details can be found on the code website.

In terms of costs to the landowner – in addition to the costs of going through the validation and verification procedures (see below for a summary of these procedures) – the registry invoices them at the rate of six pence per promise to deliver a carbon unit and these units are only activated on the registry on payment.

What is the current uptake?

The code has published its latest data from the registry and across the UK, as at June 2020, there are:

  • 237 projects awaiting validation – validation is the first step in the verification process and is an initial assessment of a project against the code eligibility criteria;
  • 157 validated projects pending verification – verification is an ongoing evaluation of the project against the code to assess how much carbon the project has sequestered and the continued management of the project. The first verification will be scheduled to take place five years after the last date of planting (or, for those projects starting before July 2011, 5 years after validation); and
  • 91 verified projects – after a project has been verified, it will require further verification at least every 10 years for the duration of the projects.

This equates to 19,953 hectares of woodland (of which 2,792 hectares are already validated). Upon verification, the promises to deliver created from validated projects can be converted into carbon units.

Coverage is spread throughout the UK and that includes a good mix of projects (at all stages) spread throughout Scotland.

Impact

Large UK businesses are now required to disclose their annual energy use, greenhouse gas emissions and related information. Verified units from code projects can be used by these businesses to compensate for UK-based greenhouse gas emissions.

With the goal of net zero carbon across the UK by 2050 (and in Scotland itself by 2045) and the Scottish Government goal of planning 15,000 hectares of woodland annually by 2025, the code provides opportunity for businesses to plan their pathway towards their own net zero goals. Specific projects could look to achieve carbon neutrality by investing in carbon units in tandem with delivery of a building, project or an event in the UK.

The code contains detailed requirements on the eligibility and ongoing management of projects so, as noted above, the code is not available for all planting opportunities. However, it is anticipated that the viability of tree planting across the UK will strengthen with this further layer of funding opportunity.

We, and many selling agents we are speaking to, are seeing more diverse interest in investment in rural assets in Scotland. The funding stream the code offers could open the door to investment in land which might not otherwise yield any return.

For those businesses looking at their own carbon accounting this is one of many emerging options to offset UK-based emissions and plan for their own net zero aspirations.

Contributors

Andrew Askew Blain

Senior Associate

Graeme Leith

Partner