As Scotland's renewable energy sector continues to expand, landowners are becoming increasingly familiar with habitat management plans, biodiversity enhancement, peatland restoration and other environmental measures associated with development. These measures are commonly required to secure or implement planning consent, mitigate environmental impacts or deliver enhancement alongside a wind, solar or battery storage project.
In many cases, planning is the principal reason for the works. That distinction matters: works required for the development are unlikely to satisfy the current additionality requirements of the Woodland Carbon Code or Peatland Code and may therefore produce no independently tradeable carbon units. However, that does not remove the need for clear drafting, not least because additionality requirements may change or vary in any other codes that may be developed. Therefore, documents should still address what environmental rights, benefits and restrictions may arise from the works; who may control, use or report any resulting environmental attributes; whether any wider biodiversity, timber or other value is created; and how the landowner's separate opportunities are protected.
“Natural capital rights” is not a single, universally defined legal concept. It may encompass carbon units, peatland, woodland or biodiversity benefits, environmental payments and other existing or future ecosystem services. Renewable energy documents should therefore distinguish carefully between the developer's rights to undertake planning-related works and any rights to register, report, use or monetise the resulting environmental benefits.
Why silence can create difficulty
Many existing renewable energy documents pre-date the growth of natural capital markets. They may permit the developer to carry out habitat management, peatland restoration or biodiversity enhancement, and may oblige the landowner to enter into planning agreements or observe long-term management restrictions, but say nothing about the parties' rights to use, report or make claims in relation to those works, or about any environmental or commercial value that may arise. Silence leaves uncertainty over those matters, particularly where the landowner bears restrictions on the land long after construction.
Current scheme rules may determine whether any carbon asset arises at all. A separate landowner scheme would therefore need to be kept distinct from the developer's planning obligations and assessed independently against the relevant Code. Even where no eligible carbon units arise, the documents may still need to regulate project reporting and environmental claims, prevent double counting, allocate any wider environmental or commercial value and preserve the landowner's ability to pursue genuinely separate schemes elsewhere.
Ownership and project rights are different issues
A developer will usually need rights to survey land, undertake environmental works and comply with planning conditions or other project requirements. Those rights do not necessarily give it exclusive control over every environmental claim or benefit associated with the works. The agreement should distinguish the developer's rights to use and report the measures for the purposes of the relevant project from any separate environmental asset that may be capable of registration or monetisation. Where such an asset can arise, the documents should specify who may register the scheme, make claims, sell or retire units and retain any income.
Points to address in the documents
The heads of terms should establish the commercial principle at an early stage. Waiting until the lease is negotiated may be too late, particularly where an option period restricts grant applications, land management or competing projects. The option and lease should then work together and deal with the following matters.
- Scope: define the rights, claims and benefits broadly enough to include, where capable of arising, carbon units, peatland, woodland or biodiversity benefits and other existing or future environmental schemes.
- Control: distinguish between the right to carry out works and the rights to use, count or report their outcomes and, where a registrable asset arises, to register, claim, sell, transfer or retire it.
- Habitat-management land: identify it clearly, limit it to what is reasonably required for the development and consider whether a maximum area and separate rent or compensation for its use and restriction are appropriate. Any such payment should be treated separately from the ownership or use of environmental credits or benefits arising from the works.
- Project use: address how the works and their outcomes may be used or reported for the relevant project and whether any eligible units or other transferable benefits may be used for another development, subject to the applicable planning and scheme rules, the parties' agreement and, where appropriate, additional consideration.
- Planning agreements: ensure that obligations entered into separately do not cut across the agreed allocation of natural capital rights, and allocate performance, costs and liability clearly.
- Duration and release: explain what happens if land is no longer required, the project does not proceed or the lease ends, including whether planning or management obligations survive, who remains responsible for management and monitoring, and who bears the continuing costs.
- Scheme requirements: recognise that works required for the development are unlikely to satisfy the current Woodland Carbon Code or Peatland Code; preserve the landowner's ability, where practicable, to pursue a genuinely separate scheme on other land; allocate responsibility for compliance and records; and prevent incompatible claims or double counting.
Wider commercial considerations
Habitat-management land should also be considered as part of a wider estate strategy. Some landowners seek to provide only the minimum land required, retaining other areas for farming, forestry or genuinely separate natural-capital opportunities, while developers may seek alternative or off-site land if the preferred area is unavailable. Even where no eligible Code units arise, the works may still have ecological or project value and may affect the landowner's use of the land. In some cases, they may also create a distinct commercial asset, such as timber from commercial planting funded by the developer. The parties should therefore define the required land carefully and consider whether separate compensation is appropriate.
A question to address early
The key consideration is therefore not simply who "owns" a credit, particularly where the additionality hurdle means that no tradeable carbon unit arises. It is what environmental rights, benefits, claims and restrictions may result from the works, who controls and benefits from them, and how the landowner's separate opportunities are protected. Those matters should be agreed at heads of terms stage and reflected clearly in the option, lease and any related planning agreement.
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Senior Associate
