A NEWLY published interim guide will help landlords and tenants of agricultural holdings benefit from and avoid potential pitfalls around carbon credit trading.
The climate emergency has created the rapidly emerging market in carbon trading where certain activities which remove carbon from the atmosphere can be sold on or used to offset other emissions.
Reports from the Institute of International Finance show the market for carbon credits could be worth $100bn by 2050 – up from about $300m in 2018 – and with more than 98% of Scotland’s land mass classified as ‘rural’, the nation is expected to play a huge role in carbon credit trading over the next three decades.
Now Tenant Farming Commissioner, Bob McIntosh, has published a guide which outlines the implications for landlords and tenants wishing to acquire carbon credits from initiatives such as woodland creation or peatland restoration.
Mr McIntosh said: “The transition to net zero and the focus on meeting Scotland’s 2045 climate targets has sharpened attention on the capacity of land and land management activities to lock up carbon in the soil or in vegetation growing on the land.
“Government grants are used to encourage activities such as woodland creation and
peatland restoration and the emergence of a market in carbon, and the ability to trade
carbon credits, is providing another incentive to landowners and managers.”
The guide (An Interim Guide to Securing Tradeable Carbon Credits in an Agricultural Holdings Situation) explains the principles of carbon credit trading and the relevance to landlords
and tenants of agricultural holdings in Scotland as the situation currently stands – but further development of the carbon market is likely.
Voluntary Standards (Codes) are in place covering peatland restoration and woodland creation, however other Codes are likely to emerge for other land-based carbon sequestration such as soil carbon enhancement and hedgerow creation.
The Codes give carbon buyers assurances that the credits are generated by a responsible scheme and that the carbon benefits claimed have been properly validated. They have common features covering eligibility rules, validation methodology, project timescales and specify how and when carbon credits can be traded.
The Tenant Farming Commissioner warned anyone considering entering a carbon credit scheme needs to consider the implications relating to change of ownership of land over the course of a project, and the risk of natural events like storms or floods, which could potentially diminish expected benefits.
He said: “Entering a scheme generally involves a long-term commitment and disengagement part way through may prove difficult or expensive, so careful appraisal of all the implications is a necessity.”
The guide also highlights that a tenant or landlord wishing to acquire carbon credits from woodland creation or peatland restoration will face constraints not experienced by an owner-occupier.
Mr McIntosh added: “My guide explains that due to the requirements of agricultural holdings legislation and the conditions attached to the Carbon Codes, tenants cannot generally proceed with peatland restoration or woodland creation without the agreement of the landlord, and that landlords are limited in their ability to resume land without the agreement of the tenant.
“However, given the potential benefits of peatland restoration and woodland creation schemes to landlord and tenant, there is ample incentive for the parties to get together to explore the possibility of entering into a contractual agreement that enables a project to proceed in a way that benefits both parties.”
The guide recommends that an agreement will be needed between tenants and landlords on who will lead on delivering the project and how responsibilities, costs, and incomes are to be shared.
It concludes: “Careful consideration of the conditions attached to the Codes is required to ensure that the rights and responsibilities of both parties are established and that the agreement is robust
enough to meet the code conditions and to deal with future changes in landlord or tenant or in
the event that the project doesn’t deliver the anticipated carbon benefits.
“If agreement can be reached on all points, it is strongly recommended that the parties enter into
a legal contract that binds both parties to respect the agreements made.”