How to get a carbon-based income from woodland
© Tim Scrivener On-farm tree planting is linked to diversification opportunities, extra revenue, better farm productivity and meeting wider environmental goals – with trees being able to lock up carbon and support nature recovery.
For farmers looking to make money from woodland through the sale of carbon credits, there is a recognised scheme – the Woodland Carbon Code (WCC) – that operates in the market, providing protection and confidence for both buyers and sellers.
In England, Scotland and Wales, the WCC acts as the rulebook and gives formal recognition to the potential of woodlands to soak up carbon dioxide from the atmosphere and provide a host of other benefits.
See also: The benefits of trees for farm net-zero
Woodland Carbon Code – the basics
To meet the requirements of the Woodland Carbon Code (WCC), woodland projects must:
- Be registered, including exact locations and long-term objectives
- Meet national forestry standards, so that they are sustainably and responsibly managed
- Have a long-term management plan
- Use standard methods for estimating the carbon that will be sequestered
- Demonstrate that they will deliver additional carbon benefits
- Maintain verification for the duration of the project.
Over time, WCC projects undergo successive verifications, the first of which happens five years after the trees are planted, with subsequent verifications every 10 years.
This involves counting the growing trees, making sure the right number and species are there and that they aren’t being damaged by pests, disease or extreme weather.
There are costs associated with the code. While it is free to register with the UK Land Carbon Registry, there are one-off validation costs of £1,100-£1,400 for each project, as well as verifications costs every 10 years, of £1,600-£2,000 for every project.
Along with the Woodland Carbon Guarantee (see “What is the Woodland Carbon Guarantee?”, below), it sets a standard and gives an agreed long-term price for the carbon accrued.
It also encourages a consistent approach to woodland carbon projects, ensuring that woodlands are managed to national standards, and addresses the key concepts of additionality and permanence.
This means that all carbon credits coming to the UK market represent permanent sequestration of carbon dioxide that would not have happened otherwise.
What is the Woodland Carbon Guarantee?
The Woodland Carbon Guarantee (WCG) is a £50m government scheme designed to stimulate woodland creation in England.
Developed to ensure permanent removal of carbon dioxide from the atmosphere, in line with the government’s 25 Year Environment Plan, it was introduced in November 2019 and started in early 2020.
The WCG sits within the Woodland Carbon Code framework and is one route to market.
It provides farmers with the option to sell captured carbon, in the form of verified carbon credits, to the government for a guaranteed price every five to 10 years, up to 2055-56.
If they prefer, farmers can choose to sell the credits on the open market, rather than to the government.
The guaranteed price is intended to give long-term certainty and is set at a level that makes investment worthwhile.
Contracts are awarded through sealed bid reverse auctions every six months, and winning a contract under the scheme gives sellers the option to sell carbon credits to the government at a guaranteed price.
Carbon income
For farmers and landowners there are two ways to realise carbon income through the code.
An upfront sale of future carbon via pending issuance units (PIUs) as the wood is planted is one option.
The other is to wait until the carbon has been sequestered and sell it in the form of woodland carbon units (WCUs), which may take 15-25 years.
Both routes have advantages and disadvantages, so may lend themselves to different types of woodland creation projects and business structures.
Either way, carbon credits can bring forward revenue from a woodland, as well as providing additional income, but they aren’t a complete solution to making woodlands pay, says Ashley Hardaker, lecturer at Bangor University.
“There are long timescales involved in woodland creation,” he warns.
“The Woodland Carbon Code is a means of bringing extra finance into woodlands, but it’s important to realise that the earlier you take the money, the less it is likely to be.”
Selling carbon credits early at a cheaper rate or waiting for more income in future years is an individual choice, he says, but there are risks associated with both that farmers need to appreciate.
Risk recognition
“Once you allow carbon to leave the farm, it goes onto someone else’s balance sheet,” he stresses. “In the push to hit our net-zero targets, that might come back to haunt you.”
Carbon credits can only be used once – farm businesses can sell them to a third party to compensate for their emissions or they can use them internally to set against their own emissions, explains Dr Hardaker.
His other point is that trees can fail or die, so there is a risk of reversibility.
“Climate change, wildfires and other events can be disastrous. It’s not like losing a wheat crop – there are far greater repercussions from losing a woodland, especially if you’ve already committed the carbon.”
That is a point that Emma Stewart, carbon markets project manager at the Forestry Commission, also emphasises.
“You have to replant in the case of catastrophe,” she says. “You can’t just leave it to natural regeneration – the ‘rules’ are very clear on this.”
She adds that there is an in-built buffer pool in the WCC of 20%, so that if something goes wrong, carbon that has been sold forward is still available to buyers.
“It works by taking PIUs from every project and holding them in a central pool. It’s a bit like insurance.”
While there are grants and annual maintenance payments available to support new woodland creation – with the England Woodland Creation Offer being just one example – most schemes involve a hefty amount of bureaucracy.
The recent announcement that the England Woodland Creation Offer will become part of Local Nature Recovery in the Environmental Land Management scheme from 2025 means that existing agreement holders will be able to transfer into the Local Nature Recovery tier in due course, removing one of the reasons to delay tree planting.
Carbon value
In terms of the carbon market, most businesses are not required to offset their carbon emissions yet, which means it is the buyers who dictate the market price.
As the market is largely voluntary, the composition of the woodland and its narrative can determine the price paid.
At the time of writing, the last auction saw WCUs achieving an average price of £23.70, while PIUs were going for £5-£8.
The next auction takes place in November 2022, so expect these averages to change.
According to the Forestry Commission, prices paid vary in the private market and the value is affected by vintage, but £10-£25-plus a unit is a good guideline, with woodlands generating between 100-500 units/ha.
As one unit is equivalent to 1t of carbon, that means the total income is anywhere between £1,000-£12,500-plus/ha.
There is no minimum size of woodland to enter the WCC, but there are costs associated with the necessary validation and verification, so it may make sense to group small projects together, points out Ms Stewart.
“Usually the price for a tonne of carbon determines the economic level of woodland creation that is viable,” she says. “Some projects are currently earning up to £40/t carbon dioxide equivalent, which makes most sizes viable.”
Otherwise, there is funding to support a new project from the England Woodland Creation Offer, which provides a one-off payment of £8,500/ha followed by annual maintenance payments of £300/ha for 10 years.
Additional amounts of up to £8,000/ha may also available for woodlands that provide wider social and environmental benefits.
The Woodland Creation Planning Grant offers as much as £30,000 towards the planning of a woodland project.
Whole farm situation
Dr Hardaker prefers to think of woodland as part of the whole farm unit, where it acts as a carbon pump that has an important role in mitigating some of the farm’s greenhouse gas emissions.
As reaching carbon neutrality on farms will become very important in the next five to 10 years, he advises caution so that incomes from woodland carbon credits isn’t given priority over the farm’s carbon situation.
“Think about what could happen if robust regulations are introduced and farms start to be taxed on their emissions. In that situation, woodland will be a really important feature.”
For this reason, planting a woodland should be a complementary activity to the farming business, not a cost to it, he says.
But balancing what it costs to establish with the income that can be generated from it is tricky.
“As farms make sensible changes as part of the transition process, woodland can be a useful income stream,” Dr Hardaker says.
Once these changes have occurred, stable farm businesses will be providing healthy food, landscape, biodiversity and employment, all of which give a higher-quality carbon offset.
“When you can show carbon sequestration and a range of other benefits, you are likely to get a greater reward – both from carbon markets and from what it does for the rest of the farm.”
Natural capital markets are in their infancy, he says, but they could also apply to woodland.
“Stacking of income streams is a distinct possibility – after all, a piece of woodland ticks a number of boxes, from erosion and pollution control to flood management and habitat creation.”
Hedgerow Carbon Code
Farmers who want to unlock the income generation potential of hedgerows in the same way as woodland are watching the Hedgerow Carbon Code pilot scheme with interest.
The Game and Wildlife Conservation Trust (GWCT), which used grant funding to develop the new code, is hopeful that it will become the quality assurance standard for hedges.
Testing has started on three arable farms in England, with the goal of recognising the carbon sequestration and biodiversity benefits of hedgerows and finding ways to reward farmers for planting and maintaining them.
In a similar way to the Woodland Carbon Code, it will calculate and verify the carbon capture potential of hedgerows, leading to the production of carbon credits that can be traded.
As Alastair Leake of GWCT explains, the fledgling code should encourage improvements to hedgerows and provide access to a market with a potential value of £60m.
“Hedges sequester carbon at twice the rate of woodland because of their three-dimensional linear structure.
“There are plenty of old hedgerows on arable farms, for example, which are no longer needed for their primary function of containing livestock, so there’s no incentive to maintain them,” he says.
By attaching a value to them, this could change and prompt farmers to plant, manage and restore them, he believes, helping the farming industry to reach its net-zero target.
The new code also has the potential to be developed further to monitor hedgerow biodiversity, for calculating biodiversity credits for natural capital markets.
Transition Farmer Andy Bason
A 10ha wood is being planted by Transition Farmer Andy Bason in Hampshire, with one of the farm’s less productive arable fields being used for the project.
While carbon capture and biodiversity gain are possible future income streams from the wood, they were not the main reasons behind the original decision to go ahead.
Leaving the land in a better state and creating a legacy for future generations were uppermost in the owner’s mind, as was the use of nature-based solutions that work for the wider landscape.
Some 20,000 trees will be planted, with 80% being native species and 20% non-native, thanks to funding from the England Woodland Creation Offer.
In addition, a pond and some rides and glades will be included, to provide more for wildlife.
The plan is for the wood to link up with other habitats, so new hedges will also be planted.
What about cashflow?
There are two main considerations when looking at the income you can make from a woodland project.
The first is that the rate of carbon sequestration in a growing wood changes throughout its lifetime.
Slow growth initially, together with soil disturbance that occurs with ground preparation, means many woodland creation projects barely break even carbon-wise by year five.
After 15-20 years, the trees have laid down good root systems and are growing rapidly, with sequestration rates increasing, too.
Second, releasing income from the sale of woodland carbon units (WCUs) takes a very long time but achieves higher prices.
Whereas pending issuance units can be sold upfront, most projects won’t have many WCUs to sell until 15 or 25 years down the line. If you can afford to wait, WCUs can be lucrative.
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