Money now or money later – The pros and cons of woodland carbon

The need for farmland diversification is becoming increasingly evident, but one thing is clear: it must be financially viable.

Farmers who are looking to diversify their less productive farmland into woodland can generate woodland carbon units either to sell to companies looking to offset their carbon footprint, or for insetting to offset parts of their farm’s carbon emissions that are simply not possible to decarbonise further.

A Woodland Carbon Unit (WCU) represents one tonne of CO₂e (carbon dioxide equivalent) that has been removed from the atmosphere by growing trees.

Their forerunner, Pending Issuance Units (PIUs), represent a ‘promise to deliver’ a WCU during a given period.

As a farmer, if you are looking to sell and earn added revenue through the sale of woodland and forest carbon credits, should you do it now or wait and do it later?

Money now: Registering your carbon credits to sell

Pros:

• ‘A bird in the hand is worth two in the bush’. If prices for PIUs are already meeting or exceeding your expectations, it could make sense to lock in these gains while you can, as the future is always uncertain.
• The sale of PIUs could generate welcome capital to re-invest and reduce the carbon emissions from your farm, to diversify your farm income or to improve your farm’s productivity.
• The sale of PIUs is not currently subject to income or capital gains tax; however, this might change as the market grows. As PIU values rise and as transaction volumes increase, we may experience a change in government policy.
• Carbon offsetting is only a temporary measure – eventually, technology will improve so that companies can operate without emitting any carbon dioxide. The price of carbon credits could therefore eventually return to zero. The potential as an income stream may therefore not be available in future years.

Cons:

• The sale of a PIU represents a commitment to the buyer that the trees in the woodland will capture the corresponding volume of carbon. This commitment represents a liability, so farmers need to be careful about over-promising and under-delivering.
• The market for PIUs and WCUs is still evolving. Carbon-related insurance policies are emerging, the accompanying legal contracts have yet to be standardised, and PIU’s prices are still relatively opaque. Farmers may prefer to wait until the market is more established and mature.

Money later: Register your carbon credits but sell later

Pros:

• Prices for PIUs have already increased from approximately £3 per PIU in 2019 to £20-£25 currently. Many expect that growth to continue with some market observers predicting prices above £60 per PIU by 2030, so farmers might be wary of selling the ‘family silver’ too cheaply.
• The failure rate of young trees is highest in the years just after planting. By selling PIUs in the early years of a plantation, the risks of over-promising and under-delivering on the woodland’s carbon capture are higher than if you wait until the trees are more established.
• If you wait for your PIUs to be verified and converted into WCUs before selling them, the legal agreements are more straight-forward and the liabilities to any buyer are less as you are selling a verified carbon credit (as opposed to a promise to deliver one).

Cons:

• The government’s farming policy is unclear. Will farmers need to achieve net zero? And, if so, will they be able to use PIUs and/or WCUs to achieve net-zero targets? The sale of PIUs or WCUs to another business may increase the difficulty of achieving net zero on your farm business in future years.
• Woodlands, especially broad-leaved ones, take over 70 years to capture their full potential of carbon. If you only sell woodland carbon credits once they are verified as WCUs, you will forego a large volume of potential income.

So, what next?

If you are considering planting trees on your farm, CarbonStore can help you deliver a woodland-based carbon mitigation project that not only achieves the highest possible standards in carbon offsetting but also offers many widespread benefits which we can all enjoy.

CarbonStore can offer:

i) Advice related to the Woodland Carbon Code

CarbonStore helps landowners gather and complete the lengthy and complicated documents and spreadsheets necessary to register, validate and verify a project under the Woodland Carbon Code.

ii) Act as project developer for schemes registered under the Woodland Carbon Code

This is a more involved relationship. CarbonStore helps gather and complete the documents, and also undertakes the commitments relating to those of a project developer, such as maintaining verification.

It also involves representing the landowner’s interests on the Land Carbon Registry.

iii) Co-ordinate group schemes and act as group project manager

Group schemes represent an opportunity for landowners to significantly reduce their costs of validation and verification.

CarbonStore’s knowledge of the Woodland Carbon Code, its experienced team and the volume of projects handled enables the provision of an efficient and effective Group Manager service.

iv) Arranging the sale and purchase of PIUs and WCUs by landowners and companies

CarbonStore has strong connections in both the rural and corporate sectors. With feet firmly established in both camps, they are ideally placed to help landowners sell their carbon credits and companies to buy them.

For more information on CarbonStore and how we can help, just get in touch by email david.mcculloch@carbonstoreuk.com or call David directly 07500 950832.