Nutrient mitigation market merits careful consideration
© Greenshank Environmental Headlines about housebuilding being held up by environmental measures have abated to some extent, but the need to ensure that new development does not increase the nitrogen and phosphate loading of water bodies remains.
Nutrient mitigation measures are in place across 27 river catchments in 74 local planning authorities.
This means developers have a legal requirement as part of their planning permission to demonstrate that their projects are “nutrient neutral”.
See also: Biodiversity units market may be a volatile one
Mitigation can be achieved on-site, but additional off-site measures are often needed to fully meet the requirement, with landowners and farmers being paid for these services.
In many cases, this involves creating wetlands or otherwise changing farmland use, for example by ceasing or reducing pig, poultry or dairy operations.
This is just one of several nature markets through which land managers can earn by making improvements that benefit nature.
Demand for nutrient credits is variable, but in general, this is considered a seller’s market, particularly in areas where the pressure is greatest.
This includes the Tees catchment, Stodmarsh in Kent, the Eden in Cumbria and catchments in Norfolk.
The election of the Labour government has increased pressure for economic activity, especially housebuilding, but there are factors holding back the creation of nutrient credits.
What is nutrient mitigation?
Nutrient mitigation is a statutory requirement to ensure that new developments do not add to phosphate and nitrogen loads in water bodies, where protected sites are already in unfavourable condition through the effects of nutrients.
It is achieved by reducing or capturing nutrients that would otherwise end up in protected water bodies.
Mitigation measures create nutrient credits, with 1kg of nitrogen or phosphate each requiring one mitigation credit. These are traded in private markets.
Statutory credits have also been created for Natural England in the Tees and Poole Harbour catchments.
These are generally created through wildlife trusts buying land on which to develop mitigation measures for Natural England. It is expected that statutory credits will be extended to further catchments.
Stacking biodiversity net gain and nutrient mitigation is possible.
Multiple credits for different nature markets are sold separately to the same or different developers from the same piece of land.
Uncertain times
These include general economic uncertainty linked to the housing market and interest rates. In addition, the taxation of payments for nature services like nutrient credits is unclear.
The previous government set out that land under statutory schemes such as Environment Land Management schemes, biodiversity net gain (BNG) and nutrient mitigation would continue to be eligible for agricultural property relief from inheritance tax from April 2025.
However, this was never put into legislation, nor has the tax treatment of the income or any capital gain from providing nature services been set out.
A working group on this was set up by the previous government, announced in the March 2024 budget.
“The tax question has big impact and is holding things up,” says Edward Venmore, a partner in law firm Foot Anstey, which acts both for landowners and developers.
“Also, we have not seen anything in terms of the new government’s policy on nutrient mitigation, and there is a serious lack of ecologists.”
The long-term nature of nutrient mitigation agreements, which range from 80-125 years, is also a factor in landowners’ reluctance to engage with the concept.
Any landowner considering this market should engage early with advisers, including lawyers, land agents and ecologists in order to properly assess the potential and to line things up in a timely fashion, says Edward.
Sellers’ market
In many areas there is a lack of supply, which means it’s a seller’s market, say advisers.
In catchments like the Solent, much of the mitigation providing nutrient offsets is based on stopping agricultural activity.
Consultancy Greenshank Environmental is developing alternatives, arguing that taking land out of production is not cost efficient and has implications for food security and for rural livelihoods.
Such schemes are rarely cost-effective for phosphorus, says the firm’s chief commercial officer, Kim Connor-Streich, as so much land is needed to make them financially viable.
However, land use does work in areas where nitrogen is the nutrient concern, but it is very inefficient, he says.
Greenshank’s alternative options include catchment management measures such as riparian buffers, river restoration and reprofiling drainage ditches, creating mini wetlands on flood benches in times of high flow.
Kim gives the example of a 200m stretch of ditch where 1m shoulders are created on both sides of the ditch to allow phosphates to settle out and nitrogen to cycle.
In addition, a 10m buffer area is needed on both sides, with the remaining land being farmed conventionally.
“These solutions have relatively low land take, are supported by evidence agreed with Natural England, are relatively quick to deploy, often with machinery already on the farm, and are backed by the regulator,” he says.
“We look at the upstream agricultural activity within the watershed to determine the nutrient inputs, with larger areas increasing the scheme potential.”
Greenshank has used its drainage ditch approach in combination with other nutrient mitigation measures on a Somerset farm.
200m ditch example
As an example, a 200m stretch of ditch treated in this way could yield a payment of between £1m-£3m, he says.
This is paid at the start of the agreement to cover the whole 80- to 125-year term. Kim estimates the costs as follows:
- Legal fees – £10,000
- Natural England fees – £2,500
- Local planning authority monitoring – £15,000 (fees and long term monitoring)
- Physical works – about £10,000, if carried out by farm staff and with kit already on the holding.
Greenshank works at its own risk, charging a flat fee of 20% of any revenue only if a project is successfully implemented.
Mitigation market
It’s not just farmland that is providing nutrient mitigation, says Hugh Townsend, director of Devon-based Townsend Chartered Surveyors.
Upgrading septic tanks is one other measure, while some fish farms have been paid to cease production.
His firm brokers private sales of nature market services and holds a tender every six weeks for biodiversity net gain (BNG), nutrient mitigation, water and carbon credits.
“Nutrient mitigation is not an easy market, because it’s not homogenous like BNG,” he says. “Uncertainty has hampered it, we still don’t know about the tax side.”
However, for pig, poultry, fish and some dairy farms to quit or reduce production, it is an opportunity to secure a significant payment to cover a long-term commitment.
“In many cases, it makes sense to add nutrient mitigation on land where BNG measures are taking place, and this combination is very attractive to local planning authorities,” says Hugh.
Nitrogen credits are currently worth in the region of £2,000-£4,000, depending on the catchment, he says.
As an example, one hectare of cereals can produce up to a maximum of 21- 28 credits, dependent on catchment, converted to pasture and dependent on soil drainage and rainfall.
Phosphate credit values vary widely, says Hugh, but are generally worth £60,000-£75,000, with one hectare of cereals providing a maximum between 1-1.7 credits.
These amounts are dependent on catchment, soil drainage and rainfall.