What are farm tenants’ rights when it comes to carbon markets?

Carbon markets and other private environmental markets and are expected to expand rapidly over the coming decades as businesses are required to meet environmental targets. Prices in these markets are likely to increase, as both quality standards are introduced in these markets, and as demand for offsetting increases as businesses have to clearly demonstrate their carbon reduction credentials. But what does this mean for tenant farmers who want to be involved in the private environmental markets? 

Awareness of private markets is growing, however, confidence in the markets and how they work for tenants is still lacking.

What are the challenges for tenants who want to engage with private markets?

• Agricultural Holdings Act 1986 (AHA) tenancies and Farm Business Tenancies (FBTs) nearly always restrict land use to agricultural use only. As such, any environmental projects can only be achieved within an agricultural context, such as increasing soil carbon rather than land use change projects such as tree planting and peatland restoration which will require the consent of the landlord.
• The time period in private market agreements require long term commitment (can be between 5 and 30 years) which restricts those with short-term or year-to-year tenancies.
• It can often be expensive or difficult to exit the scheme early if there were any unexpected changes in the tenancy.
• There is concern that that income for landowners from private environmental markets could compete with income from agricultural rent in the future causing land to leave the tenanted sector of agriculture.

What to look out for and how to get involved

As with most things regarding private environmental markets, the eligibility for tenants depends on the scheme. Some will be available for tenants to join freely, others will need landlord’s consent, and others may require a tenancy agreement for longer than five years. It is important that tenant farmers review the different schemes or ask for advice as to whether they are accessible for those with rented land. The two regulated schemes in the voluntary market – the Peatland Carbon Code and the Woodland Carbon Code – have rules written (see below) for tenants looking to enter the market.

“Peatland Carbon Code – requires written consent from the landowner, including agreement that the obligation for delivery of the project shall be transferred to the landowner should the tenancy end before conclusion of the project.”

“Woodland Carbon Code – where land is tenanted, the landowner shall also commit for the project duration and beyond. The tenant cannot enter into a woodland creation scheme on the holding without written consent of the landlord.”

The general advice is for tenant farmers to engage with and involve landlords as soon as possible if they want to enter the private environmental markets. It is important to come to agreements about the responsibility of the carbon and other environmental goods, considering the contracts will require long-term commitments.

As previously discussed, one of the challenges is about restrictions in tenancy agreements around using land for agricultural purposes only. However, tenant farmers could be involved through activities that could be carried out alongside farming, such as carbon sequestration and nutrient neutrality.

The Rock Review suggests that whilst the ownership of pre-existing natural capital vests in the landlord, the more important consideration is how that natural capital is managed and enhanced which specifically relates to the activities of tenants. Tenants therefore should be rewarded for the maintenance and enhancement of national capital on land. However, there may also be scope for joint landlord/tenant agreements both in the public and private sectors.

It is possible for tenant farmers to be involved in environmental markets, but it is essential to read the detail of the schemes regarding tenanted land, review the current tenancy agreement, and engage with landlords to get consent or collaborate on the projects. AHDB will continue to keep updated and produce analysis on carbon markets: keep up to date on the carbon markets webpage.

Do you have a question regarding carbon markets? To get in touch, email carbon.markets@ahdb.org.uk

Thanks to the Tenant Farmers Association for advice when producing this article.