Guy Thompson is managing director of EnTrade, an online marketplace in accredited environmental services, formerly he was director of Green Alliance and founding executive director of Natural England.
What will the Environment Bill do? It’s been widely heralded as a world-leading benchmark in environmental legislation. And a new architecture of legally binding targets will indeed create a powerful framework for action on the ground. But targets alone will not deliver on the government’s ambition that we will be the first generation to leave the environment in a better state. MPs at last week’s Second Reading of the bill were right to call for more clarity and, as Ruth Chambers points out, too much hangs on unpublished policies and strategies.
The impacts of climate change are no longer a future threat, they are here now, as the floods are demonstrating. Weekly, news stories tell us that nature is in crisis. And parts of the country are blighted with poor air and water quality. To have a chance of meeting these challenges within a generation, we need clarity about both the targets and delivery mechanisms. And about how the targets will be defined and translated into binding obligations. We also need delivery mechanisms that will create the right incentives to achieve these targets. The 25 year environment plan was a good start, but we need more flesh on the bones now.
The new approach to land use has to make business sense
Solutions that improve our air, water, nature and lead to natural carbon sequestration all require significant changes in land use. But this will only be possible if it makes long term business sense to those who own and manage land. Landowners and managers must be rewarded for the true value of the environmental services they offer. Incentives will have to compete with other high value land uses, particularly housing. This can’t be achieved by public funding alone.
Bringing public and private sector funding together efficiently must be a key design feature of any new system. We know the private sector wants to play its part, as we have seen with companies like Lloyds Bank, Sainsbury’s and Microsoft pledging net zero commitments.
Last week, Defra outlined its proposals for a new system of ‘public funding for public goods’, the Environmental Land Management Scheme (or ELMS). However, the proposals only carry a single reference to blended funding and the overall approach bears a striking resemblance to the previous EU grant schemes this system is supposed to replace.
We urgently need a conversation about how private finance should be integrated with public funding to deliver nature-based solutions. And how they can be balanced with other needs from land, for housing and food production.
The benefits of a market mechanism
Nature fundamentally works at a place-based level and every piece of land is unique. The true value of the environmental services delivered will be most effectively revealed and properly rewarded through a well-designed market mechanism. Markets can bring multiple buyers and sellers together, to promote innovation and deliver environmental services more efficiently than mechanisms based on grants or subsidies alone. Given the scale of the challenge, innovation and efficient delivery will be critical.
There are two immediate steps the government could take to help develop this market:
First, as the Broadway initiative is arguing, the private sector needs a level playing field and long term certainty to invest. A few targeted changes to the Environment Bill would make it more coherent and empower businesses and local communities to build environmental improvement into their activities by design rather than having to second-guess regulation.
Second, the government should open dialogue with business and NGOs on how to combine public and private finance, and what a liquid environmental market might look like, and define the roadmap to establish it.
Globally, we have over 25 years of experience of environmental markets in air quality, energy efficiency and, more recently, water quality improvement to draw on. An effective market could include:
- clear enforceable obligations on particular parties, eg water companies, land developers, government agencies;
- standards and accredited methodologies, like the Woodland Carbon Code
- robust independent verification and audit of environmental outcomes;
- opportunities to trade in credits, and even a nature recovery futures market.
To avoid crowding out private investment, the government should clarify what environmental gains it wants from public funding. The transition to ELMS could be used to pilot local environmental marketplaces to explore the returns on public goods it wants to see from public funds, and what could be paid for privately, just as it does with flood defence spending.
Providing environmental services through a market mechanism is not without its challenges. But co-designing a new market could create new momentum to bring the public, private and voluntary sectors together to solve the nature crisis.
Stepping away from command and control EU regulation, based on end-of-pipe standards, towards an outcome focused market for solutions, will liberate people at the coalface to focus on the innovation and delivery that could restore Britain’s nature within a generation.