The falling price of carbon credits, and the Woodland Carbon Guarantee Scheme (WCaG).
DEFRA have brought in a reverse auction system whereby landowners seeking to create woodland in England over the next 30 years can bid to secure government issued carbon credits, through competitive bidding to establish a market level for a carbon unit.
Three auctions have been held to date, with the average price per unit dropping from £24.11 (Jan/Feb 2020) to £19.71 (June 2020) to £17.31 (October 2020).
The fourth auction is taking place as this article is written and the outcome is so far unknown. However, a trend of falling carbon prices is one which potential bidders need to carefully consider.
A carbon unit equals one tonne of Carbon sequestered in a Woodland Carbon Code verified woodland.
The scheme is a 35-year scheme and unlike previous woodland grant schemes, payment isn’t receivable upfront. Payments are due every five or ten years once the new planting schemes are operational and the carbon units can be verified.
These payments can either be through a guaranteed contract with the government via the reverse auction process, or you can sell your carbon in the open market instead.
Having assessed an example of a publicly registered project for 17.51 hectares (43.26 acres) of newly created mixed woodland to include Hornbeam, Alder, Sweet Chestnut, Oak, Douglas Fir and Birch, and applying £20 per carbon unit the estimated returns are as follows:
|Years since start date||PUIs to Project||£/unit||£ total|
The question is, at less than £20 a unit is bidding for a sale contract to the government worth it?
Payable at years, 5, 15, 25 and 34. If you are currently comparing arable gross margins, then answer is probably no.
Whilst currently shut, it is worth noting that woodland establishment grants may also be claimed in addition, should the Woodland Carbon Fund re-open, and likewise Countryside Stewardship Scheme funding is eligible too.
If you are looking for a secure income stream to generate guaranteed returns 15 to 25 years from now, at the same time as sequestering carbon, and increasing biodiversity as part of a wider farming strategy, on marginal land the scheme may be worth considering further. The other option in an emerging market is a sale of carbon credits on the Open Market to corporates or other entities looking to become Carbon Net Zero.
Both Government and private sectors are under continuous pressure to meet national and global targets, committing to be carbon net zero by 2050 and to being 75% of the way there by 2035. It may be a waiting game as perhaps the Dutch auction will turn into a conventional one where the carbon unit prices keep on rising!
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