Carbon capture pitches smallholders against big business

Last year, having completed restoration of the peatland behind their homes, a band of 40 crofters on the remote Scottish island of Lewis learnt they might be in for a windfall.

The project will trap carbon, making them eligible for carbon credits under a UK government scheme. These can be sold for cash to a growing group of companies seeking to offset their emissions.

One year since the work was completed, vegetation is starting to grow on the land; soon limited grazing will be supported for the first time. “And now there may be a financial benefit, too. It’s a win-win,” says David Macmillan, 66, chair of the local grazing association.

But Macmillan’s crofters are not the only ones drawn to the new scheme. In the past 18 months, there has been a wave of land purchases by corporates and financial institutions seeking to offset their carbon or make money investing in carbon credits. This is driving land prices out of reach of many locals. Areas currently used for farming are being targeted for carbon capture, threatening local jobs.

Macmillan and his crofters are safe — they bought their home as part of a community purchase in 2016. But for many others living and working on the land, the current carbon bonanza feels less like a free lunch and more like the enemy at the gates. This raises a crucial question: who is Britain’s land for?

The rush to buy land for carbon capture is well under way. In three purchases in Scotland last year, an area two-thirds the size of Glasgow changed hands when BrewDog, Standard Life Investments Property Income Trust and — jointly — Par Equity and Aviva Investors, bought a total of 16,700 hectares, with the potential to trap up to 2.8mn tonnes of carbon.

This may be the tip of the iceberg. At a single agent, Savills, buyers with £2.04bn to spend are seeking land for its natural capital benefits, such as carbon capture. Elsewhere, institutional investors are poised to snap up vast tracts of agricultural land on which to plant trees, says Peter Chappell, head of investment at Tilhill, a UK forestry company. “There’s a huge amount of capital wanting to get into this as an alternative investment [class].”

Is our land an investment opportunity for people who are already wealthy to make more money?

The current buying spree helped push farmland prices up 31 per cent last year, according to Savills. This is beyond the budget for many local communities, who have longstanding ties with the land but who may derive only a modest income from it.

“You can’t make a living off crofting,” says Jackie Craig, 49, who lives in the neighbouring village to Macmillan. She returned to her childhood home in 2015, leaving a job with Royal Mail in central Scotland. It’s not an easy life — February saw the worst gales for several years — and Craig derives part of her income from weaving Harris Tweed. But in a good year, the mix of livestock and root vegetables provides half the food that she and her husband need.

Her family’s roots on the island go back more generations than she can recall. Macmillan’s family has lived on the island since the 1600s; his mother was born 50 metres from his home.

“Is our land just an investment opportunity for people who are already wealthy to make more money? That’s the big question,” says Ailsa Raeburn, of Community Land Scotland, which represents community landowners.

Large companies’ sudden rush to buy land for carbon capture is a response to the worsening climate crisis. On February 28, the latest report from the Intergovernmental Panel on Climate Change (IPCC) rang specific alarm bells for the land, noting that ecosystems are losing their ability to absorb carbon dioxide: many peatlands and forests — once carbon sinks — are becoming carbon sources.

Two new carbon codes backed by the UK government aim to reverse this shift, by rewarding landowners who sequester carbon by planting trees and restoring peatlands (which emit carbon as they dry), with carbon credits they can sell.

It has placed the free market at the centre of it strategy partly out of necessity. Eighty per cent of Scotland’s 1.8mn hectares of peatland is degraded; the Scottish government has pledged £250mn to restore it. The total cost is estimated to be £1.44bn. In England, the government’s tree-planting target of 30,000 hectares per year by 2025 is proving elusive: in the year to March 2021, Forest Research recorded 13,300 hectares of new woodland, just 300 hectares more than two years earlier.

But critics say that setting the free market loose on the countryside will cause more harm than good. In Scotland, large-scale land purchases bring back bad memories of struggling local communities presided over by self-serving lairds.

Last summer, there was widespread outcry when BrewDog sacked the only two employees on the estate it bought — it has told the FT that both have since found new jobs beyond the estate and three full-time workers will replace them. Jason Baggaley, who runs the Standard Life fund, says a benefit of the site it bought was that it had no one who lived or worked on it.

The Hebridean island of South Uist: critics say that setting the free market loose on the countryside will cause more harm than good © Getty/iStockphoto

“The risks associated with concentrated land ownership are the same as any localised monopoly,” says Hamish Trench of the Scottish Land Commission, a government body advising on who should own and use Scotland’s land. “It’s about economic and social power; owners [may] prevent local economic development such as housing provision.”

Scotland has spent nearly two decades rolling back its historically concentrated land ownership. More than half a million acres have been bought by community groups since legislation was introduced in 2003, supported by a government fund currently offering £10mn a year for such community purchases.

Now, carbon capture schemes threaten to undo all the good work. “Years of progress are being rolled back; there is a reconcentration of land ownership in the hands of [carbon capture] buyers looking for scale to squeeze out the best returns. With recent price gains, £10mn per year doesn’t go far,” says Raeburn.

Much of the problem is that the economics of carbon capture currently favour big business over farmers.

Partly, that’s down to economies of scale. Tassilo Von Hirsch of The Real Wild Estates Company, which helps institutional investors and major corporates find land suitable for carbon capture, says these buyers require plots of at least 400 hectares to make a project worth their while. “A big user like Shell wouldn’t get out of bed for 100 hectares.” Carbon credit projects also carry reputational value for large companies rushing to persuade shareholders, staff and the public that they care about the climate crisis.

And in the UK’s fast-evolving carbon-credit market, only the rich can afford to take the long view. Private companies don’t yet face legally binding carbon targets, so buying carbon credits is largely a play on future offset requirements. Big companies have armies of advisers to predict — and influence — how these will develop, and deep pockets in case their predictions are wrong. For small landowners, speculating on the future value of an emerging asset class could literally lose them the farm.

Lacking the benefits carbon credits bring to big business, many traditional landowners are reluctant to turn land over to carbon capture.

Alasdair Jones-Perrott is one. The manager of the 3,000-acre Scottish Highlands estate of Delnabo, which is owned by a Berkshire-based charity, points to elevated slopes to illustrate the problem. These are harder to access with machinery because they are steeper and more remote, typically have poorer soil and more exposure to wind, which may all limit the amount of timber he can harvest.

“Planting 500 hectares [of trees] on an exposed hillside in Scotland is not easy. I’ve shown a felling company into a wood and they’ve said, it’ll cost you to,” he says. “Besides, I don’t want to see the uplands carpeted in trees. It’s like the tax incentives [on forestry] in the 1960s and 1970s that saw blocks of conifers all over the UK that didn’t match the landscape at all.”

If the economics don’t work for less productive “marginal” land that is currently sitting idle, carbon capture projects will spill on to land already serving traditional uses like agriculture, threatening local jobs. “In the past 18 months, carbon capture buyers have expanded their search criteria beyond poor livestock land and hill land,” says Evelyn Channing of Savills.

But for communities who fear that rising land prices could end their dreams of owning the land they live and work on, carbon capture could yet provide hope.

In November 2020, £200,000 from the Woodland Trust provided the final tranche of funding for the largest-ever community buyout of land in southern Scotland, when the Langholm Initiative paid Buccleuch £3.8mn for 5,200 acres.

The grant from the UK’s largest woodland charity could not have happened without revenue from carbon credits, says James McDougall, Woodland Trust’s carbon manager for Scotland. Langholm Initiative has agreed to plant 50-100 hectares, which McDougall reckons will produce revenues of between £400,000 and £750,000, including grants and carbon credit sales. From this, the trust will get its money back and share the surplus with the Langholm Initiative.

Revenues like this are only possible because investors are willing to pay more for carbon credits generated by schemes run by the Woodland Trust, because of the social and ecological benefits they bring.

Two carbon brokers contacted by the FT estimate that the Woodland Trust carbon credits could fetch at least double the £14 typical for many carbon credit sales.

Local communities may yet find an ally for the future in big businesses eager to prove their ESG credentials to the world. But it’s an unlikely alliance, whose success is far from guaranteed.