Developing the Concept of a Natural Capital Trust in the West of England and Beyond Final Report to Defra and the West of England Local Enterprise Partnership Report for Paul Bleazard, Defra Prepared by Dominic Hogg (Eunomia), Shelly Dewhurst (WENP), Charles Routh (Natural England), Lucy Rogers (Avon Wildlife Trust), Ian Barrett (Avon Wildlife Trust) Chris Sherrington (Eunomia), Ayesha Bapasola (Eunomia), Tanzir Chowdhury (Eunomia), Dan Marsh (Independent), Tim Sunderland (Natural England), Heather Elgar (WENP) Approved by …………………………………………………. Dominic Hogg (Project Director) Acknowledgements Our thanks to: the representatives of the four Unitary Authorities in the West of England – Bath & North East Somerset Council, Bristol City Council, North Somerset Council and South Gloucestershire Council – for their comments during workshops; to the project Steering Group for their helpful comments and guidance; to respondents from the Pioneer projects in North Devon, Manchester and Cumbria; and to the Tees Valley LNP. Thanks also to Defra and to the West of England Local Enterprise Partnership for supporting this project. Disclaimer On behalf of WENP, Eunomia Research & Consulting and the project partners have taken due care in the preparation of this report to ensure that all facts and analysis presented are as accurate as possible within the scope of the project. However, no guarantee is provided in respect of the information presented, and Eunomia Research & Consulting, not the other partners, are responsible for decisions or actions taken on the basis of the content of this report. Executive Summary E.1.0 Background The West of England Nature Partnership (WENP) has, over the past four years, developed proposals for a Natural Capital Trust (NCT). The NCT has been proposed as a mechanism though which WENP could deliver its vision of restoring natural capital across the region. The NCT has attracted considerable interest across the West of England. It was also considered to be a concept of potential significance nationally, given the Government’s aspiration to ensure that the state of the natural environment is enhanced from this generation to the next. Defra’s 25 Year Environment Plan also seeks novel mechanisms that have the potential to support the enhancement of natural capital across the UK. With support from Defra and the West of England Local Enterprise Partnership, this work has helped develop the NCT concept further, and has considered the potential for replicating the approach in other parts of the country. The NCT could take on a variety of roles. The role initially envisaged for the NCT was one of identifying potential payments for ecosystem services (PES) schemes, and acting as a broker for such schemes, including the implementation of legal agreements which would give confidence to beneficiaries of, and providers of, the services. It was expected that, through developing experience of administering such schemes, transaction costs could fall. It was also envisaged that the NCT would make the case for broadening the group of beneficiaries, bringing in funds beyond those provided by ‘anchor beneficiaries’ to support PES schemes (recognising the multiple benefits derived from most ecosystem services). For example, interventions motivated primarily by the interests of water utilities might also bring benefits to health, or in reducing flood risk, drawing in clinical commissioning groups, or local authorities (as lead local flood authorities) into the beneficiary group. Views regarding the role the NCT could play were shaped by the potential opportunities presented by devolution, and the challenges being confronted by the four unitary authorities in the West of England in respect of planning for the provision of more than 100,000 new homes over the coming years. This led to a more encompassing view of the role the NCT could play, including: a) the administration of funds for activities aimed at enhancing natural capital, potentially including those related to agri-environmental schemes; and b) linking in to the planning system to ensure mitigation of impacts on natural capital covering caused by development. The basis for the second of these extensions has been the subject of considerable work under this project, with the aim being to firm up on the design of a compensation-based Development of the NCT: Final Report i fund (as indicated below). This relates to the fact that such funds could provide the basis for expansion of the NCT into the other areas identified above. The key insights from the work are summarised below. They relate to: 1. The form of a proposed Compensation Scheme, to be implemented through the planning system; 2. Potential beneficiaries of PES schemes under the NCT; 3. The institutional form of the NCT; 4. Possible approaches to prioritising investment in natural capital in the region; 5. Principles underpinning the allocation of the NCT’s funds; and 6. The potential for replicability of the NCT in other parts of the UK. E.2.0 The Compensation Scheme The proposed Compensation Scheme is intended as a means to help deliver a net improvement in the status of natural capital through the planning system: this is clearly envisaged in the NPPF, but in reality, it has proven difficult to achieve. The scheme is based on a principle of compensation: to the extent that developers’ effect on land is to diminish the ecosystem services that land offers, and which are freely available to society, then the developer should compensate for this loss. A review (see Section 3.0) indicates that whilst there are a number of schemes, including in the UK, which seek to achieve no net loss and/or enhancement of biodiversity, there appear to be fewer measures that seek to ensure no net loss in the value of natural capital to society. Indeed, one of the insights from this work which flows from the valuation literature (see Section 6.0) is that benefits to society, insofar as they can be established through valuation techniques, are driven strongly by factors such as recreational values, the impact of vegetation on air pollution, as well as those linked to climate change mitigation. As well as being more difficult to assess in a simple manner, where values related to biodiversity are available in the literature, they appear not to be the major drivers of value. No doubt there will be exceptions to this now, and this view may be coloured by our current understanding of, and the framework for measuring, the value of biodiversity. It does, however, follow that focusing on biodiversity alone might not give rise to the most beneficial outcomes to society. Indeed, one possible interpretation of what valuation tells us is that whatever decisions are taken to protect, maintain, or enhance the natural environment, enhancing biodiversity is not separable from attempts to improve the state of the natural environment and should be an objective of all such activity. Furthermore, the National Planning Policy Framework (NPPF) sets out a mitigation hierarchy, in which avoidance of impact is the priority, followed by on-site mitigation, followed by off-site approaches. It follows that a Compensation Scheme should promote on-site measures first: this would be especially appropriate in more densely populated areas, where values associated with recreation and mitigation of air pollution might be expected to be more significant. Development of the NCT: Final Report ii E.2.1 Key Features of the Compensation Scheme The Compensation Scheme was designed with a range of features in mind. These, and the associated design responses, are listed in Table E - 1. Table E - 1: Key Features and Associated Responses in Respect of Design Feature Design Response Scheme based around valuation of a range of services (principally, climate change mitigation, mitigating air It would take into account the full range pollution, recreational value and of ecosystem services that are impacted mitigation of flood risk). These figures by the development were then adjusted for the biodiversity contribution, and the speed with which re-establishment of the same habitat type is possible Basing the mechanism around the valuation of services provided by land It would be linked to the expected gives a clear link. The mechanism allows impact of the development on these for a reduction in compensation payable services in line with the efforts made in respect of on-site mitigation The mechanism would be applicable to all All developments for which a planning development. Although CIL is usually application is required would be calculated on the basis of Gross Internal considered within scope, as well as some Area, it would likely be more appropriate activities which are notifiable under to base this on surface area of the Building Regulations development The compensation payable would be Compensation would be, in principle, based on well-understood land knowable at an early stage (when the classifications, with a banded structure to developer is considering the make the calculation easy to estimate. development) The overall surface area would be used as the basis for calculation An important part of the scheme is to promote on-site mitigation. The compensation payable would be reduced Compensation would be adjusted to in line with these efforts, based on the reflect efforts made by a given developer value of services delivered (in line with to enhance the on-site provision of the way losses are calculated). In doing ecosystem services through the design of so, it would support the mitigation the development hierarchy. For ease of administration, the option of on-site mitigation might be more limited in the case of smaller developments Development of the NCT: Final Report iii Feature Design Response The compensation structure could be amended from time to time to reflect It would be capable of being adapted improved understanding of the impacts of over time, to reflect improvements in development on ecosystem services.