Land-use and the UK Emissions Trading Scheme

It's early days yet. However, a Westminster and devolved governments' consultation has raised questions about how agriculture's capacity to manage greenhouse gas emissions can be harnessed to meet net-zero targets - and how farming emissions might be controlled too.
First published on 26 Jul 2022.

Last week Wales’ largest industrial greenhouse gas emitter called on government to invest an eye-watering £1.5 billion as a 50% contribution to technical advances to reduce its’ greenhouse gas emissions. Read this news >

Last month a deadline passed for a UK and devolved governments’ consultation, which asked how the UK Scheme could move from reducing industrial emissions also to work with agriculture and land use to remove them. Net zero is unreachable without it. Robert Dangerfield examines the implications for farmers and land managers.

Steelmaking (Not to be used without permission)
Every tonne of liquid steel creates 2 tonnes of CO₂. There’s 350 tonnes of molten iron in this vessel at Port Talbot steelworks. The chemical reduction process of making iron - then steel - is nearing its’ technological limit in reducing carbon. To meet net-zero, something needs to fill the gap. (Photo by kind permission of Tata Steel UK).

Technologies that extract and neutralise greenhouse gas emissions from the air are in their infancy. They don’t exist at scale and are consequently very expensive. Currently, existing emissions trading schemes only control emissions at-source: incentivising lower-carbon processes, carbon capture and storage.

However, many carbon-dependent processes – for fundamental materials manufacture and aviation, for example - are approaching their technological capacity to decarbonise. This means government targets to reach net-zero are unattainable without removal technology. Last year the UK’s largest steelmaker - which has invested a least £500 million into decarbonisation under the EU Emissions Trading Scheme (EU ETS) - called on government for a “route-map” for the way ahead and last week’s call represented a sharp nudge in the ribs. Government may set challenging targets to reach net-zero, but, the industry argues, to get there, investment must be supported or jobs – and a national strategic industry employing thousands of people – will be lost.

How does this affect agriculture and land management? The missing link to meet net-zero is greenhouse gas removal (GGR), something nature does discreetly, constantly, without reward. For land managers it’s an opportunity: carbon sequestration through changes in management, afforestation, peatland restoration and “blue carbon” – sequestration in water.

IMG_0064 (2) Suckler herd (beef) on a hot day, Wales. RD.JPG
Greenhouse gas emitters - but an increasing number of farms are demonstrating that they're managing a carbon surplus.

If adopted, it would make the UK Emissions Trading Scheme (UK ETS) among the first to include removal. Three conclusions arise. First, this faces-up to ideological objections to market-based solutions to meet the challenge because public funding will never suffice: private investment will have to be mobilised. Secondly, the inclusion of another key sector should make the scheme more powerful. Consequently (and thirdly), the scheme’s wider and UK-wide remit could lead to it taking some regulatory responsibilities.

Building farming into the UK ETS looks challenging. We have a multiplicity of businesses and land units, dispersed and diverse in nature. Agriculture’s very different from industries already locked into a scheme. The sector will need a robust, representative body to work and negotiate with the scheme and with government.

The UK won’t be the first to look at this. Most existing ETSs now include agricultural emissions as offsets. Some even incentivise farmers to “farm carbon” and “sell the crop”. Under Australia’s Carbon Farming Initiative (2011), the government itself acquires the offsets and redistributes the benefits in grants and subsidies. We know that EU scheme designers - at least - like the look of this.

We were advised that the Consultation was not intended to dive into the process of controlling agricultural emissions. However, we were told that the exercise was an opportunity to call for evidence about how the monitoring, reporting and verification (MRV) for agriculture could work. It’s early days, the land management community has started to think about this.

ETSs work on the “cap-and-trade” principle. Limits are set for emissions and are then reduced over time. Participants buy allowances and they’re traded in a secondary market. For this to work, sectors need to be able to monitor accurately - and this needs to be scrutinised. This clearly reveals challenges for the land-use sector – and it may explain why this year’s Consultation doesn’t specifically go there.

IMG_0050 (2) Ancient broad-leaf woodland behind hay field, Wales. RD.JPG
Greenhouse Gas Removal (GGR) in action: but how might it be managed? How might multiple and diverse farmers and landowners engage with the UK ETS?

To harness the land’s capacity to remove greenhouse gas, three essentials must be established. The first is that farming and wider land use should be treated together. Secondly, there’s a fundamental need for an agreed carbon metric and an accounting system. We need new technology, such as remote-sensing and earth observation, but they must also be trustworthy and economical.

Carbon removal assets must be “ear-tagged” to ensure they’re not sold in duplication and the longevity of the asset is determined. Finally, legal structures must clarify ownership of assets and liabilities in contractual relationships, which can be complex and involve many parties. Clarity needs to exist around the role of crops and livestock, biomass, energy-crops and nature-based solutions. Moreover, establishing an effective market requires a clear structure, regulation by clear standards and sets of rules. Prices need to reflect the viability of the process (including transactional and regulatory costs). If a cap-and-trade compliance market is formed, it needs to fit with the voluntary market. All this raises very many questions.

Farmers and land managers will look to government to create a structure with capacity to make improvements, intervene in case of crisis – and maybe even manage a set of safety-nets in case of failure. Another role will be to monitor and prevent “carbon leakage” – when companies offshore processes to minimise liability – and equally to assess carbon import. There is little point in running a very good scheme if cost-sensitive consumers buy imported food that is heavily laden with emissions – notably in transport.

The difficulties of controlling carbon emissions from land use are many, and the science of GGR is young. The global crisis imperative will drive all this forward, but it will be important to move forward with great care possibly using a pilot scheme. We may admire how in the past twenty years or so, some of our heavy industries have adapted to meet the challenge, however we look in awe at the cost in productive capacity, competitiveness and jobs in what we used to call our economy’s “foundation industries”