Designing efficient multiple-service environmental markets in the UK
Lead Research Organisation:
UNIVERSITY OF EXETER
Department Name: UNLISTED
Abstract
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Organisations
People |
ORCID iD |
| Brett Day (Principal Investigator) |
| Description | Our project addressed the 'Future of Nature Markets' theme of the NERC Nature Seed Corn Grant. We focused on the development of markets for environmental offsets in the UK. Environmental offsetting is the activity of organisations funding projects that deliver environmental improvements, particularly the establishment of new natural habitats such as woods or wetlands, as a means of offsetting the environmental-damages arising from their activities. Evolving regulation in the UK is leading to a growing number of companies needing to engage in this activity. Developers for example are already required to offset damages they cause to water quality through nutrient neutrality rules and from November 2023 they will also have to offset damages their building projects do to nature through Biodiversity Net Gain legislation. For offsetting to work effectively and efficiently, requires a simple means whereby those needing to purchase environmental offsets can trade with landowners able to deliver nature-improving projects. The project team from University of Exeter are market-design experts and for this project we partnered with legal experts Wheatley Young Partners and industry practitioners EnTrade to design a market that would allow for the efficient trade of environmental credits. Through the course of the project, the team have engaged with government and regulators, builders and landowners, planning authorities and NGOs. Those engagement activities have been important in shaping regulatory policy on offset markets particularly with regards to allowing landowners to sell offsets for more than one environmental service (e.g. biodiversity and water quality). Building on foundational research by team-member Dr Luke Lindsay and experimental investigations supported by the grant, the project has delivered a ground-breaking market design for the simultaneous trading of environmental credits in multiple services. That market design has been implemented in first-of-their-kind implementations in real world markets trading nutrient reduction credits and biodiversity credits in Somerset (https://somersetcatchmentmarket.uk/) and in the Bristol-Avon region (https://www.bristolavoncatchmentmarket.uk/). |
| Exploitation Route | The market design we have developed is highly innovative and also highly flexible. It could applied in most environmental offset market contexts. Indeed, we are currently exploring further market implementations with Welsh Water and the Greater London Authority. |
| Sectors | Agriculture Food and Drink Construction Environment Government Democracy and Justice |
| URL | https://somersetcatchmentmarket.uk/ |
| Description | This project had a very strong impact-focus. The key impacts of the project include: (1) Shaping government guidance on 'additionality' in the trading of environmental offsets. In particular, promoting the possibility that landowners delivering environmental projects could be rewarded by payments for sales of offsets for different service flows (e.g. nutrient mitigation and biodiversity gain). (2) Moving to full real-world implementations of the market design developed by the project team in Somerset (https://somersetcatchmentmarket.uk/) and the Bristol Avon region (https://www.bristolavoncatchmentmarket.uk/) |
| First Year Of Impact | 2023 |
| Sector | Agriculture, Food and Drink,Construction,Environment |
| Impact Types | Economic Policy & public services |
| Description | Influencing on Guidance for Stacking of Biodiversity Gain Credits |
| Geographic Reach | National |
| Policy Influence Type | Contribution to a national consultation/review |
| Impact | The recommendations we made regarding stacking rules were adopted in government response to the consultation allowing us to push ahead with market implementations that allowed landowners to sell both credits for biodiversity gain and nutrient mitigation within the same multi-service scheme. Allowing stacking ensures a more efficient market in which landowners are rewarded more for their projects while developers seeking to buy credits pay less. |
| URL | https://www.gov.uk/government/consultations/consultation-on-biodiversity-net-gain-regulations-and-im... |
| Description | Report commissioned by Defra on Design of Nature Markets |
| Geographic Reach | National |
| Policy Influence Type | Contribution to a national consultation/review |
| URL | https://www.find-tender.service.gov.uk/Notice/030723-2023 |
| Description | Stacking of Nature Market Credits |
| Amount | £120,000 (GBP) |
| Organisation | Department For Environment, Food And Rural Affairs (DEFRA) |
| Sector | Public |
| Country | United Kingdom |
| Start | 09/2023 |
| End | 03/2024 |
| Description | SuDS and Streetworks Project |
| Amount | £75,000 (GBP) |
| Organisation | Greater London Authority (GLA) |
| Sector | Public |
| Country | United Kingdom |
| Start | 03/2023 |
| End | 09/2023 |
| Title | Lindsay Nature Market Sandbox |
| Description | We developed a website that provided participants in the market with the ability to explore the market mechanism used in the environmental offset markets developed in the project. The website provides user with structured walkthroughs and a market sandbox, where they can familiarise themselves with the market mechanism and explore the consequences of different bidding strategies. |
| Type Of Technology | Webtool/Application |
| Year Produced | 2022 |
| Open Source License? | Yes |
| Impact | At time of writing the website has only just been developed and made available to participants in the first market round of the Somerset Catchment Market |
| URL | https://www.lindsaymarketmechanism.org/ |
| Description | Additionality Workshops with Defra, Environment Agency and Natural England |
| Form Of Engagement Activity | Participation in an activity, workshop or similar |
| Part Of Official Scheme? | No |
| Geographic Reach | National |
| Primary Audience | Policymakers/politicians |
| Results and Impact | We held a series of workshops with key teams at Defra, Natural England and the Environment Agency focused on the question of stacking and additionality. Stacking is the practice of selling credits for multiple different environmental service flows arising from the same environmental improvement project and the arguments around whether this should be allowed or not focus on the question of 'additionality'; that is to say, should the project be rewarded for providing the second service flow even though providing that is an inevitable consequence of providing the first service flow. These discussions were important because the policy community were beginning to develop their ideas as to what rules would be applied to the trading in environmental offsets, and the project team were able to provide advice and understanding regarding how their decisions might impact on the functioning of the markets through which such offsets will be traded. We outlined the position that we felt they should take, wrote a background document and fed into the government's consultation on biodiversity net gain (BNG) regulations and implementation (https://www.gov.uk/government/consultations/consultation-on-biodiversity-net-gain-regulations-and-implementation/outcome/government-response-and-summary-of-responses#introduction-and-context). Our input was clearly influential in ensuring that the Government adopted a position allowing stacking of nutrient mitigation and biodiversity gain credits. |
| Year(s) Of Engagement Activity | 2022 |