Offsite provision for biodiversity net gain in England and Wales

The Environment Act 2021 will introduce a requirement to demonstrate biodiversity net gain (BNG) as a result of new development. The Act recognises that it may not always be possible to provide BNG via onsite works. Where this cannot be achieved, developers will be able to rely on offsite provision to demonstrate the required BNG. Alternatively, they will be able to purchase credits for the Secretary of State with a specified biodiversity value.

Biodiversity gain sites

Section 100 of the Act empowers the Secretary of State to make regulations establishing a register of “biodiversity gain sites.” These are land where:

• a person is required under a conservation covenant or a planning obligation to carry out habitat enhancement works;
• there is a requirement to maintain the enhancement for at least 30 years; and
• the enhancement is available to be allocated to one or more developments for which planning permission is granted.

Biodiversity gain sites are intended to be a solution for developers unable to provide sufficient BNG as part of their proposed development. Enhancement at a biodiversity gain site can be allocated to their development, enabling them to demonstrate the required BNG. This is analogous to the system of suitable alternative natural greenspace used in relation to Special Protection Areas and Special Areas of Conservation.

The government is consulting until 5 April 2022, about how this system of offsite provision will work in practice.

While developers will be free to create offsite provision on other land they own, the government’s view is that a market for the supply of biodiversity “units” should also be created, to ensure sufficient supply is available to those who need them. Landowners or managers who can create or enhance land to a standard sufficient that it can be registered as a biodiversity gain site will be able to sell that capacity to developers, possibly via intermediaries such as brokers. There are some providers already in this market, such as the Land Trust.

All offsite BNG must be delivered in England for planning applications submitted in England. Policy and guidance will encourage offsite gains to be delivered locally to the development site. This will be incentivised by the operation of the biodiversity metric, which will place greater value on nearby gains. Where this is not possible, however, offsite delivery outside the local area will be allowed.

The market for biodiversity units

The BNG position on a development site will be calculated in accordance with a Biodiversity Metric produced by Natural England. The current Metric is version 3.0, which was published on 7 July 2021. The Metric calculates BNG by assessing the number of “biodiversity units” lost as a result of development and gained via onsite or offsite biodiversity provision, or through biodiversity credits.

The market analysis accompanying the consultation estimates that the BNG requirement in the Act will generate demand for around 6,200 offsite biodiversity units, with a market value of GBP135 million to GBP274 million, depending on how much BNG is delivered offsite.

The government believes that such a market has potential to meet demand in the medium to long term, although there is a risk of shortages of supply in the early years of the system, particularly in relation to urban areas and certain rare or difficult to replicate habitat types such as intertidal habitats.

It is estimated that the market price for each biodiversity unit could be around GBP20,000 on average, and as much as GBP25,000 in local planning authority areas where units are scarce.

Suppliers of biodiversity units will be able to sell to developers anywhere in England, provided that the use of the units is suitable for the development in question. Local planning authorities will be able to sell biodiversity units created using their own land, but they will not be able to direct developers to purchase units from any particular source.

The consultation document raises the possibility that developers who manage to exceed the BNG target for their own development might also be able to sell their excess capacity as biodiversity units, or to use it for another development on a different site.

The government does not expect to take any formal role in the market for biodiversity units, stating that it expects the cost of units and the terms on which they are provided to be agreed privately between buyers and sellers.

Biodiversity units will likely be a new opportunity for the owners and managers of suitable land to create value, and enable developments to proceed where suitable onsite BNG provision is not possible.

Statutory biodiversity credits

Section 101 of the Act also allows the government to sell “biodiversity credits” to developers. It states that the purpose of this is to prevent delay in the planning system where developers are unable to deliver BNG onsite or offsite, or to purchase biodiversity units.

This problem may arise more frequently in the early years of the new system, before the market in biodiversity units becomes fully established. This may also be a problem in relation to compensating sufficiently for certain types of rare habitats.

The government has, therefore, committed to selling biodiversity credits to developers as a last resort. It plans to undertake a “credit price review” before doing so, and the credit price is expected to be published before the BNG requirement comes into force. The government’s market analysis cautions that the sale of biodiversity credits risks undermining the establishment of the market in biodiversity units, so it seems unlikely that credits will be favourably priced. Rather, we expect they will be priced to encourage their use by developers only where there is no other option.