Natural Capital Market Framework

Section 3: Supporting Scotland's land managers in Natural Capital Markets

This section describes the Scottish Government's support of land managers and details the actions that will be taken to remove barriers to accessing markets. It also describes the policy alignment work needed to incentivise land-manger engagement in natural capital markets.

What is expected

Scotland is committed to ensuring that tenant farmers, smallholders, crofters, new entrants, and land managers have equal access to participate in high-integrity natural capital markets, should they choose to engage.

What is happening

An increasing number of Scotland's farmers, crofters, and other land managers are benefiting from participating in Scotland's high-integrity natural capital markets. Innovations such as the WCC's approach for small projects and group projects^[72], have reportedly increased equitable market access by reducing costs for smaller projects. For instance, grouped projects allow participants to share the expenses of validation and verification. This is a positive development, as it is essential that land managers continue to benefit from delivering nature-based solutions that provide value to wider society.

However, during the development of the market framework, many farmers, crofters, and other land managers highlighted barriers that prevent many from fully embracing the opportunities offered by high-integrity natural capital markets. Commonly cited barriers included:

1. Hesitancy to engage: Many land managers are adopting a cautious approach, choosing to "wait and see" due to ongoing agricultural reforms and broader market developments. There is concern that future government grants may cover similar activities, or that current actions could negatively impact future revenue streams.

2. Barriers to market access: Several supply-side barriers are preventing landowners from fully participating in these markets, these include:

• Landholding size: The time, cost, and complexity of participating in natural capital markets are particularly challenging for smaller land managers. Large-scale projects tend to be more efficient and attractive to investors;
• Tenure issues: Owner-occupiers face concerns around tax implications, potential complications when selling land, and the long-term impact of nature-based projects on revenue. Tenant farmers, often require landlord consent for participation, and some expressed confusion over diversification rules; long-term projects may be challenging particularly those with short leases. Crofters, particularly those managing common grazings, face particular challenges related to the duration, complexity, and division of risk and reward in projects, along with the lack of established precedents;
• Land use suitability: some land managers report using parts of their land less suited to food production in natural capital markets, for woodland creation and peatland restoration. Arable, lowland livestock, and dairy farms are seen as less suited to current high-integrity natural capital markets.

3. Risk avoidance:Many land managers are reluctant to engage with market opportunities due to the perceived risks, including the potential for project reversals, anticipated insetting requirements within the agricultural sector, and uncertainty surrounding financial returns.

What will be done

To address these challenges and remove barriers to market access, the Scottish Government will take several actions by 2026:

• The Scottish Government is currently working to establish a robust framework to underpin the future agricultural support regime, with the goal of delivering high-quality food production, climate mitigation, and nature restoration. As we progress through the agricultural reform route map^[73]. We will continue to refine our approach to support, ensuring it complements private investment opportunities. To date, specific commitments include:
  • Land managers will be permitted to enter the same land area into both Agriculture Reform Programme agreements and PC or WCC schemes, provided there is no double funding of activities and carbon market additionality rules are met.
  • Flexibility will be built into the Agriculture Reform Programme's framework, allowing for the incorporation of new private investment mechanisms as they emerge.
  • Farm Advisory Services will continue to provide generic one-to-many advice on opportunities for farmers and crofters relating to peatland restoration and preservation.^[74]
• Aggregating small projects: We will explore ways to group smaller projects to achieve the necessary scale for market participation. This includes working with the FIRNS-funded Pentland Partnership to test farm clusters and collaborating with RLUPs and public land clusters to foster responsible private investment, landscape connectivity, and knowledge exchange.
• 'Whole farm' approaches: Support is being provided to the Soil Association, through FIRNS, to investigate the viability of a "whole farm" approach that allows land managers to access multiple ecosystem service markets, beyond carbon, such as biodiversity and flood prevention.
• Additionally, FIRNS funded a project aimed at empowering crofters to participate in peatland restoration, unlocking new income opportunities from carbon credits while contributing to Scotland's climate targets^[75]. The project examined innovative delivery models to navigate the complex legal and financial considerations of crofting, a uniquely Scottish system of land tenure.
• Standardised contracts: Through FIRNS the Scottish Government and the National Lottery Heritage Fund are funding a project to develop a publicly available standardised contract and accompanying guidance. This contract, available in 2025, will facilitate agreements between sellers and buyers of PIU and verified PC and WCC Units. The project aims to support market growth by simplifying the contracting process and providing greater confidence in the use of the WCC and the PC. The project aspires to:
  • achieve a fair and reasonable approach to managing risk and liability for both buyers and sellers of carbon units throughout a project's life;
  • remove barriers to participation for smaller-scale and community participants, including crofters and tenant farmers;
  • address requirements of permanence of carbon sequestration and provides confidence of the integrity of the Codes;
  • ensure compliance with the PC and WCC and forthcoming related legislative and regulatory changes that may impact on the Codes and the sector; and
  • provide transferrable lessons applicable to other natural capital markets as they emerge, including biodiversity.
• If the Land Reform (Scotland) Bill is passed by Parliament, we will work with tenant farming and small landholder stakeholders to explore the potential private investment opportunities the Bill creates, including managing land for natural capital.
• By 2026, Scottish Government will also work with stakeholders, to examine how further policy measures – regulatory and fiscal – can support existing policies and interventions to improve a wide range of land management outcomes. This includes the restoration of peatlands and the creation of more woodlands, and exploring proposals for a Carbon Land Tax.