As the Planning & Infrastructure Bill enters its Committee Stage in the House of Lords, Guy Thompson, Managing Director of EnTrade, reflects on the potential impact of the Bill on private investment in nature recovery, the tension between the Bill and wider Government policies for environmental improvement and the pathway to a regulatory solution that delivers both economic development and nature recovery.
He starts by reflecting this week on the purpose of nature markets, the propensity to define them narrowly as voluntary markets or offsets and the need to redefine them as mechanisms to deliver outcome-based targets for environmental improvement.
The Government finds itself in a cleft stick on growth and the environment. Even though Steve Reed has rowed back on the anti-nature rhetoric, Treasury and Number 10 seem to have been convinced that nature laws are a blocker to its growth ambition. It is rushing the Planning & Infrastructure Bill through Parliament in the hope that it will both unlock its manifesto commitment to deliver 1.5 million homes and address their environmental impact. The Bill will enable developers to pay into a Nature Restoration Fund managed by Natural England, which will be given new powers to find strategic solutions that deliver environmental improvement. On the other side of the ledger, campaigning groups are gearing up to make the Bill the defining test of the Government's green credentials.
With its reputation for "making bad law good and good law better", the House of Lords will take a hard look at the government's claims for the Bill. Aspects of the draft legislation have already rightly been challenged during its passage, unamended, through the House Commons. Part 3 on Nature Recovery is potentially the single most environmentally damaging piece of legislation of the last 70 years. Without significant amendment, it poses a serious risk to nature, the integrity of environmental law and a new level of complexity for developers navigating the planning system. A series of legal judgements and advice from the Office for Environmental Protection deem it be environmentally regressive. The Bill will require significant amendment to lessen the impact of the hastily drafted legislation.
However, there is another, less well-publicised, consequence of the Bill, which hints at the long-term solution. By "moving responsibility for securing strategic environmental action onto the State", the unintended consequence of the Bill would be to crowd out private investment in nature recovery. As the Environmental Audit Select Committee pointed out in its recent report on the role of natural capital in the UK's green economy, there is a tension between the Planning Bill and Government's ambition to accelerate private investment in protecting and restoring nature. The Government has recognised the need for mechanisms to unlock private revenue streams for the natural environment in its Green Finance Strategy and Nature Markets Framework. It has a target to enable £1 billion of private investment annually into nature recovery by 2030. Only last month, it issued a Call for Evidence on how to expand the role of the private sector in nature recovery. By moving to a state-led Nature Restoration Fund, the Planning Bill would have a chilling effect on this very private investment. Indeed, in combination with the Government's proposals to streamline the Biodiversity Net Gain requirements for SME developers, we are already seeing this policy uncertainty influencing the embryonic nature market, with investors pulling out of land deals.
The issue at the heart of the Planning Bill is that it's attempting to deal with the symptom of a much wider regulatory problem, which is how to align economic incentives with nature recovery. This is partly a problem of definition and lack of understanding. The current regulatory mechanisms driving nature markets are offsets. Nature markets should not be a last resort for offsetting harm. They need to be used to efficiently identify, locate and fund the projects and activities that deliver the greatest benefits for the natural environment.
Of course the Government needs solutions that it can be confident will speed up how developers can meet existing environmental protections. However, the Planning & Infrastructure Bill may ease the pressure on the planning system but will not on its own speed up nature recovery. The solution to the problem that Part 3 of the Planning Bill seeks to address lies in moving to a system of better environmental regulation underpinned by outcome-based targets to enable efficient allocation of public and private funding. This echoes Dan Corry's findings in his independent review of Defra’s regulatory landscape.
Well-designed and governed nature markets can be an efficient way to deliver outcome-based targets for environmental improvement by establishing price signals for the benefits delivered by nature and allocating public and private funding to these outcomes. This requires government to establish clear policy on the role of markets in delivering on its legally binding targets for environmental improvement. Clearly a reset in environmental regulation won’t happen overnight. However, Corry's recommendation for a "Nature Markets Accelerator" to bring "much needed coherence to nature markets and accelerate investment" could provide a safe environment to test out new approaches. At the heart of this would need to be a mechanism that sets targets, creates demand drivers and aggregates demand.
The Government will need to reconcile the tension in policy during the passage of the Bill. If, as seems likely, the House of Lords delays the Bill until the autumn, there will be an important opportunity to reflect over the Summer Recess.
Any pause needs to work out how the final shape of the legislation avoids derailing nature markets – or ideally lays down the pathway for nature markets to scale – to give the Nature Markets Accelerator the opportunity to shape a longer-term solution that facilitates both economic growth and nature recovery.
The second part of Guy’s insights into the Bill will be published shortly.
