As investors look to profit from the carbon-offset gold rush, demand for land is soaring. But letting Big Finance restore nature may come at a cost
Laurie Macfarlane is economics editor at openDemocracy, and a research associate at the UCL Institute for Innovation and Public Purpose. He is the co-author of the critically acclaimed book ‘Rethinking the Economics of Land and Housing’
Cross-posted from openDemocracy
How will COP26 be remembered by future historians? Whether it is regarded as a global triumph or a disastrous failure, one thing is clear: the conference will go down in history as the moment the global economy officially entered the Age of Net Zero.
More than 130 countries, including China, the US and those in the European Union (EU), have now pledged to achieve net-zero emissions by 2050 or shortly after. Hundreds of multinational companies, including British Airways, Mars, Unilever, Shell and BP, have followed suit. Meanwhile, the Glasgow Financial Alliance for Net Zero, a coalition of more than 450 banks, insurers and investors that represent $130trn in total assets, has also made the pledge.
While these commitments fall far short of what is needed to limit global temperature rises to 1.5°C, they will still have significant repercussions for the way that economies operate – and in whose interest. From energy to transport, the transition towards net zero will likely involve a degree of economic restructuring. However, few sectors face as much disruption as rural land markets.
The carbon-offsetting gold rush
In order to meet net-zero targets, two different levers can be pulled: emissions can be reduced directly or they can be ‘offset’ with measures to remove carbon from the air at some point in the future. Unsurprisingly, many governments and businesses view the latter as the more appealing option, as it avoids the difficult task of curbing emissions, which underpins the profitability of many of the world’s largest industries.
Although there is much hype around the promise of impressive Negative Emissions’ Technologies (NETs), such as carbon capture and storage, to date the only proven NET is the restoration of forests, peatlands and other natural carbon sinks. In order to scale up investment in ‘nature-based solutions’ many governments are embracing the so-called ‘natural capital’ approach to conservation, which involves assigning monetary valuations to natural assets such as forests and then enabling investors to extract financial returns for managing these assets sustainably.
In the case of carbon emissions, the approach enables those who invest in projects that will sequester carbon from the atmosphere to claim carbon credits (or carbon ‘offsets’), which can either be ‘netted off’ against the owner’s emissions, or sold on to other emitters via emissions-trading schemes. Carbon credits are typically awarded for practices such as planting trees, halting deforestation and adopting certain soil-management techniques, and therefore have the potential to create substantial new revenue streams for landowners.
In practice, carbon credits turn negative carbon emissions into a tradable financial asset that can be bought and sold on global markets. This means that instead of taking steps to reduce their emissions, companies can simply buy carbon credits generated elsewhere in the world to ‘offset’ them. As a result, some critics have referred to carbon credits as a ‘get out of jail free card’ for companies who want to greenwash their polluting activities.
Emissions trading is not new – various schemes for doing so have been around for more than three decades. Many initially targeted the environmentally conscious individual, often linking offsets to the protection of fragile ecosystems in developing countries. But over the past decade, a number of large-scale emissions-trading schemes have been established or expanded upon, including the United Nations’ REDD+ program, the Kyoto Protocol’s Clean Development Mechanism and the EU’s Emissions Trading System. To date, however, these schemes have largely failed to reduce emissions on the scale that was envisaged.
But now, the global embrace of net-zero targets has turbocharged investor interest in offsetting around the world. At COP26, new rules were agreed to establish a unified international carbon market, and analysts expect carbon trading to see exponential growth in the coming years. According to the Institute of International Finance, the market for carbon credits could be worth $100bn by 2050 – up from about $300m in 2018.
In other words, carbon offsetting is becoming big business. And corporate and financial investors are quickly realising that profiting from this modern gold rush requires one thing above all else: access to land – and lots of it. As a result, global investment in rural land markets is soaring, with billionaires, banks and investment funds all adding swathes of land to their investment portfolios. However, few places are attracting as much interest as Scotland.
The rise of the ‘Green Lairds’
Scotland’s attractiveness as a destination for investors seeking to enhance their land portfolio is closely intertwined with its politics, history and geography. Most obviously, Scotland has a large rural land area: 98% of the country’s landmass is classified as either ‘remote rural’ or ‘accessible rural’. One-fifth of the country is peatlands, which, as natural carbon sinks, hold the equivalent of 140 years of Scotland’s carbon emissions. More than eight in every ten Scots live in the 2% of the landmass that is urbanised.
Significantly, however, ownership of this land is highly concentrated. As with the UK as a whole, the archaic patterns of land ownership that were in other nations swept aside by revolution and revolt survive largely intact in Scotland to this day. Despite multiple waves of land-reform legislation following the creation of the devolved Scottish Parliament in 1999, it has been estimated that just 432 individuals own 50% of Scotland’s privately held land.
Land markets across the UK also remain notoriously lightly regulated, meaning that anyone in the world can buy land with little scrutiny. As a 2020 report comparing rural land markets around the world noted: “The UK has no restrictions on inward investment and is among the few developed markets not to have some form of government involvement when buying.” Together with a tax regime that highly favours investment in land and property, these factors mean that large amounts of land can be acquired relatively quickly, with few questions asked.
Scotland’s ambitious net-zero targets are also helping to spark investor interest. The Scottish government has committed to reaching net zero by 2045 – five years earlier than the UK. The government has also introduced a range of grants for landowners to encourage afforestation, helping to create a particularly favourable political context for carbon offsetting.
As a result, the rural land market in Scotland is booming. According to Savills, last year was “an extraordinary year for the Scottish estate market” with a 98% increase in buyers registering to purchase rural property. Funds chasing Scottish rural property increased by 20%, from just over £4bn in 2019 to £5bn in 2020. Around half of the estates were sold privately, without ever coming to the open market. Analysts expect demand to continue rising in the years ahead.
Some companies are purchasing land with the explicit aim of offsetting their own emissions. The craft beer brewer, Brewdog, for example, has purchased over 9,000 acres of land in the Cairngorms in a bid to reduce its carbon footprint. Similarly, oil giant Shell has invested £5m in extending the Glengarry forest in the Highlands, with the aim of planting or regenerating one million trees over five years. The company will use the carbon sequestered by the forest to offset emissions from its fossil fuel activities.
But private investment funds and asset managers have also become increasingly active in Scotland’s land market, lured by the prospect of generating and selling carbon credits. Over the past 12 months, several new, dedicated rural-investment funds have entered the Scottish market to compete alongside larger, more established investors from across Europe and beyond. One of the newest entrants is the Real Wild Estates Company, which aims to “provide investors with access to large UK landscapes of 1,000+ acres which are suitable for nature restoration with viable natural capital potential”. According to one of its co-founders, the company’s mission to “make nature pay by delivering sustainable business returns” is “already passing muster with farmers, forestry, landowners and the City [of London] alike”.
It’s not just private finance that is putting up cash: public finance is being lured into the market too. This year, the Scottish National Investment Bank, Scotland’s state-owned development bank, which opened its doors in November 2020, invested £50m in a new forestry fund established by London-based asset manager Gresham House. The bank’s investment – its largest to date – will help fund tree planting on estates in Scotland, with the aim of sequestering 1.2 million tonnes of CO2 over the next 20 years.
A green transition for whom?
At first glance, this flurry of private and public money into nature restoration in Scotland might seem worthy of celebration. After all, the Committee on Climate Change (CCC) is clear that meeting Scotland’s target of reaching net zero by 2045 will require planting at least 18,000 hectares of trees and restoring 20,000 hectares of peatland per year by 2024-25. In addition to delivering carbon-offsetting benefits, the CCC believes this will deliver a wide range of other benefits, including improved water filtration and enhanced biodiversity.
According to critics, however, enabling companies to offset their emissions in this way amounts to little more than greenwashing on an industrial scale. The fact is, they argue, there is simply not enough land in the world to offset global emissions, so allowing companies to boost their green credentials by investing in carbon offsets acts as a dangerous diversion from the immediate need to reduce emissions. According to Oxfam, for just four oil and gas producers (Shell, BP, Total and ENI) to meet their net-zero pledges by carbon offsetting, they would require an area of land twice the size of the UK for tree planting. If the entire global energy sector was to set similar net-zero targets, an area of land nearly the size of the Amazon rainforest would be needed, equivalent to a third of all farmland worldwide – which would risk pushing millions deeper into food poverty. It is for these reasons that Greta Thunberg has described offsetting as “a dangerous climate lie”.
But beyond the mathematical impossibilities, at the heart of the controversy around carbon offsetting are issues of power and democratic control. Behind the flowery rhetoric about ecology and sustainability, there are growing concerns that the rapid growth in land purchases for carbon offsetting will push up land prices and rents, displacing local communities while exacerbating an already highly financialised land market. In many cases, this appears to be an explicit part of the business model. The prospectus of the fund that received £50m of investment from the Scottish National Investment Bank promises that “rising land values continue to drive returns”. The tax advantages are an explicit part of the pitch, with the company highlighting how “under current taxation laws in the UK, commercial forestry has the added incentive of being a highly tax-efficient investment”.
Meanwhile, the Real Wild Estates Company’s own financial projections show that most of the returns generated will come from a more traditional source: rising rental income. In other words: there is a risk that the carbon-offsetting boom will amount to little more than landlord plundering dressed up in eco-friendly clothing.
The financial exploitation of the Scottish highlands is nothing new: for centuries they have been a playground for Britain’s rich and powerful. But while previous generations of estate buyers claimed they were attracted to Scotland’s land due to its natural beauty or sporting potential, it has, in practice, always been intimately linked to consolidating wealth and power. Today’s new generation of eco-investors are not that different: while the rhetoric may have changed, the economic logic remains the same: land is to be managed with the aim of maximising financial returns for wealthy investors, with precious little concern for the impact on the people that actually live there. It is little wonder that carbon offsetting has been described as ‘Wall Street’s favourite climate solution’.
Companies like Real Wild Estates maintain that their activities will create new jobs for rural communities. But locals fear that the arrival of a new wave of ‘Green Lairds’ has familiar echoes of the Highland Clearances, which saw thousands of tenants forcibly removed from estates to make way for more economically profitable sheep farming during the 18th and 19th centuries.
As Peter Peacock, a former Highlands and Islands MSP and veteran land reform campaigner, recently put it:
“The Highlands are once again being sold from under the feet of local people to external forces who can out-compete other interests for land, forcing up land prices, and undermine communities in their ability to take a lead in tackling the climate emergency while also promoting wider social and economic benefit under local democratic control.”
As a result, the Scottish government is coming under growing pressure to act.
A community-led approach to nature restoration
The fact that restoring the ecologically barren landscapes in Scotland is widely accepted as a critical priority is a welcome step forward. But as Albert Einstein reportedly said: “We cannot solve our problems with the same thinking we used when we created them.” Addressing the environmental crisis using the same economic logic that destroyed it in the first place risks repeating the mistakes of the past. So what might an alternative look like?
The concept of a ‘just transition’ to a sustainable society centres around the importance of giving those directly affected by climate change a proportionate degree of voice and control. As the Scottish government’s own Just Transition Commission recently noted, “part of ensuring a just transition must be about making sure the benefits of investment in carbon sequestration are felt as widely as possible”. Structuring the benefits of ecological restoration so heavily in favour of businesses and investors is clearly incompatible with this goal.
Thankfully, however, we don’t need to rely on unproven technologies or yet-to-be-invented solutions to set out a different path: viable alternatives already exist. The Land Reform Act of 2003 introduced the Community Right to Buy in Scotland, which empowered local communities by giving them the first option to buy land when it was put up for sale. To date it is estimated that around 560,000 acres (or 2.9% of the total land area of Scotland) have been taken into community ownership. Despite this relatively small footprint, many of these communities have pioneered innovative and inclusive approaches to tackling the climate emergency.
As highlighted in a recent report by Community Land Scotland, rural and urban community owners across Scotland have taken the lead in managing woodlands, peatlands and green spaces; generating renewable energy to address local electricity needs; improving household energy efficiency to reduce fuel poverty; and promoting access to healthy and affordable local food produce. Unlike absentee or corporate landowners, community land-owning bodies enjoy a strong level of local trust, enabling them to take a holistic approach to climate action that combines reducing emissions with delivering wider social benefits to the area.
Community ownership is not an untested, novel idea – it is a proven alternative to extractive green capitalism that can be dramatically scaled up and rolled out across the country. There are, of course, serious barriers to this course of action: local communities will never be able to match the spending power of investors in the City of London. Steps must therefore be taken to provide greater state support to scale up community ownership and prevent a market free-for-all in Scotland’s most precious asset.
As a nation that is on the frontline of The Great Net-Zero Land Grab, Scotland stands at a crossroads: it can either fuel a new era of extractive eco-capitalism or it can pioneer the transition to a more democratic, just and sustainable future.
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