As the UK braces for the final enforcement of mandatory Biodiversity Net Gain (BNG) mandates (set to start in January 2024 for large sites, and April 2024 for all other sites), it is essential to understand the cost implications for both developers and landowners. The BNG policy will create a market in Biodiversity Units (BUs), with there being several different types as a result of the way the metric works… and each having its own price point.
As a quick reminder, BUs are generated by landowners enhancing the ecological value of their land through conservation practices. When improving their site, these landowners can use the Biodiversity Metric 4.0 to assess how much they have improved the land by, and how many BUs they have created. Subject to approval via the LPA and Natural England, these BUs can be sold to developers seeking to offset the environmental impact of their projects. These are ‘off-site’ BUs, and must go through a specific process with the Biodiversity Metric.
So how much will BUs cost? That’s the question that has the market excited… but it’s simply not possible to work out yet. BNG isn’t law yet, and we are unable to work out what the different types of BU will be worth… however, we do have some idea thanks to the fact that the Department for Environment, Food & Rural Affairs (Defra) has released the indicative prices for statutory biodiversity credits in Summer 2023.
Now, a very large word of warning. BUs are different to statutory biodiversity credits - which are Government-issued (and can only be applied for if there are no BUs on the market). Also, and as the Government has made very clear, these statutory biodiversity credits are priced intentionally high to be uncompetitive with the market, encouraging developers to explore local compensation schemes and other alternatives first. In other words, statutory biodiversity credits are not the same as the price of BUs. You should really read the disclaimers that the Government has written here.
But, that all said, they are the first indicator we have of what this market may look like. Even if the prices of statutory biodiversity credits are little more than an idea of what a ‘ceiling’ for different types of BU is worth, it is still a very useful resource which we will dive into with this blog.
Tiered Pricing System
Reflecting the distinctiveness and ecological value of different habitats, the prices set out in the statutory biodiversity credit price list are tiered across the three categories of low, medium and high distinctiveness. Each tier represents a range of habitats, from general to very specific types, with corresponding prices. This tiered approach ensures that the pricing of credits aligns with the ecological significance and restoration / creation cost of the habitats.
Prices vary across these categories:
A1: £42,000 per credit
A2: £48,000 per credit
A3: £66,000 per credit
A4: £125,000 per credit
A5: £650,000 per credit
Details of statutory biodiversity credit pricing per habitat category and tier can be found directly here.
What about Biodiversity Units?
We will need to see how the different types of BU will be priced on the market. In all likelihood, we won’t have a good idea until the BNG policy becomes fully mandatory in April 2024. However, understanding the factors that will likely influence the BU’s prices is still likely to be useful. Here’s a quick breakdown of the key components involved in determining their value:
- First, there is the Spatial Risk Multiplier. This is both a strategy and a tool. In a nutshell, it penalises the use of BUs from off-site habitats if the off-site is located far from the impact site. It encourages adherence to the proximity principle or spatial hierarchy, which prioritises local enhancements. This multiplier effectively doubles the number of BUs required for each Biodiversity Unit being compensated.
- Second is how distinct a habitat is. This is categorised into low, medium, and high distinctiveness based on ecological factors such as the rarity of the habitat and the species richness within it. The ratings for each species are set out in the Biodiversity Metric - and are built into Joe’s Blooms’ digital tools. Habitats are further categorised using terms like 'broad' and 'specific'. Broad habitat type is a general classification of habitats, such as grassland or wetland. It provides a high-level view of the habitat's ecological characteristics. Specific habitat types go into more detail, identifying specific characteristics or sub-types within the broad category.
Why does this matter? Well, the trading rules require people using BUs to complete a planning permission to use the right type of BUs. Source the wrong sort, and you end up with the metric sheet rejecting the BUs that you have purchased.
The future market
Taken all together, you can see how the BNG policy is designed to lead to a sophisticated market. Prices will reflect the proximity of BUs to a point of impact, and the quality of habitats in question. Throw in the fact that pricing will also reflects market forces, such as supply and demand and you can see why working out pricing is so complex… and why having an imperfect source of data like the statutory biodiversity credit price list is so useful.
This market-based approach is designed to encourage efficient allocation of resources towards areas where they can yield the most ecological benefit. Like the rest of the BNG policy, the aim is to balance the needs of development with ecological conservation - incentivising the protection and enhancement of high-value habitats while providing options for developers to factor off-site gains into their project planning.
As the BNG policy becomes mandatory, understanding this valuation framework becomes crucial for compliance and effective contribution to biodiversity enhancement. Watch this space - there will be much, much more data soon. And all of it will be vital.