4 Growing a green economy |
38. Chapter 3 of the White Paper, Growing a Green
Economy, states unequivocally that "economic growth and
the natural environment are mutually compatible" and that
sustainable economic growth "relies" on the services
provided by the natural environment (i.e. ecosystems services).
The key reforms proposed are:
- Establishment of a new independent
Natural Capital Committee (NCC) to put the value of England's
natural capital at the heart of economic thinking;
- Inclusion of natural capital in national accounts
to capture nature's value in measurement of economic progress;
- Actions to support the creation of new markets
for green goods and services (including establishment of an Ecosystem
Markets Task Force); and
- Provision of new support and guidance for businesses
to "promote the responsible use of natural capital".
39. Most witnesses were supportive of the need to
take action, with the Country Land and Business Association pointing
out the "large scale, pervasive market failure" on natural
capital which needed to be rectified.
However, our witnesses were less convinced that the NEWP provided
a clear map for implementing such ambitions. Some witnesses expressed
a desire for greater clarity on how working groups such as the
NCC and the Ecosystem Markets Task Force will make a "tangible
difference" to improving nature.
Some witnesses suggested that membership of the NCC should be
extended, for example to include local authority representation.
Others recommended more formal reporting powers for the NCC, with
the National Trust calling for an annual report to Parliament.
It should be noted that the NCC has been established as a time-limited
body due to end in 2015.
40. It is too
early to judge the impact of working groups such as the Natural
Capital Committee and the Ecosystem Markets Task Force as they
have only recently been established and are still setting out
their work plans. Nevertheless, we recommend that Defra sets out
with greater clarity the role of these groups, their methods of
working and the protocol for publication of their advice, and
most importantly, how government will respond to this advice.
41. We recommend
that Ministers publish a response to any advice from the Natural
Capital Committee within three months of its provision, setting
out the full reasons where the Government decides not to implement
the NCC's recommendations. We further recommend that the NCC makes
an annual report to Parliament on its work and the implementation
of its advice by the Government.
Payments for Ecosystems Services
42. The NEWP states that 'payments for ecosystems
services' (PES) could be a valuable policy tool and that the Government
has a role in "helping to raise local awareness of opportunities
and reducing the costs of putting them into practice".
43. Costa Rica in Central America is one of the few
areas where a PES approach has been implemented, albeit with public
funding. Between 1940 and 1990 the country's forest cover
decreased from 75% to 21% but this decline was reversed and cover
increased to some 51% by 2000.
This increase has largely been achieved by using a system
of payments to farmers and landowners for the ecosystems services
that they provide. A fossil-fuel tax provides 80% of funding,
with the other 20% coming from the international sale of carbon
sequestration from public protected areas.
44. Beyond the region some countries, such as the
USA, have introduced PES schemes directly linking funding streams
from beneficiaries to support the provision of natural environmental
services (see case study below).
|US watershed management: the Catskill Mountains
A well-documented PES case study is that of the Catskill Mountains, USA, where a 200 km2 watershed protection programme has been established costing around US$1 billion over ten years. This programme, aimed at protecting the quality of 90% of the more than 1 billion gallons of fresh water used daily in New York City, costs significantly less than the cost of a water filtration plant. Some 93% of farmers participate in the scheme and water bills have risen by around 9%rather than doubling as would have been necessary to pay for a new plant. The City authorities have set aside some US$300 million per year until 2017 to acquire upstate land to restrain development and prevent pollution.
PAYMENTS FOR ECOSYSTEMS SERVICES IN THE UK
45. Witnesses told us that development of payments for ecosystems
services was largely still at a theoretical stage in the UK and
that much more work needed to be undertaken to develop robust
practical measures. Paul Wilkinson, representing Wildlife Link,
told us that "the ecosystem approach is quite embryonic,
certainly in terms of the market for ecosystems services".
Chris Knight, from PricewaterhouseCoopers noted that a "translation
from the theory of economic value of nature into economic instruments
and financial incentives that get companies on board in delivering
solutions to protect nature" was needed.
The RSPB told us that "the limits to [PES] approaches must
be acknowledged" since for many ecosystem services it was
not possible to identify private providers and beneficiaries.
It argued that without government intervention there will "always
be some level of market failure", hence there was a need
for regulation and legislation.
Furthermore, Water UK considered that environmental valuations
using current methodology could provide "wildly misleading"
46. Some witnesses had suggestions for how the use
of PES could be encouraged. Research Councils UK, for example,
proposed "practical demonstration and feasibility projects".
The organisation considered that these should involve businesses,
local authorities, environmental organisations, farmers, landowners,
citizens and schools with tool-kits developed by those who understand
these sectors' needs and can provide a link between research and
In 2012, the NEA launched a follow-on phase which aims to further
develop the evidence base and make it applicable to decision-makers
across the UK. This phase will include the development of tools
for the public, private and voluntary sector to enable them to
make best use of the NEA's evidence, including the development
of a number of syntheses of the evidence for specific sectors.
47. Mr Benyon considered that, on the one hand, government
and regulators can drive and create a market for ecosystems services
(for example in water resource provision) but, on the other hand,
governments can sometimes "create more problems than they
solve" in creating markets.
48. There is already widespread adoption of a quasi-PES
approach in the grants made to farmers to undertake environmentally-friendly
actions under the Common Agricultural Policy (CAP). Pillar 2 payments
(badged as Environmental Stewardship schemes in the UK) are used
to reward farmers for activities such as hedgerow preservation,
buffer strip development and encouragement of biodiversity in
woodlands. However, agri-environment scheme payments provide recompense
for income foregone, rather than paying the market value for the
service. We discuss
CAP issues further below.
49. Research from Costa Rica's Centre for Tropical
Agronomy Research and Teaching (CATIE) found that the vast majority
of PES funding of schemes around the region to date had come from
government sources, with very little coming from private sources.
Many schemes are in fact similar to government grant schemes already
operational in the UK (such as woodland grants and Higher Level
Stewardship schemes). However, CATIE concluded that it was "very
likely that the next couple of decades will present the second
generation of PES schemes, with more direct payments between providers
and users and more cost-effective and rigorous measurements of
50. We welcome
the White Paper's bold vision for linking the provision of natural
services to beneficiaries through the use of mechanisms such as
payments for ecosystems services. We accept that it will be difficult
to gain widespread agreement on values and to create funding streams
from beneficiaries to service providers, including farmers. However,
this does not mean that it should not be attempted. The Government
should establish staging posts towards a widespread adoption of
payment for ecosystems services approaches.
51. We are concerned
that there is no clear road map to integrate the evidence base
of ecosystems services valuations (such as that as developed by
the UK National Ecosystems Assessment) with the development of
markets for such services. We recommend that the outputs from
the next phase of the NEA be used to develop as a priority an
action plan for the roll out of payment for ecosystems services
approaches more widely in the UK. Defra should work with HM Treasury
to encourage the private sector to engage in payments for ecosystems
52. Witnesses noted that the water sector had the
potential for early development of PES approaches. Ofwat, the
body regulating the water supply industry in England and Wales,
told us that land managers could be offered better incentives
to reward them for the delivery of public environmental goods
"over and above the legitimate demands of the statutory and
The NEWP provides a case study of the Sustainable Catchment Management
Programme (SCaMP) being undertaken in North West England on 20,000
hectares of water catchment land owned by United Utilities.
This in effect uses PES to deliver water quality services to water
customers with the beneficiary in this case paying a lower cost
than would be incurred through more traditional hard engineering.
This approach generates at least £3 of benefits for every
53. The need to meet regulatory environmental standards
in water supply, combined with an industry structure based on
geographic areas, predispose this sector to a PES approach. Large-scale
schemes can be adopted, particularly on a river catchment basis,
where a cost-benefit analysis of different approaches can establish
whether it is cheaper to adopt upstream ecosystems solutions rather
than construct hard infrastructure downstream. Ofwat has been
developing a regulatory framework to support this, principally
through a new 'Totex' method for establishing the costs which
water supply companies are allowed to pass through to customers.
Previous price control formulae were considered to have a capital
expenditure bias which could have led to companies being discouraged
from adopting upstream operational approaches even where these
were more cost-effective than installing downstream, hard engineering
solutions to remove pollutants.
54. The Minister was enthusiastic about Ofwat's approach
in the last price setting round to "encourage water companies
to engage with land managers upstream and work with them to clean
up water." He considered this to be one example of where
government "can drive and create a market, and we want to
see much more of that".
55. Given the
potential benefits to the environment and to customers, Defra
must give Ofwat clear guidance on how it can encourage water supply
companies to adopt an ecosystems management approach, including
the use of payments to land managers for implementing schemes
that improve and protect water quality. We recommend that Defra
and Ofwat ensure that within ten years the default approach to
water quality improvement is the use of catchment improvements
wherever practicable rather than 'end of pipe' solutions.
56. We recommend
that Defra commissions, and publishes within 12 months, an assessment
of the possibility of requiring licensed water supply companies
to deliver specific benefits to the natural environment. These
should include commitments to water quality standards in river
catchments, biodiversity improvements, carbon emissions reductions
and improved water flow management.
Water Framework Directive
57. The need to meet challenging Water Framework
Directive targets on water quality provides a further driver for
the use of PES approaches.
The Government estimates the costs of implementing the Directive
to be some £30-100 billion. Ofwat considered it "essential
that the [Directive] is implemented as fairly and as flexibly
as possible, taking full advantage of the possibility of allowing
exemptions on the grounds of disproportionate cost".
The regulator drew attention to the "flawed way" in
which, in its view, the Directive measures progress through a
"one out, all out" rule. Under this rule, should water
quality be substandard in any one of 37 categories (including
aquatic life, biological or chemical composition of the water
at any particular location) it is deemed to have failed to meet
According to Ofwat, this means that there is only likely to be
a modest increase in the percentage of water courses in England
and Wales meeting good ecological status under the Directive's
58. We recommend
that, in the lead up to the 2027 deadline for meeting Water Framework
Directive targets, Defra establishes a robust dialogue to ensure
that the European Commission recognises UK progress on improving
water quality. In particular, agreement on what constitutes disproportionate
cost must be reached as early as possible since, without this,
scarce funds could be directed to achieving technical compliance
which have only marginal impacts on water quality.
59. Payments for ecosystems services approaches can
also be applied to flood control. Slowing upstream water flow
can be more effective and cheaper than installing hard flood defences
downstream. The Slow the Flow project being operated by
the Forestry Commission in Pickering, Yorkshire, is a successful
example of natural flood control. Land management approaches such
as increased tree planting have slowed the flow of water from
the Pickering Beck and River Seven catchments before it reaches
|Natural flood management: Pickering, North Yorkshire
The Pickering Beck catchment in North Yorkshire is the site of a project to explore how land management practices within an environmentally sensitive area can be modified to reduce flood risk.
Pickering has a long history of flooding and the town is particularly at risk from summer flash floods due to the steep nature of the catchment. The project also includes the neighbouring catchment of the River Seven, where the village of Sinnington is similarly at risk from summer floods. This slightly larger catchment has a larger floodplain and an even faster flood response. Its inclusion in this scheme extends the opportunity to demonstrate the benefits of larger-scale planting of floodplain woodland.
Previous land management practices which promoted rapid run-off and increased sediment flows in Pickering Beck are considered to have raised the risk of Pickering being flooded. Inappropriate cultivation of arable soils, overstocking and overgrazing of grassland, excessive moorland drainage, and poor river management are all thought to have increased the risk of downstream flooding.
The project seeks to demonstrate the role of best land management practices in correcting past problems and restoring the catchment's natural flood attenuation capacity. There is also the potential to explore a number of 'win-wins', including expected water quality and biodiversity gains associated with better land management.
60. With schemes such as Pickering the exception rather than the
rule for UK river catchments, there is potential for more schemes
to be developed where physical characteristics allow. We
recommend that Defra commissions further research on the development
of schemes where the flow of water can be regulated more effectively
by the use of ecosystems management. Defra should establish a
series of pilot schemes across England and Wales before the end
of this Parliament. These should include a focus on the potential
for payments for ecosystems services to encourage landowners and
farmers to adopt management practices which reduce the impacts
of flooding on local communities.
COHERENCE WITH AGRI-ENVIRONMENT
61. With over 70% of England's land area currently
farmed, agricultural policies are central to environmental improvement.
The NEWP recognises the major challenge of increasing food production
while improving environmental outcomes.
The acknowledgement was welcomed by the National Farmers' Union
(NFU) who told us that farmers were pleased that their important
role in "achieving society's ambitions to produce food and
to protect water, wildlife and soil" had been recognised.
The NFU considered farmers to be "at the heart of the environment"
with responsibility for many of the "unique landscapes which
people recognise, identify with and enjoy".
The food and drink industry, also welcomed the NEWP's emphasis
on the relevance of ecosystems to the green growth on which "food
security ultimately depends".
62. The Government recognises the crucial role of
the European Union's Common Agricultural Policy (CAP) in enabling
it to improve the environment at the same time as increasing agricultural
The UK is considered to be one of the leading Member States in
terms of providing environmental improvements through Entry Level
Stewardship and Higher Level Stewardship agri-environment measures
under pillar 2 of the CAP. In June we published a report on the
proposals published in 2011 by the European Commission on Greening
the Common Agricultural Policy.
These proposals, which would come into effect during the next
EU budgeting period of 2014-2020, entail replacing existing direct
payments (known as pillar 1 payments) with a basic payment to
farmers, topped up by an additional payment conditional on farmers
respecting certain "agricultural practices beneficial for
the climate and the environment" financed from 30% of the
national pillar 1 envelope.
In that report we referred to the importance of linking the CAP
proposals to delivery of environmental outcomes since some 14
million agricultural holdings, covering some 50% of the EU's land
area, are given support under the CAP. We noted that the UK has
already achieved a large measure of greening under the CAP by
modulating 19% of pillar 1 funding to pillar 2 payments for agri-environment
schemes. We recommended that membership of accredited schemes
should qualify farmers for the proposed greening top-up payments
so as not to undermine their success.
63. Some 68% of the utilised agricultural area in
England and Wales is covered by an agri-environment measure. For
such a significant programme, the NEWP includes few references
to agri-environment schemes, but clearly there is potential for
the broader themes in the White Paper, particularly on ecosystems
services, to be applied to agricultural schemes. Indeed the Secretary
of State, Rt Hon Caroline Spelman, told us that she hoped to see
the EU move towards an ecosystems services approach, if not under
this reform round of the CAP then in future iterations.
Whilst this is a welcome sentiment, there are potential drawbacks
with waiting for the next reform to adopt such approaches since,
as we noted in our report, the EU's proposed "one size fits
all" approach is unlikely to deliver the desired outcomes.
We recommended that Defra continue to press the Commission to
develop a less rigid approach to 'greening' that would enable
individual Member States the flexibility to decide measures that
work best in their local environment.
64. If that flexibility is achieved, some elements
of the Commission's greening proposals could dove-tail effectively
with the NEWP approaches. For example, the Commission is proposing
the mandatory introduction of Ecological Focus Areas (EFA) to
cover some 7% of each farm's eligible hectares as a precondition
for receiving a greening top-up payment. However, the current
proposals are too rigid in terms of how the EFAs are to be designated.
A more flexible arrangement could allow EFA requirements to be
delivered principally in ecologically important areas, including
Nature Improvement Areas (NIAs), rather than requiring EFAs to
be delivered at an individual farm level even where this removes
agriculturally valuable land from production. This approach could
have both food security and environmental benefits.
65. The Government
must build a consensus with like-minded Member States to move
towards a payments for ecosystems services approach. Alongside
this, Defra should negotiate with the European institutions for
sufficient flexibility to allow proposals for Ecological Focus
Areas to be implemented at a national level in the most beneficial
manner for both the environment and food security. We recommend
that Defra provide the Committee with an update in six months
on the steps it has taken.
66. English horticulture uses more than 2.4 million
cubic metres of peat each year. Of this 99% is used as a growing
media, some 69% by gardeners. Over two-thirds of all peat used
in the UK is imported from other countries, including the Republic
of Ireland and the Baltic States. Peat is effectively a non-renewable
resource since peatlands take thousands of years to form at a
rate of only 1 mm per year and extractors typically remove a layer
around 22 cm deep. Reclamation schemes at previously worked sites
have succeeded in creating attractive wetland areas, but they
have not recreated peatlands.
It should also be noted that peat extraction generates high levels
of greenhouse gas emissions, including methane.
67. The NEWP proposed that there be a progressive
phase-out of the use of peat, with a voluntary phase-out by 2020
for amateur gardeners and a final phase-out by 2030 for professional
growers of fruit, vegetables and ornamental plants. A Task Force
has been established to advise on how best to overcome the barriers
to reducing peat use and a review of progress is to be undertaken
in 2015, which will consider the use of "alternative policy
measures if necessary".
68. We received diametrically opposed evidence on
the peat phase-out ambitions, with some witnesses arguing that
a 2030 deadline was too short a timeframe which was not "supported
by the available evidence",
whilst others wanted the "shortest timescale for complete
UK extraction ending" and discouragement of overseas extraction.
69. Some witnesses including the RSPB had "serious
concerns" with the proposed voluntary approach to phasing
out the use of peat.
Wildlife and Countryside Link told us that it was "unrealistic"
for a voluntary approach to achieve the proposed targets and that
they needed statutory underpinning. However the horticultural
industry had reservations about the potential to develop feasible
alternatives to peat and argued that "significant research
is needed into the availability and quality of alternatives".
70. Given that
peat extraction destroys irreplaceable habitats and causes greenhouse
gas emissions, there is a lamentable lack of ambition in the White
Paper's proposals to phase out peat use. We recommend that the
Peat Task Force finalise an approach that ends the use of peat
as soon as practicable and that a review of progress is brought
forward to 2014.
71. We recognise
that it is important to enable those growers still dependent on
peat to minimise the economic impact of the phase-out on their
businesses. Defra should undertake an awareness campaign that
promotes those alternatives to the use of peat that are already
available and to encourage the public to grow plants which do
not require the use of peat.
63 NEWP p 4, para 8 Back
NEWP p 35 Back
Ev 102 Back
Ev w20 Back
Ev 96 Back
Ev 108 Back
"Defra appoints Dieter Helm as Chair of Natural Capital Committee",
Defra press release, 21 March 2012 . The NCC is a time-limited
advisory body, rather than a Non-Departmental Public Body, and
will be reviewed in 2014. Back
NEWP p 39, para 3.26 Back
Data from Fonafifo, Costa Rica's National Fund for Forestry Finance Back
Earthscan, edited by Patrick Ten Brink, The Economics of Ecosystems
and Biodiversity in National and International Policy Making,
2011, p 411 Back
Q 89 Back
Q 41 Back
Ev 87 Back
Ev w46 Back
Ev w50 Back
As above Back
UK National Ecosystem Assessment webpages, www.uknea.unep-wcmc.org
Q 294 Back
Farmers' payment for taking part in agri-environment schemes is
based on the estimated 'income foregone' through carrying out
the activity. For example, the income foregone through establishing
a field margin would be based on the lost area that could be cropped Back
Bruno Rapidel, Fabrice DeClerck, Jean-Franoics Le Coq and John
Beer, Ecosystem Services from Agriculture and Agroforestry:
Measurement and Payment, Earthscan, 2011. Chapter 18, p 393
in particular Back
Ev w40 Back
NEWP p 39 Back
Totex refers to both capital expenditure and operating expenditure.
Ofwat is proposing, from its 2015 price control period onwards,
to move towards this whole-life costing, total expenditure approach
to help address any real or perceived capex (capital expenditure)
Q 294 Back
Directive 2000/60/EC of the European Parliament and of the Council
of 23 October 2000 establishing a framework for Community action
in the field of water policy Back
Ev w34 Back
A third of water bodies missed out on 'good' status by only one
out of 37 indicators. "Environment Agency pledges focus on
sources of river pollution through state of the art technology",
Environment Agency press release, 27 October 2010 Back
Forestry Commission website www.forestry.gov.uk Back
NEWP p 23, para 2.45 Back
Ev 98 Back
Ev w25, Food and Drink Federation Back
NEWP p 63, para 5.20 Back
Environment, Food and Rural Affairs Committee, First Report of
Session 2012-13, Greening the Common Agricultural Policy, HC
Proposal for a Regulation of the European Parliament and the Council
on establishing rules for direct payments to farmers under support
schemes within the framework of the common agricultural policy,
COM (2011) 625 final/2 Back
Environment, Food and Rural Affairs Committee, First Report of
Session 2012-13, Greening the Common Agricultural Policy, HC
170 and Q 233 Back
Environment, Food and Rural Affairs Committee, First Report of
Session 2012-13, Greening the Common Agricultural Policy, HC
170, paras 16 and 17 Back
Royal Horticultural Society website www.rhs.org.uk/Gardening/Sustainable-gardening/Peat-and-the-environment/All-about-peat Back
www.newleafpractice.co.uk/resources/peat.aspx Q 63 also refers Back
NEWP, p 29 Back
Ev 99 Back
Ev w23 Back
Ev 86 Back
Ev w104 Back