Natural Environment White Paper - Environment, Food and Rural Affairs Committee Contents

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).[63] 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".[64]

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.[65] 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.[66] Some witnesses suggested that membership of the NCC should be extended, for example to include local authority representation.[67] Others recommended more formal reporting powers for the NCC, with the National Trust calling for an annual report to Parliament.[68] It should be noted that the NCC has been established as a time-limited body due to end in 2015.[69]

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".[70]


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.[71] 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.[72]


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".[73] 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.[74] 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.[75] Furthermore, Water UK considered that environmental valuations using current methodology could provide "wildly misleading" assessments.[76]

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".[77] 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 its application.[78] 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.[79]

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.[80]

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.[81] 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 services provided".[82]

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 services schemes.


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 regulatory bodies".[83] 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.[84] 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 £1 spent.

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.[85] 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".[86]

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.[87] 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".[88] 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 standards overall.[89] 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 criteria.

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 inhabited areas.
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.[90]

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.


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.[91] 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".[92] 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".[93]

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 competitiveness.[94] 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.[95] 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.[96] 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.[97] 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.[98]

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.[99] It should also be noted that peat extraction generates high levels of greenhouse gas emissions, including methane.[100]

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".[101]

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",[102] whilst others wanted the "shortest timescale for complete UK extraction ending" and discouragement of overseas extraction.[103]

69. Some witnesses including the RSPB had "serious concerns" with the proposed voluntary approach to phasing out the use of peat.[104] 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".[105]

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

64   NEWP p 35 Back

65   Ev 102 Back

66   Ev w20 Back

67   Ev 96  Back

68   Ev 108  Back

69   "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

70   NEWP p 39, para 3.26 Back

71   Data from Fonafifo, Costa Rica's National Fund for Forestry Finance Back

72   Earthscan, edited by Patrick Ten Brink, The Economics of Ecosystems and Biodiversity in National and International Policy Making, 2011, p 411 Back

73   Q 89 Back

74   Q 41 Back

75   Ev 87  Back

76   Ev w46  Back

77   Ev w50 Back

78   As above Back

79   UK National Ecosystem Assessment webpages,  Back

80   Q 294 Back

81   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

82   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

83   Ev w40  Back

84   NEWP p 39 Back

85   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) bias Back

86   Q 294  Back

87   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

88   Ev w34  Back

89   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

90   Forestry Commission website Back

91   NEWP p 23, para 2.45 Back

92   Ev 98  Back

93   Ev w25, Food and Drink Federation  Back

94   NEWP p 63, para 5.20 Back

95   Environment, Food and Rural Affairs Committee, First Report of Session 2012-13, Greening the Common Agricultural Policy, HC 170 Back

96   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

97   Environment, Food and Rural Affairs Committee, First Report of Session 2012-13, Greening the Common Agricultural Policy, HC 170 and Q 233 Back

98   Environment, Food and Rural Affairs Committee, First Report of Session 2012-13, Greening the Common Agricultural Policy, HC 170, paras 16 and 17 Back

99   Royal Horticultural Society website Back

100 Q 63 also refers Back

101   NEWP, p 29 Back

102   Ev 99  Back

103   Ev w23  Back

104   Ev 86  Back

105   Ev w104 Back

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Prepared 17 July 2012