Carbon offsets: giving sustainable forestry a green light

Land is a scarce resource. It is needed to produce food and lumber, provide natural habitats, capture CO₂ and even grow biofuels. Farms and villages are also intimately woven with the character of the nation. So it is no wonder that policymakers are concerned about skewed incentives to turn farmland into carbon-offsetting forests.

But — at the margin — sustainable forestry is an opportunity for the UK. The issue is that the lowest quality 20 per cent of UK farmland only produces 1 per cent of what Britons eat, says Dustin Benton at the Green Alliance. Low productivity of the land itself means a small upland farm — call it 70 hectares or so — might make £14,000 a year including subsidies.

The net present value of such an income stream — even if one assumed it grew with inflation and used a risk-free cost of capital of 5 per cent — would be about £7,000 per hectare. 

Now compare that with sustainable commercial forestry, practised by funds such as Foresight. Roughly speaking, tightly packed, fast-growing trees might deliver up to 400 tonnes of wood per hectare by 2050, and for each rotation of 35-40 years. Say the price of wood rose by 2 per cent a year, and discount the value of these crops to today, and they might approach £20,000 per hectare.

On top of that, each hectare might receive 250 tonnes of voluntary carbon credits for captured CO₂, which at roughly £20/tonne would add £5,000.

Commercial forests are not as pretty as broad-leaf forever forests, but these would be less financially attractive. They would need the price of carbon credits to rise substantially to make economic sense.

Forestry is an opportunity only for the lowest quality farmland, of course. Arable land, particularly at scale, is much more productive — and hence valuable — than small upland holdings. The fact that this sort of switch makes sense only at the margin is, lovers of rural landscapes would agree, a point in its favour.