Somerset Levels Catchment Market - Update

Credit buying update - phosphorus

The Somerset local planning authorities have recently published an online tool for developers to estimate the Phosphorus Requirement that their development will need to offset. The same Phosphate Budget Calculator can be found on the websites of all four local planning authorities affected by nutrient neutrality in the Somerset Levels and Moors Ramsar site.

The big news from EnTrade is that Credit buyers can now register an interest in buying environmental credits on a bespoke Credit Needs Registration tool.

The extent of demand registered on this tool will help us decide how best to design the bidding market and to further develop projects registered on the Supply side.

Next steps

The market needs clear Rules, adequate supply, and adequate demand. All three of these elements are close to completion. EnTrade and Wessex Water will review their progress in March to determine whether a valid Catchment Opportunities Statement can be produced. This Statement would be approved by regulators and will show both sides of the market what the likely supply and demand is for specified locations across the Tone and Parrett catchments. We expect this to occur around mid- April 2021. At this time, EnTrade, as the Market Operator, will also set out processes for making and revising bids during the first Market bidding round. This communication will provide the full Market Rules, example contracts and approaches to monitor delivery and provide assurance of how credits will be registered for use with regulatory authorities.

Should this first round prove successful then, later in 2021, the plan is to operate a second round of bidding for purchase of projects and supply of credits across the whole of the Somerset Levels and Moors catchment.

Background

The Catchment Market concept emerged in the late summer of 2020 after Natural England announced the nutrient neutrality requirements for developments affecting the Somerset Levels and Moors Ramsar site. Originally, Wessex Water were planning to buy short-term land use changes in the Tone and Parrett catchments to enhance the performance of their water recycling centres beyond an extensive programme of asset upgrades. Wessex Water asked EnTrade to look at the option of extending this programme of land use change investment to a wider range of solutions that could perhaps be used by housing developers or other businesses seeking to protect the environment.

If there is sufficient potential to go ahead, the Market will allow land managers to bid to supply projects in return for their required establishment costs and a regular income from the land. Both elements of payment are likely to be at higher levels than traditional land-management schemes because of their links to real market demand. Options for change include nature-based projects such as wetland creation, sediment traps, woodland planting, buffer strips, cover crops and arable reversion. Depending on the project, the duration can be for the short- or long-term, with long-term agreements attracting guaranteed, index-linked payments.

The other side of the Market will allow organisations such as housing developers that are seeking to offset environmental pressures, to buy accredited environmental offsets. EnTrade’s market systems can convert this demand for offset credits, based on price offers made by a variety of buyers, into an investment pool. EnTrade can then use this investment pool to optimise buying of the projects offered by land managers. The market will be bound by rules to ensure that prices are settled fairly and transparently for both buyers and suppliers.

At the heart of this system is a set of rules, governance and accreditation processes that allows the Market to give regulators the certainty that the offsets are “regulation grade” where necessary. This includes assurance systems and contracts that ensure reliable delivery, including strong verification and market balancing processes that avoid any risks of under- delivery or unforeseen future liabilities.

A key principle of the Market is that it allows a range of environmental credits to be bought from a single project. This allows the cost of establishing a nature-based project to be shared and promotes recovery of a bigger, better network for nature.