The climate crisis stems from our failure to reflect environmental costs in market prices, leading society to overproduce activities that harm the planet. Recognising that the environmental crisis stems from the absence of markets in environmental costs – not from markets themselves – is crucial to building a sustainable economy. The solution is not in ‘degrowth’ as some climate activists suggest, but in expanding markets so we can place a value on environmental goods and services. This way we can reward people for investing in nature, and correct market failure by putting a cost on polluters.
It is essential to avoid the flawed temptation to centrally plan natural capital markets, and we should strive to ensure they are free markets characterised by minimal state intervention, fair competition and a level playing field. However, the actions of the green quango-in-chief, Natural England, have been undermining fair competition in natural capital markets, principally in the nutrient market. Now new proposals for planning reform are set to make that even worse.
Nutrient neutrality was first imposed by Natural England and then expanded to cover 14% of England in 2022. This means housebuilders are required to offset a development’s nutrient pollution to proceed with planning permission. This is achieved by a developer buying a nutrient offset that represents a kilogram of the nutrient reduced elsewhere, often generated from removing land from agricultural use. These rules disproportionally target new homes, which make up just 1% of nutrient pollution, resulting in 160,000 houses being blocked and costing the UK economy £27 billion.
Having imposed these rules with eye-watering socio-economic impacts, including lower affordable home provision and reduced food security, Natural England was then rewarded with £30 million of taxpayers’ money to set up its own nutrient offsetting scheme. This was granted at the direction of the secretary of state, but the proposal itself came from none other than… Natural England. It is an example of the perverse incentives in place for unelected quangos, which can impose growth-stifling rules without consequence, while leveraging their statutory power as a government adviser to demand changes that grant them more power and revenue.
Natural England’s dominant position and conflict of interest is also evident when you consider its role in determining whether private sector participants can enter the nutrient offset market. The acceptability of nutrient offset schemes to a Local Planning Authority is led by Natural England’s advice. This means private sector entrants are reliant on Natural England’s approval, even though, as a provider of nutrient offsetting, it has an incentive to block potential competition. And while the private sector is reliant on regulatory clearance from Natural England, the quango verifies and validates its own schemes in-house. In other words, it is writing and marking its own homework.
This has created a two-tier market, where Natural England is in the dominant position to preferentially clear its own offsetting operations, while being able to determine whether and to what degree the private sector can compete with it.
Now Natural England wants to go further. The latest proposed changes to nutrient neutrality under the Government’s proposed planning reforms will see a new tax on housebuilders as part of the nature restoration fund. This levy will be spent by Natural England, and see it gain new powers to acquire land by compulsory purchase. Just as before, the levy was proposed by Natural England and is again an instance of a regulator advising on changes that will give it more power and revenue. Its first proposal in 2022 allowed it to enter the market, and now the planning reforms will see it close the market to private competition.
Considering that Defra’s recent policy paper revealed Natural England will spend £300,000 on administering the sales of £247,416 in biodiversity net gain credits, and the fact that, in one year, it raised its prices of nutrient credits by 47.9% to £2,700 in the Tees area, at a time when credit prices elsewhere were falling, this does not bode well for maximising outcomes for the environment or the economy.
Natural England already has limited constraints to its operation in the nutrient market: it is the rule marker, market participant and the gatekeeper to competition. The proposed changes will only close the market, increase its dominance and crowd out a maturing private sector. The company I work for, Biocore Agri, has asked the Competition and Markets Authority to investigate Natural England for infringements to the Competition Act. The Government has rightly stated its intention to cut quangos. Perhaps it should take a hard look at Natural England.
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