How will carbon markets affect the rural economy?

UK farming has been undergoing a period of recent disruption, shaped by new policies and environmental challenges. Following Brexit, the National Farmers' Union warned that the shift from the EU's Common Agricultural Policy to Environmental Land Management schemes could reduce farming subsidies by as much as 37%, while declining soil carbon levels also threaten soil fertility.

Amid these challenges, carbon markets offer an opportunity for landowners to diversify their income by participating in soil carbon sequestration projects (SCSPs). These initiatives not only help to restore soil health but also capture carbon, making them attractive to public and private investors looking to reduce carbon emissions.

Surveyors have a vital role in connecting landowners, carbon developers and financial institutions. However, to capitalise on this opportunity, SCSPs must be included in lending valuations, regulatory frameworks and project feasibility, among others.

To help rural landowner clients capitalise on carbon markets by hosting SCSPs, surveyors need a foundational understanding of voluntary carbon markets (VCMs). Although the concept may seem familiar, the complexity of carbon markets is often underestimated; they have been likened to sausages: everyone's heard of them, but few know what they're made of.

VCMs are largely driven by the Paris Agreement's goal of reaching net-zero emissions by 2050. They allow participants to reduce or offset emissions by purchasing carbon credits, which can be sourced domestically or internationally. These credits must adhere to a standard – a set of rules, criteria and quality assurance processes that ensure carbon offset projects provide measurable and verifiable emissions reductions or removals.

Bloomberg predicts that by 2050, VCMs could reach an aggregated value of £197bn–£394bn, up from £1.6bn in 2022, as companies aim for net-zero commitments to satisfy shareholders, consumers and regulatory anticipation. Despite increasing demand, most credits are currently sourced from overseas, as UK supplies remain limited.

According to think-tank Green Alliance if demand for offsets grows proportionally to the size of the UK economy, UK companies could require between 35 and 128m credits annually by 2050. If the UK maintains its current 5.7% share of the global VCM, this would translate to a demand of 63-228m credits annually by 2050. With the PC and WCC projected to only produce 10 and 15m credits by 2050 respectively, domestic supply will fall well short of demand.

Further, not all UK farmland is suitable for forestry or peatland projects, and many landowners may prefer to retain their land's existing use. Adopting other internationally recognised standards that are compatible with farming practices could encourage greater landowner participation, improve agricultural soils, and boost the domestic supply of carbon credits.

Examples of other internationally recognised standards include:

• Verra's Verified Carbon Standard (VCS): includes methodologies for no-till farming, which reduces soil disturbance and promotes carbon retention.
• Gold Standard's Agriculture Methodology: supports cover cropping practices that protect soil and enhance carbon sequestration.
• Project Drawdown: while not a certification body, Project Drawdown identifies silvopasture as a high-potential practice for carbon sequestration and increased biodiversity. Its research could guide silvopasture adoption under established standards such as VCS.

Although primarily operating in the US agricultural technology companies such as Indigo Ag, which promote regenerative carbon sequestration practices, align with global standards and could be adapted for the UK market.

Take the WCC as an example. Although the market has grown from 36 validated projects in 2013 to 656 by mid-2024, completed transactions involving land hosting WCC remain incredibly scarce. Additionally, properties with pre-sold Pending Issuance Units – future carbon credits – often struggle to attract buyers, leading to market withdrawals.

As the market develops, surveyors should be able to collaborate with financial institutions to identify the data that banks need for loan assessments, including data for land-hosting projects following standards other than the WCC and PC.

A practical starting point is to go back to valuation fundamentals. In valuing land with SCSPs, surveyors must determine whether to classify it as a real property asset (IVS400 ) or a financial instrument (IVS500). 

As the market matures, no single method may dominate, so valuers must understand the specific interest being assessed. Beyond universal variables such as location, topography and transport links, several other factors must also be considered:

• carbon credit revenue potential: expected income from selling carbon credits
• regulatory compliance and certification: costs related to meeting regulatory standards
• project duration and permanence: length and reliability of carbon sequestration commitments
• ownership and contractual obligations: effects of ownership structures and binding agreements on land use and revenue potential.

This list is not exhaustive, and should standards expand, new variables will emerge. Increased SCSP land transactions benefit not only valuers and banks, but also landowners and surveyors advising them.

The primary question for landowners is often 'What is the most profitable and best use of my land?' Surveyors, particularly land and estate managers, are essential in helping landowners explore this question.

According to the National Food Strategy, 17% of the UK's least productive farmland, contributing less than 3% of domestic food production, could be converted to woodland, creating opportunities for carbon projects.

Surveyors, particularly those in rural real estate agencies, are equally vital for project developers who are looking for land suitable for SCSPs. Leveraging local market expertise, these agencies match landowners' objectives with the specific needs of carbon projects, creating tailored solutions that benefit both parties.

Surveyors also facilitate lease agreements that account for the unique, long-term risks of SCSPs. For developers interested in outright land purchases, surveyors help identify underused or unproductive land suited for innovative carbon-storage solutions such as direct air capture technology or biochar storage.

As well as knowledge gaps, SCSPs face regulatory and operational challenges. Without government support for standards beyond the WCC and PC, alternative projects struggle for legitimacy, leading to lower credit prices that can make projects financially unviable.

Another challenge lies in monitoring, reporting and verifying soil carbon, which requires extensive sampling and costly, long-term monitoring. Landowners face financial risk if projects and credits fall short. Surveyors can mitigate these by drawing up contracts that distribute risk fairly.

These challenges highlight the importance of cross-sector partnerships, where surveyors collaborate with professionals in other industries and sectors, to unlock the full potential of VCMs in the UK. Supermarkets and finance are two sectors that are working towards net-zero goals, creating an advisory role for surveyors.

Supermarkets – the UK's largest private employer with more than 1.16m people – face mounting pressure to decarbonise supply chains, prompting initiatives in carbon reduction at the agricultural level, often in partnership with the finance sector. For instance, Tesco and NatWest have launched a programme to help 1,500 farmers reduce carbon emissions through renewable energy technologies such as solar panels and energy-efficient systems.

Surveyors are central to this shift, assessing the feasibility and long-term value of carbon sequestration projects aligned with corporate goals. By guiding landowners and farmers – who produce 54% of UK food – through viable options, surveyors help connect land management practices with industry sustainability targets.

Finance – the UK's most profitable sector – is also adapting. Banks, such as the Agricultural Mortgage Corporation and Virgin Money's Agri E Fund, are now offering funding for sustainable agriculture. As these institutions expand portfolios to include environmental projects, surveyors can ensure land-based carbon projects meet financing standards. Their expertise in valuation and feasibility improves risk management while helping landowners to tap into new income streams.

With the expansion of carbon markets and the push toward net-zero, rural land will be crucial in achieving climate target goals. The surveying sector has a unique opportunity to lead by fostering collaboration between financial institutions, landowners and carbon markets on the expansion of SCSPs.

Financial institutions offer essential funding, allowing landowners to adopt carbon capture practices that also improve soil health. Meanwhile, carbon markets drive demand for credits, rewarding sustainable practices that diversify landowners' income and enhance soil resilience.

RICS' Impact of carbon markets on the rural economy provides a foundational framework for surveyors to approach these emerging opportunities. To build on this framework, surveyors must improve their understanding of carbon markets, foster partnerships across sectors and support the expansion of carbon standards beyond the WCC and PC.