Can government grants encourage more tree planting?

A range of grants and incentives are available in England to encourage tree planting, as set out in my previous article. However, only relatively small areas of land have been converted to forestry in the past 20 years, meaning that both England and the UK are a long way from meeting the government's tree planting targets.

The grants have been increased, particularly over the past two years, and it is no coincidence that the area of woodland creation has also risen. However, the grants on offer are just one of many factors to consider when planning this land-use change.

However, there are many variables that affect the costs and returns of planting trees, so assessing the expected income from a woodland creation project and comparing them with current agricultural enterprises can be both complex and challenging.

In terms of assessing financial returns, a new woodland creation project can generate various income streams – in addition to any grant income – including timber, recreation and sports, such as deer stalking and game bird shooting, as well as the sale of ecosystem benefits such as carbon and biodiversity offsetting.

However, all these income streams are site-dependent, and will be influenced by the design of the project, including the choice of tree species, the planting density and layout, and its subsequent management. These also affect the costs of establishment and maintenance.

While various computer models have been developed to support such assessment, using realistic assumptions based on good local intelligence is the best way to achieve reliable estimates of the likely costs and potential financial returns.

Planting agricultural land with trees requires different skills and machinery. Furthermore, the income profile from growing food on the land is also very different to that of trees on the land. For example, most agricultural enterprises generate an annual income from food production, whereas it may take more than 20 years before timber can be grown and sold. There is also the significant capital investment required to plant and establish a new woodland.

Furthermore, trying to predict timber prices in 12 months' time can be tricky, let alone what they will be in 20 or more years. There are of course various financial appraisal techniques that can be applied to account for different timescales and price predictions, but these add more complexity.

Meanwhile, the woodland creation scheme may increase or decrease land values: tree planting effectively constitutes an irreversible land use because permission is generally required for felling, and one of the usual conditions is the requirement to restock with more trees.

Nevertheless, where financial returns are expected to be higher from forestry, this can lead to an increase in land values, where that land has the scope to be planted with trees and has the relevant consents – as has been recently experienced on some of the more marginal agricultural land in the UK.

Likewise, woodland planting that helps improve the amenity or outlook – for instance, screening a new road or enhancing a shoot – can improve land values. It's also important for owners to consider taxation, particularly the potential inheritance tax implications.

Landowners range from farmers, investors, developers, forest management companies, lifestyle owners, charities and local and national government, and in turn there are many reasons why landowners choose to plant trees. Motivations for wanting to plant trees might be primarily financial, meaning that the financial returns from planting trees versus farming would be key. It may also offer the opportunity to develop a new source of income.

For others, the main motivators might be less financially driven, for example:

• to provide new wildlife habitat, adding amenity to the countryside
• to help flood alleviation
• to improve water and air quality
• to offer wind protection and provide shelter and shade for livestock.

Applying for grants in England can be time-consuming, prompting landowners to lose interest or have a change of heart, particularly when agricultural commodity prices change so rapidly. A sudden increase in wheat or lamb prices for instance could make keeping the land in agricultural use seem more attractive.

Furthermore, a new planting scheme may require an environmental impact assessment (EIA). This can be straightforward, but larger areas of land and schemes on land subject to environmental designation can be more complex. This complexity will not only increase the application time but also its cost. The Woodland Creation Planning Grant does offer some support with the process of planning a woodland around any constraints.

Recognising this, the Forestry Commission has recently developed a more streamlined process called the Woodland Creation Fast Track for dealing with applications involving low-sensitivity areas. These areas of land will be free of environmental designations, based on national datasets, and exclude land classified as grade 1, 2 and 3a and can be seen on the Woodland Creation Low Sensitivity map.

Forestry has been, and is still, seen by many farmers and landowners as the poor economic relation to agriculture. That was certainly the case, but recent improvements to grant support and opportunities to generate and diversify income through provision of different ecosystem services such as carbon and biodiversity offsetting, has resulted in some new woodland schemes being financially more attractive, particularly on more marginal agricultural land. There may also be opportunities to fix or index-link your income from the grants and the sale of carbon.

It is important to remember that woodland creation is a long-term venture and, in essence, an irreversible land use. It also needs to be maintained and managed. While maintenance payments under the England Woodland Creation Offer have been improved and now stand at £400 per hectare per year for 15 years, they generally only cover annual maintenance costs rather than compensating for the loss of agricultural income.

The Forestry Commission has published financial case studies for a 10ha and a 100ha site to help land managers get a sense of the economic considerations and impacts of creating new woodland. Clearly each case will be different, but they are a useful start.

So, in most cases the current grants alone are unlikely to be a sufficient financial incentive to encourage tree planting. However, where there are opportunities to derive other sources of income or there are other motivations, I would argue that now is a good time to look at woodland creation as a land-use option, particularly on poorer quality agricultural land.