Some great news for landowners in England looking to bid on an earlier than expected third auction with the WCaG, with some interesting results from the second auction from June 2020. These auctions have been designed by the Government to establish a floor price for Woodland Carbon Units (WCUs), drawing from a £50 million fund over a series of five auctions at £10 million each. The purpose of these are to provide a guaranteed financial incentive to landowners in England wishing to convert their land use to woodland creation with a focus on carbon sequestration. If successful in this auction, landowners can benefit from an index-linked guaranteed price for the sale of their WCUs (not Pending Issuance Units (PIUs)) to the Government at either 5-yearly or 10-yearly verifications until 2055/56.
The average value for these units for the first auction back in January 2020 was £24.11, dropping to an average of £19.71 in the second auction. Considering that one hectare of woodland planted now can generate anywhere between 100-500 units, the average value from the second auction could provide successful landowners with anywhere between £2,000-£10,000 per hectare over the lifetime of the project. It is important to note that projects not involved with the WCaG are still expected to be able to sell their carbon units (either PIUs or WCUs) for anywhere between £7-£20 per unit on the open market.
The second auction saw an increase in woodland creation area successfully registering with the Guarantee increase from 182ha in the first auction to over 1,500ha in the second. This, alongside a ring-fencing of “up to 75%” of schemes for predominantly native woodland schemes in the upcoming third auction, suggests that there was a far greater focus on commercially-driven schemes in the second auction than in the first. This is likely a major contributor to the drop in average unit value between the first and second auctions, and it will be very interesting to see what effect the ring-fencing may have on the average unit value in the third auction.
Where do we go from here? Carbon finance is becoming an increasingly important factor when considering cash-flows for woodland creation projects across the UK. For the Government to hit their target of 30,000ha of woodland creation per year from 2025, it is likely that land of a higher value will need to be considered for planting, which means that higher carbon unit values could be expected. Since its introduction in January 2020, the WCaG has already had a positive impact on the value of carbon units generated through the Woodland Carbon Code (WCC). Increased Government investment into similar schemes in the future may help to develop this emerging carbon market further, whilst providing confidence for both landowners and investors in woodland creation projects nationwide.