The UK ETS is on the cusp of a major transformation, with the integration of GGRs becoming increasingly likely. A recent consultation, which attracted around 160 responses, has paved the way for engineered removals and potentially high-integrity woodland carbon credits to enter the scheme by the end of the decade.

 

The ETS Authority has been clear that nature-based solutions, such as afforestation,  will only be admitted if they meet stringent criteria on permanence, environmental integrity, and market stability. Key proposals include a 200-year permanence requirement, issuance of credits only after verified removal (ex-post), and the establishment of a 20% buffer pool to manage the risk of carbon reversal. Only UK-generated credits verified through a robust Monitoring, Reporting, and Verification (MRV) framework - likely an adapted version of the Woodland Carbon Code (WCC) -would qualify.

 

While a final decision on woodland carbon’s inclusion is still pending, concerns raised by stakeholders, including the Climate Change Committee (CCC), around permanence, cost, and land use impacts are being addressed. However, new evidence from DEFRA and Forest Research indicates that woodland removals are durable and offer strong climate and ecological value, often undervalued in cost-benefit assessments.

 

If woodland creation targets are met, these removals could represent up to 10% of the UK’s residual emissions reductions by 2050 - without adverse effects on food production or market dynamics. The Authority is also considering a dedicated woodland cap and differentiated allowances to maintain market balance.

 

Robert Guest, Managing Director and Co-Lead of Foresight Natural Capital, comments:
"Crucially, access to both the UK ETS and voluntary carbon markets would improve the liquidity and pricing confidence for woodland carbon credits  – allowing scale-up of nature-based solutions and unlocking investor confidence and equity capital for UK afforestation. We encourage policymakers to move quickly from consultation to confirmation to send a strong market signal and accelerate climate progress."

 

As the policy landscape evolves, it’s vital that decisions are informed by robust analysis and cross-sector engagement. Last year, Foresight Natural Capital collaborated with King’s College London and Imperial College Business School to produce a policy paper exploring what impact the admittance of Woodland Carbon Code credits into the UK ETS would have on the pace of new woodland creation in the UK. The paper assessed how regulated market access for high-integrity woodland credits could support net zero goals, encourage investment, and create alignment between voluntary and compliance carbon markets.

 

While it remains to be seen exactly how the policy will take shape, we are encouraged that some of the core issues and opportunities addressed in that research are being actively explored by policymakers. 

 

Clear and timely policy decisions are vital to unlocking investment, driving woodland creation, and supporting the UK’s ambitious climate and biodiversity objectives.

 

Read the full policy paper here.