Post date
7 Jun 2025 (original LinkedIn date)
Original
LinkedIn version· 1,107 words
Dear Chancellor Reeves,
As you prepare to announce the 2025 Spending Review on 11 June 2025, I believe, I urge you to prioritise the scaling of the UK’s nascent nature markets, encompassing biodiversity net gain (BNG), carbon sequestration, and broader ecosystem services, by applying proven strategies from the renewable energy sector’s success. Drawing on Simon Sharpe’s economic framework, which views economies as evolving ecosystems rather than static machines, I would ask that you give serious consideration to integrating policy mandates, advance market commitments (AMCs), contracts for difference (CfDs), and innovation-inducing constraints into the Spending Review to drive a thriving nature market. These measures align with your commitment to economic growth and climate goals, as outlined in your Spring Statement, and can position the UK as a global leader in nature-based solutions.
Below, I outline these strategies and provide evidence for their efficacy.
1. Policy mandates to foster demand and shape markets
The renewable energy sector’s rapid growth was driven by mandates like Germany’s Feed-in Tariffs (FiTs) and U.S. Renewable Portfolio Standards (RPS), which created demand and reduced investment risk, leading to an 80% cost decline in solar PV from 2010 to 2020. In the UK, the Environment Act 2021’s BNG mandate, requiring a 10% biodiversity uplift for developers, had already catalysed over 1,000 hectares of habitat restoration by 2024. There is yet more this year so far. However, the nature market remains fragmented, with limited demand beyond developers.
I recommend expanding BNG requirements to sectors like agriculture and infrastructure, which I believe may already be in the offing, mandating a 20% biodiversity uplift by 2030. Additionally, I suggest that you evolve the Environmental Land Management scheme (ELMs) into a FiT-like system, offering guaranteed payments to landowners for delivering measurable ecosystem services (e.g. carbon sequestration, flood/drought mitigation). This mirrors how FiTs scaled solar and wind, creating path dependencies that locked in low-carbon pathways, as Sharpe advocates. Such policies would drive demand, reduce risk, and align with your £113 billion capital investment pledge for growth-focused sectors like energy and housing (The Guardian, 30 May 2025).
2. Advance Market Commitments (AMCs) to signal demand
AMCs were pivotal in renewables, with corporate Virtual Power Purchase Agreements (VPPAs) and initiatives like Frontier’s $925 million carbon removal commitment (2022–2030) ensuring demand certainty, enabling project financing, and driving scale. In nature markets, limited corporate demand hinders growth, with Woodland Carbon Code issuing only 1.2 million carbon units by 2024 due to insufficient buyers.
I propose that the Spending Review allocates funds for government-backed AMCs, committing to purchase high-integrity biodiversity and carbon credits from projects like peatland restoration or woodland creation. Additionally, incentivise corporate AMCs by offering tax relief for firms pledging to buy credits, mirroring renewable energy’s corporate uptake. Sharpe’s emphasis on tipping points suggests that such commitments can trigger feedback loops, reducing costs and scaling supply, as seen with offshore wind’s cost drop from £150/MWh to under £50/MWh in the UK (2014–2020).
3. Contracts for Difference (CfDs) to stabilise revenue
CfDs were instrumental in renewables, stabilising revenue for over 50% of global offshore wind supply by guaranteeing fixed prices, mitigating market volatility, and attracting investment. In the UK, CfDs enabled a 35% capital uplift for the Department for Energy Security and Net Zero, as noted in your 2024 Autumn Budget (The Guardian, 30 Oct 2024). Nature markets face similar revenue uncertainty due to long-term restoration timelines (30–100 years).
We urge the Spending Review to pilot CfD-like mechanisms for nature markets, guaranteeing fixed payments for ecosystem services (e.g., £/tonne of CO2 sequestered from peatlands). For example, a £500 million allocation could stabilise revenue for Woodland and Peatland Code projects, attracting institutional investors, as seen with pension funds in renewables. This aligns with Sharpe’s risk management approach, prioritising systemic change over short-term cost optimisation, and supports your goal of economic stability.
4. Constraints to induce innovation
Constraints like carbon taxes and efficiency standards drove renewable innovation, with India’s LED market achieving a 90% cost drop in a decade. In nature markets, high transaction costs and inconsistent metrics deter participation. The Spending Review should fund R&D into scalable restoration techniques (e.g. AI-based biodiversity monitoring, eDNA, and others) and standardise metrics to reduce measurement costs, mirroring renewables’ kWh standardisation.
A £100 million investment in nature tech, coupled with stricter BNG targets, would force innovation, as Sharpe’s ecosystem view suggests constraints can accelerate progress. This complements your £3.25 billion Transformation Fund for public sector innovation (Institute for Government, 26 Mar 2025), ensuring nature markets contribute to your growth mission.
5. Evidence and economic alignment
These strategies align with your Plan for Change, which emphasises growth and infrastructure investment (GOV.UK, 29 Jan 2025). The Office for Budget Responsibility forecasts a 0.2% GDP boost (£6.8 billion) by 2029 from planning reforms, and nature markets can amplify this by unlocking rural economic potential (House of Commons Library, 26 Mar 2025). Sharpe’s evolutionary economics highlights how targeted interventions, like the UK’s coal phase-out via carbon pricing, can reshape markets. Without such measures, nature markets risk stalling, as seen with the UK’s slower renewable progress post-2013 due to reduced support (The Ecologist, 5 Feb 2024).
6. Polluter Pays Principle to address root cause of nature decline
To tackle the root causes of biodiversity loss, I ask that you consider embedding the polluter pays principle (PPP) in the Spending Review, ensuring those responsible for environmental damage fund restoration. The State of Nature 2023 report highlights a 19% decline in UK species abundance since 1970, driven by pollution and land-use change. A PPP-based levy on high-impact activities, like pesticide use (£10/kg could raise £200 million annually, based on 20,000 tonnes used in 2023), could fund nature market initiatives, such as ELMs subsidies or CfDs. The UK’s landfill tax, which cut landfilling by 70% (1996–2020), and the EU’s Emissions Trading System, reducing emissions by 35% (2005–2020), demonstrate PPP’s efficacy. By internalising costs, PPP creates feedback loops that deter harmful practices and drive innovation (e.g. low-impact pesticides, or better still regenerative agriculture practices), mirroring renewables’ carbon tax-driven shift. This aligns with Sharpe’s ecosystem view, using constraints to reshape markets and support your inclusive growth agenda, with 68% public support for environmental taxes (YouGov, 15 Apr 2024).
Conclusion
The 2025 Spending Review is a critical opportunity to scale UK nature markets, delivering on your growth and climate commitments. By embedding mandates, AMCs, CfDs, and innovation constraints, you can replicate renewables’ success, creating a robust nature market that drives jobs, biodiversity, and net-zero progress. The market stands ready to support your efforts to make the UK a clean energy and nature-positive superpower. If you are feeling particularly bold, you could even consider embedding the polluter pays principle.
Yours sincerely,