BIODIVERSITY NET GAIN Is it a useful tool for managing local authority estates?

David Alborough

David is a land agent, consultant, and member of the Natural Capital team at Carter Jonas. Prior to this, David was Head of the Property Services function at Northumbrian Water for over 25 years. As part of that role, he helped develop the organisation’s thinking around corporate natural capital accounting and biodiversity net gain, including how this link into their corporate property strategy and wider business goals. David was also involved in major projects such as the Abberton Reservoir expansion scheme, increasing its water level by 3.2 metres, so creating an additional 15m litres of freshwater storage. The scheme required careful environmental consideration being within a SSSI, Special Protection Area, and Ramsar Site.

In the ever-changing world of Biodiversity Net Gain, David gives a resume of the latest round of government consultations, but says there are opportunities for managers of public sector estates. “Given the uncertainties that remain, local authorities may be best served by starting small, building experience and understanding, and allowing their approach to evolve as the market continues to mature.” 

A maturing market

Twenty-eight months on, much has changed in the wonderful world of Biodiversity Net Gain (BNG). This article explores what’s been happening in the market, where it may be heading, and the implications of the latest government consultations.

Since mandatory BNG was introduced in February 2024, the market has continued to mature. At the time of writing, there are 263 habitat banks covering more than 8,500 hectares, with over 37,000 biodiversity units available for sale. More than 2,000 allocations have now been made to developments, representing a threefold increase over the last year alone.

At first glance, these figures may suggest a significant oversupply of biodiversity units. However, the reality is more nuanced. Many habitat banks have units under option awaiting allocation to developments. As these units have not yet been formally allocated, they continue to appear as available on the Biodiversity Gain Sites Register, potentially overstating the level of supply within the market.

Development and trends

When considering the future trajectory of the market, it is important to reflect on the conditions that existed when mandatory BNG was introduced. Several factors influenced the market's early development:

• When the regime became mandatory in February 2024, development activity was subdued and market uncertainty remained high in the lead-up to the General Election

• Only 20% of major planning applications were determined within the statutory 13-week timeframe

• Discharge of the statutory BNG condition is a post-consent matter

• The planning application process typically begins 6-12 months before submission, with even longer lead-in times for larger or more complex schemes. As a result, BNG was often not considered - or only partially considered - during the initial design stages

• The mitigation hierarchy created a strong preference for on-site BNG delivery

• Many developers, local planning authorities and infrastructure providers were not fully prepared for the implementation of BNG 

• Establishing a habitat bank could take between one and three years, while the Biodiversity Gain Sites Register - required for the registration of off-site biodiversity units - was launched on the same day that BNG became mandatory

• At the time of implementation, infrastructure providers across the water, rail and electricity sectors were between periodic funding cycles and therefore had limited visibility of their likely demand for biodiversity units

• Due to the long lead-in times associated with infrastructure projects, much of the existing project pipeline had not accounted for BNG requirements. In many cases, the processes used to develop and assess projects also needed to be adapted to accommodate BNG 

• Some landowners and organisations, such as Environment Bank, invested heavily in creating biodiversity units ahead of demand and before securing any sales.

As a result, several trends have emerged within the market

• BNG has frequently been considered relatively late in the development process

• Developers and local planning authorities have typically sought the most straightforward route through the process to avoid delaying development. As a result, the application of the mitigation hierarchy has often remained largely unchallenged

• Given that developers have direct control over their sites, and have historically transferred long-term obligations to management companies, many have favoured on-site delivery where feasible

• Where off-site biodiversity units have been required, a reactive approach has typically been adopted on a project-by-project basis, with limited strategic oversight or consideration of alternative delivery models

• Some developers have sought to estimate future biodiversity unit requirements using high-level assumptions based on historic development projects and average unit requirements per hectare

• Consequently, biodiversity units have often been procured within relatively short timescales, favouring habitat banks that are either already registered on the Biodiversity Gain Sites Register or nearing approval

• In many cases, biodiversity units have been sourced some distance from the development site. This has been particularly evident for habitat types in limited supply, such as watercourse units

• Infrastructure providers have entered the market at scale relatively recently

• The impact of public procurement requirements has encouraged the establishment of supplier frameworks for biodiversity unit provision, often favouring larger and more established habitat banks.

A two-tier market

Over time, a two-tier market has emerged. Large habitat banks with units already created and available for allocation are increasingly offering significant discounts on bulk purchases and marketing these nationally. This contrasts with smaller, localised suppliers and providers of higher-distinctiveness biodiversity units, where supply is often more constrained.

The result has been a significant reduction in the price of Other Neutral Grassland units, of which approximately 21,000 are currently available for allocation. For larger transactions - typically 20 units or more - prices can be as low as £15,000 per unit, compared with a more commonly quoted market price of around £25,000 per unit. The higher figure often continues to be referenced in smaller-scale negotiations, where supply is constrained, or where planning considerations create a preference for, and attribute a premium to, particular habitat types or delivery locations.

Further downward pressure on prices may emerge in the short term, as larger habitat banks seek to recover their upfront investment and procurement processes increasingly focus on cost competitiveness. However, the supply of these units is finite and current pricing trends may not persist indefinitely. As existing stock is absorbed, there may be upward pressure on prices over the next two to three years, particularly if new habitat banks are not established at a sufficient rate. Procurement frameworks used by infrastructure providers do not always incentivise new entrants to the market, while the inclusion of Nationally Significant Infrastructure Projects (NSIPs) within the BNG regime could create localised supply shortages in the medium term.

A further polarisation of the market may emerge between grassland units and more specialist habitats, such as wetland and watercourse units, with suppliers increasingly developing schemes targeted at specific market sectors.

Government consultations 

There have been three consultations on the operation of BNG during the last 12 months. The government has already responded to two of these, while the third has only recently closed. In its recent response, the government acknowledged the importance of providing stability to the market. However, given the pace of policy development and ongoing consultation activity since implementation, it is reasonable to question whether the market has been afforded the stability it seeks to achieve. 

The three consultations have focused on the introduction of BNG for NSIPs, measures intended to simplify the process for small sites, and a proposed exemption for certain brownfield developments. Of these, the following points are likely to be of greatest relevance to local authority landowners.

Nationally Significant Infrastructure Projects

The government has confirmed that NSIPs will be brought within the BNG regime from 2 November. The spatial risk multiplier will also be amended to allow linear schemes to deliver off-site compensation within any Local Planning Authority and National Character Area through which the scheme passes, on a one-to-one basis.

NSIPs will be required to submit an Outline Biodiversity Gain Plan at the application stage, including details of how the required biodiversity gain will be secured. The full interpretation of what constitutes 'secured' has yet to be tested in practice, but the requirement may encourage developers to acquire biodiversity units, or options over them, at an earlier stage in the project lifecycle.

Promoters of NSIPs are often seeking to deliver multiple benefits, including public access and wider environmental outcomes. Local authority landowners may therefore be well placed to help meet this demand, particularly where they can offer opportunities at scale. With a significant pipeline of projects expected to enter the regime, demand for biodiversity units could increase substantially. 

However, capturing this opportunity may present challenges. Projects funded through the public sector are typically required to comply with public procurement regulations, meaning prospective suppliers must engage with formal tendering processes. In addition, the organisation promoting a scheme is not always the party that ultimately delivers it.

Early discussions may therefore not translate into a sale if the eventual developer adopts an alternative route to market. Where appropriate, consideration should be given to whether agreements can be structured to allow novation to a future delivery partner. 

Minor, medium and brownfield developments

Turning to the second consultation, which focuses on minor, medium and brownfield developments, one of the most significant proposals is the introduction of a new exemption for developments below 0.2 hectares.

It’s anticipated that this will sit alongside the existing de minimis exemption for developments resulting in the loss of no more than 25sq.m. of habitat. According to some estimates, this new exemption could remove a significant proportion of schemes from the regime. However, given the relatively small number of biodiversity units typically involved, the overall impact on market demand is expected to be considerably lower (c.10%).

The exemption for temporary habitat loss has also been extended to five years. However, it should be noted that the test is whether the habitat can return to a functioning ecological state within that period, which may not be achievable for all habitat types.

A welcomed modification is the relaxing of the biodiversity hierarchy for minor developments, typically those involving up to nine dwellings. These schemes will no longer be required to prioritise on-site delivery, which could increase demand for off-site biodiversity units. These changes are currently expected to come into effect on 31 July.

Additional exemptions will include development undertaken primarily to enhance nature and for low-impact development that supports public parks and sports facilities.

Finally, changes are proposed to the Statutory Biodiversity Metric. Of particular significance is the proposal to replace Local Planning Authority and National Character Area boundaries with Local Nature Recovery Strategy boundaries for the purposes of the spatial risk multiplier. This could have a significant impact - both positive and negative - on individual habitat banks, as it would alter the geographic area within which biodiversity units can be traded on a one-for-one basis. These changes are expected to come into effect later in 2026.

Exemptions for brownfield sites 

The final consultation considers potential exemptions for brownfield sites. The rationale is that, for smaller brownfield developments, the cost and availability of Open Mosaic Habitat units can present a barrier to bringing sites forward for development. Proposals include the introduction of a formal definition of a brownfield site, including consideration of the proportion of previously developed land required to qualify. Consideration has also been given to introducing an area-based exemption above the 0.2-hectare threshold proposed for all development.

Additional proposals include amendments to the definition of Open Mosaic Habitat within the Statutory Biodiversity Metric and allowing its constituent features to be replicated in alternative locations, making it easier to identify suitable replacement habitat.

The prospect of a further exemption has prompted a strong response from habitat bank operators and environmental non-governmental organisations, who argue that it could weaken both the off-site market and the principle of compensating biodiversity losses associated with brownfield development. The government will need to strike a careful balance between these concerns and its ambition to support economic growth through the delivery of brownfield development.

Conclusions

In conclusion, the BNG market continues to evolve at pace. For local authorities considering how BNG could support their estate objectives, now may be an opportune time to explore the opportunities available. The cost, complexity and time required to establish habitat banks have reduced considerably, while demand is expected to increase over the medium term.

However, caution should be exercised when assessing the implications of proposed policy changes. The final BNG regime differed in several important respects from the initial consultation proposals, and the same may prove true of the latest reforms. The ultimate impact of these changes - particularly the introduction of NSIPs into the regime - will only become clear once the regulations are finalised and implemented.

Given the uncertainties that remain, local authorities may be best served by starting small, building experience and understanding, and allowing their approach to evolve as the market continues to mature.