Theresa May committed to the UK being net zero on greenhouse gas emissions by 2050, whilst the NFU’s aspiration is to be net zero by 2040 showing the commitment of the industry.
Climate change brings volatility and extreme weather conditions which, together with the government’s call for a 20% reduction in beef, lamb and dairy consumption is a major threat to the agricultural industry. There is a huge
push for lower quantities of high-quality meat to be in our diets.
Although a threat, finding a solution to climate change could create many opportunities for farms and estates. This is not just the reduction in our emissions but also harnessing the opportunity to absorb carbon for other businesses and even other industries. The long-term profitability and sustainability of the agricultural industry has climate change at the core.
Reducing emissions can make perfect business sense, an example being the increasing of productivity through precision farming, which can reduce input costs such as fertiliser (nitrous oxide) and fossil fuel. Like financial benchmarking the starting point is to recognise your position to ensure you can then compare like with like.
Over the past decade there has been a drive to increase renewable energy. This has proved very lucrative for many businesses. Reducing the burning of fossil fuels and in turn carbon dioxide is something that is here to stay.
We also know that greenhouse emissions for agriculture are not limited to carbon but also include methane (with livestock being a major source).
The ability to absorb or store carbon is, I think, the most exciting of the methods. This idea of carbon sequestration through utilising our woodlands and soils, together with carbon offsetting, may provide the industry with a new
source of income. There are questions around how this will happen and whether the opportunity will be through leasing carbon credits out to other industries. It is the potential leasing that may make it interesting from a tax
perspective – leasing does not necessarily mean you are trading but may mean you are holding an investment.
From a tax perspective, farming is a trade providing us with the ability to benefit from several tax reliefs. We are awaiting confirmation as to the categorisation of any carbon offsetting income but the table below should
highlight some of the issues, should the new source of income be deemed to be investment income/income arising from the passive use of land rather than farming or trading income.