In 2018, ADAS, as part of a consortium with EnTrade and the Ecosystems Knowledge Network, began a project to develop a framework for a Payment for Ecosystem Services (PES) based nutrient trading scheme for the Milford Haven and Cleddau Catchment.

The catchment area, which is within Pembrokeshire, is high in natural capital such as fertile soils and wildlife but is economically vulnerable. In addition to these conditions, there is excessive nutrient loading within the catchment, largely from agricultural sources. As a consequence the regulator (Natural Resources Wales) had indicated that there was no scope for additional loading into the catchment; a decision that has created a barrier to commercial or industrial development as they themselves would be an additional source of nutrient emissions. In light of this, the objective of this work was to develop nutrient headroom in the catchment to facilitate economic development by working with a range of partners in the catchment.

We began working with farmers to discuss the adoption of management strategies that would reduce overall nutrient outputs into the watercourse. The level of impact of these interventions was determined through the use of ADAS designed nutrient models which can predict change at a field, farm and catchment scale. The application of these models alongside a robust monitoring/verification protocol will provide the evidence required for both regulators and local authorities to support further economic development in the area. The sellers in this PES scheme are the farmers or landowners. The buyers would be local government and private sector companies who are either looking to offset emissions or benefit directly from the reduced nutrient loading. ADAS were key in the creation of the framework and have been involved at every level of this project. We have designed the nutrient models which underpin the management interventions and we are working with the farmers to implement and monitor the outputs associated with land-use change. The specific role of the Policy and Economics team has been to build on these two elements and work with the wider community of NGOs, local authorities and private business to design a Scheme Operator capable of facilitating the emerging PES opportunities.

About the ADAS Policy and Economics team

The ADAS Policy and Economics team have expertise in valuing natural capital and ecosystem services, enhancing and maintaining natural capital and a detailed understanding of the various private and public payment approaches associated with ecosystem services schemes (PES schemes). As a result of our project experience, we have established relationships with a wide group of industry contacts whom already are or have the possibility to become buyers or sellers of ecosystem services. This puts us in a strong position of being able to facilitate the creation of trading platforms, offsetting schemes and PES schemes for a wide range of ecosystem services.

We have carried out evaluations of the ecosystem service potential for discrete geographical areas, the identification of potential buyers and sellers, the creation of reverse auction systems and evaluations of the whole system following completion.

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What is a reverse auction?

The Reverse Auction approach involves the payment authority offering farmers a menu of activities that might be funded under the PES scheme. The farmer or land manager bids for the volume of activity they are prepared to offer [area of land under management, length of hedgerow planted etc.] and the payment rate they will accept in order to undertake those activities. The environmental value that each farmer might deliver from undertaking those activities is proxied by an environmental quality score, assigned to them by the government on the basis of environmental priority or potential. Since farmers differ in terms of the cost (foregone income) they will incur if they undertake the activity, a cost-efficient outcome will tend to direct contracts to low-cost, high-quality applicants. Contracts are awarded on the basis of best VFM bids until the budget is exhausted or target uptake met.