The cost of achieving 10% BNG for developers – a brief guide on BNG credits

For housing developers planning work on new sites from February 2024 onwards, they need to start factoring in biodiversity net gain (BNG) costs to their calculations.

Based on biodiversity assessment results, developers will need to consider purchasing off-site BNG credits if it’s not possible to create the minimum 10% BNG uplift on-site through habitat creation projects.

This guide will explain the basics of BNG credit costs for developers approaching biodiversity trading.

Explaining BNG units vs credits

For developers to meet new mandatory BNG targets, they may need to purchase off-site BNG – ‘habitat banks’ outside the red line boundary of the development site.

These habitat creation projects are managed by farmers or landowners for the purposes of achieving biodiversity net gain and could involve, for example, establishing or enhancing a wildflower meadow, wetland, woodland or species-rich hedgerows.

The biodiversity uplift created is quantified into ‘biodiversity units’ – as the number of biodiversity units increase, it shows how much biodiversity has been gained.

These off-site biodiversity units are now being traded on the private market for developers to purchase. In contrast, the term ‘biodiversity credits’ refers to credits available for developers to purchase through the government’s statutory biodiversity credits scheme. This aims to ensure that the pace of development in England is not impacted by the introduction of mandatory BNG.

Through this scheme, a unit is traded between the private market and a developer, and a credit is acquired from the government by the developer.

A credit is a last resort alternative to on-site and off-site habitat creation if developers cannot source off-site biodiversity units privately.

The Planning Advisory Service, which is working closely with the government to help implement mandatory BNG changes at a local level, recommends that off-site biodiversity units shouldn’t be referred to as ‘credits’, to help prevent any confusion with the statutory credits scheme.

The cost of buying BNG units

If it’s necessary for property builders to invest in off-site BNG, the cost of purchasing and maintaining BNG units will need to be factored in to their BNG plan.

Off-site biodiversity units are generated when habitats are created or enhanced by private landowners (e.g. farmers), or on public land (e.g. common land).

Biodiversity units can be categorised into three types, according to the standard Biodiversity Metric 4.0 – listed in the table below:

All BNG delivery, whether on-site or off-site, needs to be funded for a minimum of 30 years to comply with new legislation.

There is also a net gain agreement to consider. When off-site land is being used for BNG delivery, a legal agreement between the landowner and the local authority (e.g. a Section 106 agreement) or a Conservation Covenant, will need to be in place to ensure the BNG site won’t be lost – even if the land changes ownership in the next 30 years.

The private market for BNG units is still in its infancy, however it’s predicted to become more competitive as the new mandatory 10% target is set to increase demand from developers from February 2024.

The price of BNG units will depend upon the habitat’s distinctiveness i.e. the rarity of the flora and fauna within it and any distinguishing features.

BNG prices are also set to vary widely across England’s planning authorities – according to the level of development pressure and availability of BNG units locally.

Statutory biodiversity credit prices

As explained, if BNG mitigation cannot be achieved through the private market, developers will need to purchase statutory biodiversity credits from Defra, which will be used to invest in habitat creation projects.

These will be available to buy via a credit sales service, once the new BNG legislation is live.

Indicative prices for Defra’s statutory BNG credits were released in July 2023, starting at £42,000 for a habitat of ‘low distinctiveness’ (e.g. grassland), and increasing up to £650,000 per credit for lake creation projects in habitats with ‘high distinctiveness’.

These BNG credits are set to be deliberately uncompetitively priced to encourage developers to invest in new habitat creation projects, on-site or off-site.

Stay up to date with guide prices for statutory biodiversity credits here.

Forecasting BNG costs – best practice

When it comes to calculating biodiversity credit costs, a statutory biodiversity metric tool is launching in 2024.

The tool will give guidance on how many statutory credits need to be bought for each site, using a ‘spatial risk multiplier’. This works on the formula that two credits need to be purchased for every biodiversity unit – so, however many biodiversity units are needed, the statutory credit requirement will be double.

To manage BNG costs and protect profitability, it’s highly recommended developers start understanding site biodiversity levels and explore BNG options – off-site or on-site – as soon as possible.

Competitors will also be keen to secure biodiversity units on the private market, if necessary, rather than be forced to purchase expensive statutory credits, so it’s in a developer’s best interests to investigate local BNG investment options now.

Before any work can commence from February 2024, a BNG plan for each site will need to be submitted to local planning authorities.

This must detail whether any biodiversity units have been purchased, an overview of off-site BNG investment, and plans for how these projects will be managed and maintained for at least 30 years.

Source: Planning Advisory Service – Biodiversity Net Gain FAQs

Natural England advises developers to seek expert ecologist support to understand how many biodiversity credits they may need to purchase within their BNG planning.

With the support of our LAND360 team , you can tap into science and data to build a successful BNG plan that achieves your commercial objectives as well as environmental gains.

For more information click here.

More about LAND360

LAND360 is Fera's cutting-edge natural capital assessment service. Launched in 2022, it empowers farmers, landowners, estate managers, and housing developers to make informed land use decisions. By accurately measuring and mapping existing land habitat features and modelling biodiversity offerings, LAND360 is a vital tool in the quest for sustainable development and biodiversity enhancement.