Milestone 02


The Eddleston Water Project


Identify and Work with Sellers


 Project Overview

The Eddleston Water Project is a flood resilience and habitat restoration project near Peebles, Scotland. The project was started in 2010 primarily to reduce flood risk and restore habitats at a catchment scale, and ultimately to gather an evidence base on the effectiveness of natural flood management for wider use. Measures implemented across the 69km2 catchment include the creation of 38 new ponds, the re-meandering of some 3.5km of once-straightened river channels, 100 engineered log structures to slow excess water, and the planting of over 330,000 native trees.

While the project was predominantly funded through grants from the Scottish Government, the Scottish Environment Protection Agency and a number of other funders, the project team also sold a small number of carbon credits from its native woodland creation through the Woodland Carbon Code. In February 2023, the project was chosen as a UNESCO Ecohydrology Demonstration Site, the only one in the UK.

 

Milestone 1: Initial Project Scoping

Often the initial task is to understand the site(s) you want to use and the land use change needed for nature restoration or creation. This includes considering the goals of the land managers involved, the vision within the wider catchment or neighbouring area, and whether there are permits or planning consent needed for any proposed changes.

At this stage, you can also conduct a high-level assessment to determine which revenue streams can be generated from ecosystem services , e.g. carbon credits, flood reduction cost savings, or biodiversity units, which will be crucial for identifying buyer interest.

Finally, it is useful to have an idea of the costs of the project and potential grant funding that may be available to support initial development.

Milestone 2: Identify and Work with Sellers

Initial ownership of the ecosystem services will belong to the landowners or, in some cases, the tenants of the sites that the project is using. However, these can be passed onto others, such as third-party project developers, with appropriate legal arrangements and compensation. In some cases, there may be a sole seller of the ecosystem services, where the site or landholding is large enough that it delivers the volume of ecosystem services needed to cover the costs of the project and attract buyers.

However, in order to achieve scale and impact, a project will likely involve multiple sellers, such as neighbouring farmers and estate managers. Scale of land is often needed to deliver significant environmental outcomes, and also to attract private finance. Project developers must plan how they initially contact and engage with these sellers going forward, building their wants and needs into the project.

Milestone 3: Baseline and Estimate Ecosystem Services

At this point, you will have understood the vision for the project and identified a particular ecosystem service or set of services to be sold. The next step will be to carry out detailed analysis – baselining each ecosystem service and quantifying what will be able to be delivered from the interventions, as well as planning how to monitor and maintain these interventions. You will need to rely heavily on ecological expertise for this more scientific Milestone.

At this step, standards, verification and accreditation methods will be considered in more depth.

Milestone 4: Identify and Work with Buyers

Based on your earlier market analysis in initial project scoping, you will have identified one or more groups of beneficiaries who may be willing to ‘buy’ or pay for the ecosystem service(s) to be created, restored or maintained. Buyers vary – as do their requirements – but at this step, greater buyer engagement is now needed to develop a deal that channels money towards the nature-positive outcomes that your project wants to deliver.

 

 

Milestone 5: Develop Business Case and Financial Model

You’ll have started building your business case and financial model in earlier steps – laying out your vision, the market proposition and estimating costs and income. This step offers a review, in addition to providing details on information needed to build out the financial model and business case more fully. Both of these key documents will be iterated throughout project development, and may be altered during project delivery as new information emerges. These documents are interlinked and, if developed correctly, will ensure your project’s viability and also help you with discussions with stakeholders including sellers, buyers and future investors.

The financial model will also enable you to better understand the type of structure your project may take to attract investment (i.e., an environmental bond, a loan, an equity investment) and what sort of returns you can afford to pay/offer.

Milestone 6: Develop a Governance Structure

A governance structure will inform the way in which the project is run when fully operational and for what purpose. It identifies appropriate decision making processes, who is responsible for what actions, and what controls are in place to make sure that the project is meeting its stated goals, all while abiding by the risk appetite of its engaged stakeholders. The legal entity to host the project will be a key driver in this, and the appropriate choice of entity will be dependent on several factors that are outlined below.

Your governance structure should align with and underpin your business case, as a necessary component of how the project will deliver its environmental outcomes and other strategic targets.

Milestone 7: Identify and Work with Investors

It is important to note that not all projects will need up-front investment, but for those that do, this section provides a framework for thinking around the development of the investment model. This does not constitute financial advice – as the GFI is not licensed to do so. However these considerations are based on the insight offered by project developers and other market stakeholders.

An investor will be a new core stakeholder in your project, and it’s just as important to think of what you require from investors, as much as what they require from you – so that you can build a positive and collaborative relationship with them.

This entails defining the investment ask (in line with the financial model), the strategy for approaching the right investors, and the negotiation of terms that can then be formalised in contract development (Milestone 8).

 

Milestone 8: Establish Legal Contracts and Closing

When all relevant stakeholders have been engaged and their terms of engagement are clarified as much as possible, this is the time to develop the legal contracts and close the deal. This stage is last because legal fees are expensive, and it is generally advised to determine as much as possible in previous stages before

Note: The information in this Milestone does not constitute any form of legal advice but instead serves as practical advice on how to manage engagement with lawyers and the process of contract development.

The Green Finance Institute is not a firm of solicitors or connected in any way with the courts. The information and opinions we provide in this section and across the Toolkit do not address your individual requirements and are for informational purposes only. They do not constitute any form of legal advice. We recommend that appropriate legal advice should be taken from a qualified solicitor before taking or refraining from taking any action.

Community Engagement

Community engagement is highly advisable for any project that aims to sell ecosystem services, to ensure fair outcomes for local communities and the long-term success of the project. Project developers can build connections with local stakeholder groups early on to spot both risks and opportunities.

Policy and Regulation

Project developers and enterprises will need to keep a continuous check on how current and future policy may affect the project, and also opportunities for the project to inform policy. The role of private finance for nature across the UK is being encouraged by the UK government and its devolved administrations, and new rules, standards and markets are being developed.

 
Acknowledgements 

 

With many thanks for their time and insight on this case study:

Luke Comins, Chief Executive Officer, Tweed Forum

 

 

 

 

 

Professor Chris Spray, Emeritus Professor of Water Science and Policy, University of Dundee

 

 

 

Date published: 29/05/2023

Next Milestone

Identifying a need for multiple landholders

Due to the project’s aims of improving the evidence base for catchment-scale NFM, it was clear that there was a need for multiple landowners. The Eddleston catchment had between 30-40 landholders – mostly farmers of mixed farm types. There was also a considerable amount of forestry land as well, which is owned by Forestry and Land Scotland, and other non-private organisations.

The project aimed to get as many farmers as possible across the catchment to participate in the scheme, but also aimed to maximise benefits to them while sustaining their own farm businesses. The project therefore decided to take a cumulative approach and start with a smaller group of willing landholders, which would then serve as a proof of concept for others in the area.

At this stage, the project team had only the scoping study (see Milestone 1) that demonstrated the potential NFM interventions that could be introduced across the catchment. This study suggested where specific interventions may be effective, but had not incorporated local knowledge or land manager considerations at the time. Conversely, where the team eventually implemented NFM measures, these were not necessarily the best sites for NFM in terms of maximising flood risk reduction or riparian habitat improvement, but are those where the project team were able to negotiate with the relevant landowner to enable then to be placed on their land.

 

Approaching landholders

The Tweed Forum has led on landholder engagement throughout the project. However, whilst having 20 years of experience working with landowners across Tweed, Tweed Forum had no previous experience or connections with the catchment’s 30-40 landholders – mostly farmers – before the project started.

Instead, the project team took a traditional ‘door knocking’ approach and resourced one project officer with a background in agriculture to lead conversations. Luke Comins, Chief Executive Officer of the Tweed Forum states “after a brief introduction and explanation of the project, it would really start as a social chat. The officer found out their interests and approaches to farming, including what lands were crucial to their businesses. The potential of NFM would be raised but it was important to gauge their interests first. Some farmers are interested in a new fence but not what is behind the fence, others really like the concept of NFM for the bigger picture, and a few were even interested in what it would mean for their fishing hobby.”

The Tweed Forum also hosted introductory meetings with groups of farmers and advertised these through word of mouth. However, Comins comments that with some hard-to-reach farmers, the best approach is normally to have someone with strong experience and communication skills knock on their door.

The overall reception to the project was very mixed, and some farmers were initially sceptical. Comins comments that “having spent years draining the land for agricultural purposes (often subsidised by the state), some farmers found the idea of putting it all back with public money sounded ridiculous.” There was also the question of why landholders upstream were being asked to change their land management practices when they saw homes being built downstream in the floodplain that would predictably be flooded. It was important in these cases to emphasise the longer-term benefits that farmers may see from the measures.

The project secured the interest of a few enthusiastic landholders who then carried positive messages to their neighbours. Onboarding farmers has taken place over 10 years, as a result 22 farmers and forestry interests are now hosting NFM measures as part of the project.

 

Ongoing Engagement

Once farmers were introduced to the project and agreed to explore potential measures, communication centred around one-to-one phone calls and farm visits / walks.

Generally, the farmers were open to giving details on their land boundaries and businesses for the project team to produce reports and mapping exercises that demonstrated the NFM potential. Comins says the farm walks were particularly useful for exploring how the NFM measures could co-exist or even benefit existing farming practices.

The project team aimed to decrease the administrative burden for farmers as much as possible as part of the incentive for joining, and also to underpin the project’s own pace of progress. The Tweed Forum said it would oversee all contractors, tendering, and bureaucratic processes. Many farmers also took the Tweed Forum’s offer of registering itself as one of their official agents on the Rural Payments and Inspections Division (RPID), which took more time but was part of the convenience incentive for farmers. This would allow the Tweed Forum to register and report on changes to the farmers’ land, such as where rivers were modified or ponds created.

The length of time it took to agree measures varied greatly – from weeks to years – as the project team gained trust and credibility from the landholder community. The project team was careful to manage expectations and make clear that reaching agreement could take time, especially for when this involved giving up agriculturally productive land. With simpler cases, such as installing leaky dams, it would sometimes take just a few weeks to secure the farmers agreements.

For ongoing maintenance, many of the measures – such as remeandered rivers – sat with the Tweed Forum, as few landowners would not take on this burden.  However, most of the woodland was part funded by the FGS and therefore did come with legal/contractual obligations.

The project team did not rely on any direct legal contracts with the landholders and instead operated on trust and goodwill. Comins says that, based on previous experience, the Tweed Forum was worried that involving more legal contracts in some of the aspects such as remeandering and flood bank removal could potentially drag out negotiation  time with landholders, erode trust and bring in large legal costs – and may have resulted in  many farmers not consenting at all.

This required the Trustees of the Tweed Forum to accept the risks that these ‘non-contracts’ carried, and the project team noted that this approach wouldn’t have been acceptable for a state agency or more risk averse private organisation to take. However, certain indirect contracts were involved between the farmers and third parties, such as for grants and carbon unit sales with Forest Carbon, which helped to mitigate delivery risk. Only ponds, woody structures, and remeandering was not covered by legal agreements.

Overall, the farmers and landholders became much more receptive to the project as time went on; “Once you’ve proven that you know what you’re doing and people can see what’s happening on neighbours land, people were more open to chatting with us and trusted the Tweed Forum a lot more,” says Comins.

 

Financial Discussions

For each farmer, it was vital to present a view of the business impact of the NFM changes and, at a minimum, have farmers reach a point of cost neutrality. However, Comins comments that with recent uncertainty of government subsidies and market prices, farmer may now be looking for additional financial gains or waiting until the policy landscape is clearer.

The project was able to offer small financial incentives to the farmers to help reach cost neutrality.

For example, there were some grants from Scottish Forestry,  the Woodland Trust and SEPA for things like woodland planting and re-meandering. Together with the administrative burden shouldered by the Tweed Forum and an understanding of how these changes would integrate into their farming systems, farmers reached a ‘natural tipping point’ where they were open to participating in the project and host the measures.

With some farmers, the project team negotiated revisions in subsidy schemes that they were signed up to. For example, the RPID runs a ‘water margins’ payment scheme and the project team identified registered areas for NFM measures, such as riparian tree planting. In these cases, the project team agreed with the farmer to wait until the scheme had a suitable break or end point, and resume conversations then.

For a few cases where agriculturally productive land was converted to ponds and other expansive features, some farmers were given compensatory payments by the project to cover income foregone. To calculate these payments, the project team engaged with land agents with local knowledge to calculate the approximate productive value of the land as a proxy.

For the 330,000 native trees planted, the project was also able to secure carbon finance through the newly launched Woodland Carbon Code (2011). However, as this was a brand new mechanism supporting a nascent market, carbon prices were relatively low, and again the farmers broadly achieved cost neutrality through these sales

 

Lessons learned

Alongside the data collection on NFM and other environmental gains, the project team undertook research and interviews at Eddleston on landholder attitudes to NFM measures, which then extended to other catchments within the Tweed. A fuller report of the process and findings is available here. Key points include:

  • Project developers should never underestimate the time it takes to build trust with landholders and negotiate certain points. You need to be patient and understand their business views as well, as some changes to land management practices are more acceptable than others.
  • In the case of re-meandering rivers, the participating farmers did not come on board all at the same time so were done over a number of years., The works would ideally be packaged and delivered in one go rather over a number of years (as the case) as both the design planning and physical implementation is more effective if done as a whole.
  • Financial incentives for NFM are not always necessary if the measures are integrated inti the farming system with no impact on the bottom line
  • Annual payments, with long-term, guaranteed contractual arrangements to deliver focused outcomes are likely to be required on the more valuable land
  • Income forgone may provide an acceptable means of assessing costs of NFM on farm businesses
  • The NFM measure most likely to be considered favourably is planting trees along a watercourse on marginal land, whilst those NFM measures which reduce agricultural yield are least favoured.
  • Empirical, local examples of the effectiveness of NFM measures are essential for uptake
  • The use of a ‘Trusted Intermediary’ (Tweed Forum) is important to explore options and promote landscape-scale cooperation in a well-informed, non-confrontational and enthusiastic manner.

 

Sources