Policy paper

The government's response to the Natural Capital Committee's sixth annual report

Published 16 May 2019

Opening remarks

The government is grateful for the expert advice the Natural Capital Committee (NCC) has provided in its sixth annual report. The NCC is a world first and its expertise has placed us at the leading edge of natural capital thinking.

As a result of the NCC’s work, we:

• better understand England’s natural assets and benefits we get from nature
• recognise that the environmental assets that provide our clean air and water, opportunities for recreation, and our food and fibre, are an essential component of our nation’s infrastructure
• are able to make better decisions about how we interact with and manage our natural environment to ensure its health and resilience
• published the 25 Year Environment Plan (25 YEP), in 2018 - the first 25 YEP progress report, which will report on progress against the 25 YEP goals, has also been published
• made progress in other areas including developing local natural capital planning approaches such as the Oxford – Cambridge Arc, natural capital accounting, and plans to better measure and protect marine natural capital

We agree with the Committee that in order to achieve the goals set out in the plan and meet the objective set in 2011 to be the first generation to leave the environment in a better state than we inherited it, substantive action is essential.

Response to main NCC recommendations

Environment Bill and targets

Recommendation 1: Our single most important recommendation is that the 25 year plan must be placed on a meaningful statutory basis in the forthcoming Environment Bill promised for this year.

In its 2019 annual report, the NCC included advice on the draft Environment (Principles and Governance) Bill published in December 2018. The draft Environment Bill sets out how we will maintain environmental standards as we leave the European Union (EU) and build on the vision of the 25 YEP. We are pleased to write that this includes measures [in line with the NCC’s recommendation] to place the 25 YEP on a meaningful statutory basis, with an obligation for the government to report annually against progress.

The draft Environment Bill notes that the concept of a 25 Year Environment Plan was first proposed by the NCC. Clause 6 in the Bill introduces a duty on the Secretary of State to ‘prepare an environmental improvement plan’ and identifies the 25 YEP as the model for the plan required by this duty. Clause 8 in the Bill establishes a duty on the Secretary of State to produce annual reports on the implementation of the environmental improvement plan and on whether the environment is improving. The draft Environment Bill is currently undergoing pre-legislative scrutiny. Following this we plan to introduce the Bill in 2019, in the second session of Parliament.

Recommendation 2: A lead body should be designated, and given responsibility for overseeing the delivery of the Plan and its ten goals.

We are moving forward with plans to create the Office for Environmental Protection (OEP); an independent statutory body that will hold government to account on environmental standards once we leave the EU. Each year, the OEP will undertake a comprehensive review of progress in improving the natural environment in accordance with the government’s environmental improvement plans, currently the 25 YEP. The OEP will undertake an independent evidence based review of the ambitions, goals and actions included in the plan, and may also provide advice as to how progress could be improved in delivering against the Plan. The OEP’s progress reports will be published and laid before Parliament. This will help government meet its ambition for ours to be the first generation to leave the environment in a better state than that in which we inherited it. We would welcome advice from the NCC regarding the transition of this progress reporting function on the Plan from the NCC to the OEP.

Recommendation 3: Three principles should drive the implementation of the 25 YEP: 1. public money for public goods; 2. the polluter pays; and 3. net environmental gain. All government departments should be required to adhere to these three principles in the development and implementation of any policy relating to use of or impact on natural capital.

Under the draft Environment Bill, Ministers must have regard to a policy statement, which will set out how to apply and interpret a set of environmental principles in policy development. The draft Environment Bill (Clause 2(1)) lists the environmental principles, which include the four set out in the Treaty on the Functioning of the European Union such as the precautionary principle.

While we acknowledge that there are other principles that policy-makers may wish to apply, the UK has already signed up to the principles set out in the draft Environment Bill through various international treaties and through our membership of the EU, based upon evidence demonstrating their effectiveness. Maintaining this same list of environmental principles ensures a consistent approach. These principles are already widely applied, and there are also existing mechanisms and court decisions to support their implementation and application. However, commitment to these principles does not preclude the use of other approaches.

Recommendation 4: To assess progress in delivering the overarching objective and the ten goals, detailed and enforceable milestones need to be established for the 25 YEP.

The draft Environment Bill establishes a new statutory cycle of monitoring, planning and reporting. We anticipate that this will include reporting on existing targets such as those set out in the 25 YEP, the Clean Air Strategy and the Resources and Waste Strategy. We expect annual reporting on these targets, as well as other aspects of the 25 YEP, to provide an opportunity for scrutiny and challenge by the OEP, Parliament and the public. It is also the case that we have already adopted legally binding targets on aspects of the environment such as Air Quality and Water Quality. We will continue to be legally accountable for achievement of these.

Furthermore, we have also committed to exploring options for including additional cross-cutting targets for environmental improvement in this framework. Well-designed targets could offer greater certainty on the strength of the government’s ambition and drive action by businesses and wider society.

Recommendation 5: To turn the declines in natural capital around, and to grasp the full economic and environmental opportunities, the 25 YEP needs to be not only placed upon a meaningful statutory basis, but also sufficiently resourced. It is not enough to will the ends: the means have to be provided to achieve them.

The whole of government is committed to delivering on the ambitious agenda set out in our 25 YEP, and to our ambition to be the first generation to leave the environment in a better condition than we found it. The upcoming Environment Bill will be a further opportunity to deliver on commitments made in the 25 YEP, including mandating biodiversity net gain for development in England, as announced by the Chancellor at the Spring Statement. Decisions on environmental spending will be made at the Spending Review later this year, with HM Treasury and Defra working closely to ensure value for money for taxpayers.

The government is also moving forward with plans for a new Environmental Land Management system which will be the cornerstone of the country’s agricultural policy after we leave the EU. Elements of the new system are being trialled and tested now, and the system as a whole will be piloted from 2021. The new Environmental Land Management system will contribute to delivering against many of the key outcomes inspired by the 25 YEP. These include clean air; clean and plentiful water; thriving plants and wildlife; reduced risk of harm from environmental hazards such as flooding and drought; enhanced beauty, heritage and engagement for the natural environment and mitigating and adapting to climate change. The ambition is that in the future, the Environmental Land Management system will pay land managers for providing environmental outcomes.

Metrics – measuring progress

Recommendation 6: There needs to be greater alignment between the ten goals and the indicator framework so that progress towards the goals can be assessed transparently.

In December last year we consulted on a draft Outcome Indicator Framework for the 25 YEP. The updated framework, which has been published alongside the first 25 YEP progress report, presents a powerful new way to measure changes to our environment. Our aim in publishing this framework is to draw together a comprehensive suite of measures for the state of our natural world, drawing on established data sets and identifying where new information is required and how we might best obtain it. The framework collectively describes environmental change as it relates to the ten goals, and is necessary for reporting on the progress of the 25 YEP.

The language used in the framework is deliberately neutral rather than directional. The indicators do not have specific end points, levels or trajectories attached to them. They are a way to monitor the changes happening in the environment and enable us to then ensure we are taking appropriate action.

It has been previously noted by other stakeholders that there is a lack of indicators on responses / actions which are aimed at improving the environment. By our reporting against the actions in the Plan, the progress report fills this gap and completes the picture from action through to real world outcome. We intend to do more work to demonstrate and quantify the relationships between actions and outcomes for the second progress report.

Recommendation 7: In assessing progress, a baseline needs to be set, and metrics and natural capital accounts developed to record progress so that the government can be held to account. Proposals in the current metrics consultation fall short of what is required, with insufficient emphasis on the role of natural capital assets in achieving the ten goals in the 25 YEP. The NCC proposes that there be a five yearly environment census. Defra should be tasked with delivering an environmental census to establish a robust baseline against which to measure progress towards the 25 YEP goals.

The indicator framework contains existing indicators, new indicators built on existing data, and entirely new indicators. We remain committed to innovation in monitoring, analysis and reporting, but also to delivery of a framework that is cost effective and robust, building on existing data to allow us to look back as well as forwards.

Having a baseline referenced to existing information is important for many stakeholders. This is why we are requesting the NCC to provide advice on developing the concept of an environmental citizen science project that builds on the existing outcome indicator framework, and increases citizen engagement with the environment.

Accounting and appraisal

Recommendation 8: It is now time to make the use of the corporate accounting template the NCC previously developed, including a set of corporate accounting standards and a formal audit requirement.

There is work in progress aimed at incorporating elements of the corporate accounting template produced by the NCC into natural capital accounting practice, and we are grateful for the work that the NCC has done on this to date, including advising the Council for Sustainable Business.

More broadly, the Department for Business, Energy and Industrial Strategy (BEIS) is part of a UN working group to develop metrics for reporting on the 17 Sustainable Development Goals (‘SDGs’). The UN are looking at how natural capital accounting in general could encourage an integrated approach to achieving the “SDGs” and provide useful information for policy decisions. This is a result of case studies which show that accounts are beginning to inform policy: for example, the revised water masterplan in Botswana, forest policy in the UK, land use planning in Rwanda, and, in the private sector, the coffee business in Indonesia.

Recommendation 9: The government needs to ensure that decision makers can undertake high quality analyses by having access to reliable information on the value of benefits and costs arising from environmental improvements and change.

Defra’s Environment Analysis Unit is working with Defra Group colleagues to create a new online resource that directly addresses the need, highlighted by the NCC, for decision makers to have access to robust values for changes in the services provided by natural capital.

Building on relevant material in HM Treasury Green Book, this resource will synthesise and make accessible a wide range of published valuation and natural capital evidence, guidance, tools and applications to support decision-makers and appraisers to better value and account for natural capital in England.

It will build capacity for assessment and valuation of the natural environment by reducing search costs for analysts and decision-makers to access and apply this information. This should lead to more informed and consistent use of valuation evidence, principles and tools in appraisal. An initial version will be launched in summer 2019, and improved versions are planned to be developed subsequently, recognising that the valuation evidence base is constantly evolving and improving.

Progress in robust and consistent natural capital assessment methodologies is important to support evidence-based policy decisions that appropriately weigh environmental impacts with other social and economic impacts (that have been typically easier to quantify). The government is therefore grateful to the NCC for the role they played in supporting the 2018 revisions to the Green Book, to improve the evaluation of natural capital impacts.

HM Treasury expects all departments to make full use of the relevant Green Book guidance in the appraisal and evaluation of all policies, projects and programmes. The updated Green Book, including the improvements regarding natural capital, will be applied at the Spending Review later this year.

Recommendation 10: These metrics and accounting approaches should form the basis not only of the assessment of progress of the overall 25 YEP objective and the ten goals, but also for the assessment of developments, the calculation of net environmental harms, and the location and form of compensation payments.

In 2011, the government committed to working with the Office for National Statistics (ONS) to incorporate natural capital into the UK Environmental Accounts so that the benefits of nature are better recognised. This commitment was reiterated in the 25 YEP. The ONS is on track to deliver full initial national accounts by 2020. The ONS received £650 million to develop national accounts (covering 2016-17 to 2019-20) at the 2015 Spending Review. Future funding will be determined at the 2019 Spending Review.

Beyond delivery of these accounts in 2020, how they can be best utilised and further developed is an important question. We want to build sustainability into the heart of our economic model and welcome this specific suggestion from the NCC, which will be fully considered in due course as part of the wider decision-making process around the application of the accounts.

In regards to embedding natural capital into public spending decisions, the government has made significant strides towards the improved incorporation of natural capital within economic analyses of public spending. Recent changes outlined in the Green Book require that appraisals of alternative options for public spending understand the implications of public spending options for natural capital stocks and flows, and value the costs and benefits of the various consequences of each option.

Net gain

Recommendation 11: The net gain consultation published by the government in December last year falls short of what is required to ensure that development does not lead to a net environmental loss.

In its 25 YEP the government has committed to seek to embed the principle of wider environmental net gain in development. Our first step has been to formally consult on mandating a biodiversity net gain requirement in the planning system which we have now confirmed will be taken forward in legislation through the forthcoming Environment Bill. The consultation proposals were developed following extensive discussions with expert stakeholders including members of the NCC. Consultation responses demonstrated widespread support for the proposal that the most effective first step towards securing environmental enhancement through development would be to more explicitly require net gains in habitat (measured by area and quality of habitats) through biodiversity net gain.

Setting a strong requirement for environmental net gain now, before setting out a clear definition and before consensus is reached on a number of key policy questions, might risk creating perverse incentives and diverting investment from natural capital enhancement and into associated process and bureaucracy. This does not mean that ambitions should be delayed, or that these policy questions should remain unanswered. To accelerate our progress towards answering these questions, we have formally asked that the NCC provide expert advice on the shape and application of environmental net gain policy. This advice will help to inform ongoing policy development and inform the trialling of wider net gain approaches.

Marine Natural Capital

Recommendation 12: The net environmental gain principle should be extended to cover development and activities in the marine environment.

We welcome the Committee’s call for marine natural capital assessments and accounting to support the development of marine natural capital plans. Over the past year, we have invested in developing the science and evidence to underpin integration of natural capital in marine policy-making. This has included projects aimed at understanding how the natural capital approach might apply to the marine environment to develop marine accounting and assessment for some marine assets.

We recognise the need to encourage sea users to take a more responsibility in their stewardship of the marine environment. We are investigating how the net gain concept could be applied to marine consents to contribute to environmental recovery, recognising the complex and dynamic nature of the ecosystem restricts our options to replace/re-create habitats or re-introduce species. We would welcome advice from the NCC on how they see the marine natural capital approach being used to support the implementation of net gain.

Looking forward

The government would like to extend its gratitude to the NCC Chair, Professor Dieter Helm and the Committee members for their continued dedication and expertise. We have received world class independent advice on developing and implementing the 25 YEP and integrating a natural capital approach, which resonates across government and beyond.

This year, we have made good progress along this greener path and set out the next steps to ensure lasting change. As we continue to implement these early measures, it is essential that we monitor progress and continue to seek independent advice to strengthen and reinforce them where appropriate. The advice provided by the NCC will continue to be instrumental as we press ahead with our ambition of being the first generation to leave the environment in a better condition than we found it.