Ecosystem Restoration Code (ERC): A Competent Model for private investment in nature restoration in Scotland

3. Project eligibility for the ERC

Projects shall demonstrate eligibility for the ERC in terms of the timing and type of activity, the size of the project, freehold or leasehold rights, compliance with legislation, adoption of an ecosystem approach and conformance with relevant guidance. Projects shall also be additional and only adopt permitted high-integrity stacking and bundling options.

3.1 Key project dates

3.1.1 Requirement

• Project duration: projects shall have a clearly defined project duration of at least 25 years
• Registration: projects with a start date of no more than ten years prior to the formal launch of the ERC (whenever that may be) shall be permitted to register. Projects that have not commenced prior to the formal launch of the ERC shall be registered before the project start date
• Validation: projects shall be validated within three years of registration

3.1.2 Means of validation

• Specification of the project duration within the Project Design Document (PDD) and ERC Management Plan
• Description of how the specified project duration relates to the programme of ecological land management activity and the achievement of project goals and targets within the PDD and ERC Management Plan (see section 4.2)
• For retrospective ERC projects, evidence of the project start date (e.g. time-stamped photos, consents, grant scheme contracts, baseline data)
• For new ERC projects, evidence of the project implementation and start dates (e.g. time-stamped photos, grant scheme contracts)

3.2 Size of the project

3.2.1 Requirement

Projects of any spatial scale (area) are permitted where:

• The quantification metrics and methods to be used are appropriate at that scale (see section 4.5)
• The required ERC Project Standards can be met

3.2.2 Means of validation

• With respect to the proposed project spatial scale (area), explanation and justification in the PDD for the selection of an appropriate quantification metric and method from the ERC pre-approved list (see section 4.5)
• Explanation and justification in the PDD of how the project will adhere with the required ERC Project Standards at the proposed spatial scale (area)
• Explanation and justification in the PDD of how an ecosystem approach can be adopted at the proposed spatial scale (area), in accordance with the required ERC Project Standards

3.3 Projects comprising multiple landholdings

3.3.1 Requirement

ERC projects comprising multiple landholdings are permitted where:

• The landholdings have aligned ecological land management objectives
• The quantification metrics and methods to be used are appropriate at the scale of the multi-landholding project (see sections 3.2 and 4.5)
• The spatial location of the landholdings and the ERC project supply areas and land management activities therein is such that the required ERC Project Standards can be met

NOTE 1 Landholdings may be non-adjacent, however it is anticipated that they will be in the same broad landscape or ecosystem context (e.g. the same water catchment, the same large tract of a certain ecosystem – e.g. Caledonian Pinewood)

3.3.2 Means of validation

If the ERC project is comprised of multiple landholdings, these shall be identified in the PDD and ERC Management Plan as follows:

• The PDD shall include a scale map of the multi-landholding ERC project at an extent suitable for showing all the landholdings and their surrounding context. The map shall show: (i) the location of the different landholdings and their boundaries; (ii) the supply area(s) within the landholdings, if different from the landholding boundary; and (iii) any spatial baseline data that may aid understanding of the context and objectives of the proposed ERC project (e.g. field margins and other land parcels, waterbodies, catchments, protected areas, habitats). The map shall list the size in hectares of the landholdings and supply area(s) within these, if these differ from the landholding boundary

NOTE 2 Landowners and / or tenants participating in an ERC multi-landholding project may wish to enter into a cross-ownership boundary agreement for the project, beyond the PDD. Such an agreement could set out the commitments required of each landowner / tenant (see section 4.1) and specific arrangements for sharing projects risks / costs and benefits associated with ERC credits

• The ERC Management Plan shall describe the ecological land management objectives of all participating landholdings
• The ERC Management Plan shall describe the specific ERC management activities that will take place within each participating landholding and the supply area(s) therein. Where relevant, this shall include scale maps showing: (i) the location of ERC management activities across the participating landholdings; and (ii) how these activities are expected to contribute to the delivery of any landscape scale (e.g. a defined water catchment) or otherwise spatially explicit ecosystem / biodiversity outcomes (e.g. new areas of habitat, enhanced ecological networks, water environment improvements)
• The PDD shall describe how the proposed ecological land management objectives and activities across each participating landholding are complementary and will work together in a spatially and ecologically coherent manner to support enhanced delivery of ecosystem / biodiversity outcomes at the scale of the proposed multi-landholding ERC project. This shall account for: (i) the ERC baseline; (ii) existing land management plans and activities across the participating landholdings; and (iii) potential interaction with the management activities of any non-participating landholdings within the project area, including an assessment of associated delivery risks to the ERC project and how these will be managed

3.4 Eligible activities

3.4.1 Requirement

All nature restoration and wider land management activities are permitted in ERC projects where they:

• Are compliant with relevant legislation, regulation, industry standards, codes of practice etc as applies in Scotland
• Adhere to the ERC Project Standards

3.4.2 Means of validation

• The ERC Management Plan shall describe the land management objectives and activities to be undertaken as part of the ERC project (see section 4.2)
• ERC projects shall self-report all activities from the proposed ERC Management Plan that are subject to any legal or regulatory control, or any relevant industry standard or code of practice, along with a summary of the measures that will be taken to ensure compliance
• The PDD and ERC Management Plan shall describe how the project is adhering to the ERC Project Standards

3.5 Intentional degradation

3.5.1 Requirement

• Significant and new intentional degradation to ecosystems and / or biodiversity within the supply area shall not have taken place within the five years prior to the start date of the ERC project

3.5.2 Means of validation

• Projects to self-report any significant and new intentional degradation within the allotted time-period

NOTE 1 The allotted time-period is currently five years prior to the project start date

• Signed confirmation from the landowner and / or tenant that no significant and new intentional degradation has taken place within the allotted time-period
• Evidence (if and as required by the third-party VVB) that no significant and new intentional degradation has taken place within the allotted time-period (e.g. time-stamped photos, historic aerial imagery, grant scheme contracts)

3.6 Eligible land

3.6.1 Requirement

• Projects shall demonstrate legal ownership or tenure of the supply area

NOTE 1 For multi-landholding ERC projects (see section 3.3), legal ownership or tenure should be demonstrated for supply areas across all participating landholdings

• Where the supply area is leased, projects shall demonstrate that the landlord has consented to the ERC project taking place

3.6.2 Means of validation

The landowner / manager shall provide an appropriate source of evidence to demonstrate legal ownership or tenure of the supply area, including:

• Solicitor’s letter confirming legal ownership or tenure
• Title deeds
• Record from Registers of Scotland (RoS)
• Certified copy of lease and landlord’s consent to the ERC project taking place, if the supply area is leased

3.7 Additionality

3.7.1 Requirement

• Projects shall pass the combined legal-contractual test to demonstrate additionality
• The additional biodiversity gain from the ERC project shall be evidenced against the project baseline (see section 5.1)
• Any ERC management actions undertaken within the ERC supply area that are mandated by a legal requirement or contractual obligation shall not be used to generate credits. Credits are additional where they arise from management actions that are above and beyond any legal and / or contractual requirements
• Legal requirements and contractual obligations include any laws, statutes, regulations, court orders, environmental management agreements, planning decisions / conditions, contractual agreements as part of public funding conditions or other legally binding agreements that require nature restoration, habitat creation or the implementation of similar measures that would achieve equivalent levels of ecosystem condition or biodiversity gain

NOTE 1 The scope of the combined legal-contractual additionality test has been designed primarily to assess the additionality of restoration projects. A different test may be required for conservation projects where the objective is maintenance rather than gains in ecosystem condition or biodiversity

NOTE 2 Example legal / contractual mandates include: (i) the legal requirement to replant or restock felled trees or areas of woodland; (ii) restoration measures required on a protected area under a Restoration Notice or Restoration Order; (iii) the land management activities contracted under an Agri-Environment Climate Scheme (AECS); and (iv) the maintenance required for 10 years as a contractual condition of Peatland ACTION funding

NOTE 3 Commercial forestry restocking projects may be additional where the forest design: (i) incorporates more nature / biodiversity value than the original design at the afforestation stage; and (ii) goes beyond the nature / biodiversity standards required by relevant forestry legislation, guidance and standards, e.g. the UK Forestry Standard (UKFS)

• Any ERC management actions undertaken on a protected area within the ERC supply area shall be additional unless they are mandated by a legal requirement or contractual obligation associated with the protected area

NOTE 4 Protected areas are: (i) Sites of Special Scientific Interest (SSSIs); (ii) National Nature Reserves (NNRs); (iii) European sites – Special Areas of Conservation (SACs) and Special Protection Areas (SPAs); and (iv) Ramsar Sites

NOTE 5 Potential legal or contractual obligations affecting protected areas include: (i) management agreements put in place to achieve the favourable condition of a protected area feature; (ii) contractual agreements under an agri-environment scheme or Forestry Grant Scheme (FGS) for positive management of a protected area feature; (iii) work required under a Land Management Order; (iv) restoration measures required under a Restoration Notice or Restoration Order; (v) actions carried out under a species control agreement or order; and (vi) management obligations required as part of commitments to another relevant high-integrity nature market code (e.g. WCC, PC) unless this is part of one of the high-integrity stacking or bundling options permitted for use within the ERC (see section 3.8)^[14]

NOTE 6 Legal or contractual obligations affecting protected areas may overlap and combine. It is the responsibility of the project to determine the net effect of all such obligations affecting a protected area within an ERC supply area, and what opportunity there is for additional activity. This may be validated by the third party VVB

• Legal requirements and contractual obligations exclude any contractual obligations with a non-public sector third party

3.7.2 Means of validation

• Projects shall document all legal requirements and / or contractual obligations for ecosystem restoration and / or biodiversity protection and enhancement within the supply area in the PDD. These should be referenced and evidenced appropriately (e.g. links to relevant regulations or planning decisions, details of funding agreements)
• Projects shall identify any actions included in the ERC Management Plan that correspond with any of the identified legal requirements or contractual obligations above, including where these actions contribute in a partial or indirect manner only. This shall be documented in the PDD
• Where any legally or contractually required actions are included as part of the ERC Management Plan or otherwise contribute to the accrual of ERC credits, final ERC credits resulting from the project will be discounted accordingly. This discounting will be done at the credit calculation stage, using the specified discounting method
• Legal requirements and contractual obligations and their relationship to the ERC Management Plan will be validated by the third party VVB. Any required credit discounting at the credit calculation stage will be undertaken by the approved body using the specified discounting method

NOTE 7 SG anticipates that credit discounting will be applied flexibly as a policy lever to promote market activity, in line with ongoing assessments of biodiversity market maturity in Scotland. Lower (less aggressive) discounting will permit higher rates of blending with public funding, meaning that projects can be less reliant on biodiversity finance to meet project lifetime costs at a time when markets are nascent. ERC projects should factor in credit discounting at the eligibility stage, when determining project additionality

NOTE 8 Credit discounting (and multipliers – see section 4.6) can provide a flexible means of adjusting the issuance of verified ERC credits to account for factors that SG may wish to consider in the design and operation of high-integrity nature credit markets. These factors may include: (i) ecological equivalence in compensation use cases; (ii) incentivising well-designed projects that can deliver wider policy goals (e.g. Nature Networks); (iii) managing leakage; and (iv) managing additionality related risks. Credit adjustment factors (discounting and multipliers) are commonly used in high-integrity nature markets internationally, including stream and wetland mitigation markets in the US^[15] and biodiversity credit markets in Colombia^[16]

NOTE 9 In the specific case of additionality, credit discounting may be used to “adjust down” credit issuance for ERC projects where some or all the project’s management activities are wholly or partially mandated by a legal requirement or contractual obligation. A process will be determined to set the “level” of discounting to be applied as part of a “specified discounting method”

3.8 Stacking and bundling

3.8.1 Requirement

• True stacking: projects shall not sell multiple credit types generated from the same area of land under multiple separate transactions (i.e. “true stacking” is not permitted)
• Multi-credit bundles: projects may sell multiple credit types generated from the same supply area provided they sell the multiple credit types together under a single bundled transaction (i.e. a “multi-credit bundle”). Bundled credits shall not be “unbundled” at any point and must be bought and used together for the same purpose. If a buyer purchases only one credit type from the bundle, the other credits within the bundle shall be retired
• Horizontal stacking: a project may sell multiple credit types under separate transactions provided the different credit types are generated through spatially distinct parts of the supply area (i.e. “horizontal stacking”)
• Nested stacking: where a suitable ecosystem / biodiversity metric is used to generate ERC credits over an entire landscape scale supply area, a “nested stack” may be used. A “nested stack” is where the ecosystem condition / biodiversity gain is calculated over the whole supply area, but ERC credits are only supplied for areas not producing other credit types (i.e. “nested areas”)

NOTE 1 Final ERC credit issuance will be discounted to reflect the percentage of the total supply area that is producing other credit types in the nested stack (i.e. the “nested areas” producing other credit types cannot be claimed for ERC credits). This shall be done using the specified discounting methodology for nested stacking (effectively a pro rata reduction to account for the contribution to biodiversity gain across the entire measured supply area made by the “nested areas”)

NOTE 2 Other non-ERC credit types within the nested stack can report ecosystem condition / biodiversity gain, as determined by the ERC quantification metric, as part of an explicit bundling approach (e.g. woodland carbon + ecosystem condition or biodiversity gain). The contribution to ecosystem condition / biodiversity gain made by nested areas shall be calculated on a pro rata basis by area (hectares)

NOTE 3 A spatial buffer shall be applied to nested areas to control for the influence of management within nested areas on adjacent areas within the nested stack that are being claimed for ERC credits. The extent of the buffer shall be agreed with the VVB

• Validation of non-ERC credits: all non-ERC credits within any of the permitted bundling or stacking options above shall be validated under a relevant high-integrity code

NOTE 4 Other relevant high-integrity nature market codes are defined in the Terms and Definitions chapter

3.8.2 Means of validation

If the ERC project is creating / issuing multiple credit types in the supply area, these shall be identified in the PDD and ERC Management Plan as follows:

• The PDD shall include a scale map showing any part(s) of the supply area being used for permitted stacking and bundling options. This map shall indicate the credit type(s) that will be created / issued from each corresponding part of the supply area
• The PDD shall list the number and type(s) of credits forecasted to be issued from the ERC project, including those from any parts of the supply area that are being used for permitted stacking and bundling options. This shall include ERC credits and credits being issued by other high-integrity nature market codes
• The PDD shall list the anticipated number of ERC credits that will need to be discounted from any relevant parts of the supply area that are being used for the purpose of nested stacking
• The ERC Management Plan shall summarise the management activities proposed for each part of the supply area that is being used for permitted stacking and bunding options

Any of the above bundling or stacking options employed by the project shall be validated by the third party VVB. Any required ERC credit discounting as part of a nested stacking option will be calculated at the credit calculation stage, undertaken by the approved body and using the specified discounting methodology (see NOTE 1 above).

Credit types other than ERC credits that are being issued from the ERC supply area via the permitted stacking and budling options shall be registered to and validated / verified by another high-integrity nature market code.