L3: ECOSYSTEM SERVICES → REGULATING
Regulating Services
Climate regulation. Water purification. Pollination. Flood control.
Nature manages vital processes – and markets are learning to value them.
In 30 Seconds
Regulating services are how ecosystems manage environmental processes. The key ones for business:
| Service | What Nature Does | Market Mechanism |
|---|---|---|
| Climate regulation | Carbon sequestration, avoided emissions | Carbon credits (WCC, Peatland Code, Verra) |
| Water regulation | Purification, flow management | Watershed PES, water quality credits |
| Biodiversity | Habitat provision, species protection | BNG (mandatory UK), biodiversity credits |
| Pollination | Crop pollination | Emerging (habitat payments, integrated PES) |
| Flood mitigation | Water absorption, flow slowing | Flood risk payments, NFM schemes |
Why this matters: Carbon markets are maturing (~£26/tCO2 for UK credits). Biodiversity credits are mandatory in UK development (BNG). Watershed payments are scaling. This is where the action is.
Climate Regulation
The most developed regulating service market
Ecosystems absorb and store carbon, regulating atmospheric CO2 levels through:
- Sequestration – Trees grow, absorbing carbon
- Storage – Peat, soil, wetlands hold carbon
- Avoided emissions – Protecting ecosystems prevents release
UK Standards
| Standard | Focus | Price (2024-25) | Status |
|---|---|---|---|
| Woodland Carbon Code | Woodland creation | ~£26/tCO2 | Mature (2011+) |
| Peatland Code | Peatland restoration | ~£18-25/tCO2 | Established |
| Hedgerow Carbon Code | Hedgerows | TBD | Pilot |
| Soil Carbon Code | Agricultural soil | TBD | Development |
Quality matters: UK standards command premium prices because they offer government backing, independent verification, transparent registries, and strong additionality requirements.
Biodiversity
Mandatory in UK, voluntary markets emerging
Ecosystems provide habitat for species and maintain biodiversity, supporting pollination, pest control, genetic diversity, and ecosystem stability.
UK Mandatory: Biodiversity Net Gain
- Requirement: 10% net gain for all developments
- Status: Mandatory since November 2023
- Mechanism: Biodiversity units (habitat type, condition, distinctiveness)
- Prices: £25,000-50,000+ per unit
The Stacking Question
Can you sell carbon credits AND biodiversity credits from the same land?
Current answer: Sometimes, with careful methodology. Key principles:
- • No double-counting the same benefit
- • Separate additionality tests for each
- • Clear methodology for what each credit represents
The rules are evolving. Watch this space.
Water Regulation
Niche but scaling
Ecosystems manage water quality and flow through purification (wetlands, riparian buffers), flow regulation (vegetation slows runoff), and storage (soil, wetlands).
Growth driver: Water companies find paying farmers for ecosystem management is cheaper than building water treatment infrastructure.
Flood & Erosion Control
Natural infrastructure value
Forests intercept rainfall and slow runoff. Wetlands absorb and store floodwater. Vegetation stabilises soil and prevents erosion.
The value proposition: Natural flood management delivers flood risk reduction at 30-50% lower cost than traditional infrastructure.
The Quality Question
Regulating services are harder to verify than provisioning. You can weigh a tonne of timber. You can't weigh a tonne of carbon sequestration. This creates variation in quality.
For Carbon Credits, Check:
Additionality
Would it have happened anyway?
Permanence
How is reversal risk managed?
Leakage
Does protection shift emissions elsewhere?
Verification
Independent third-party audit?
Registry
Transparent, public tracking?
The ICVCM Framework
The Integrity Council for the Voluntary Carbon Market is establishing quality benchmarks. Look for CCP-Approved labels to identify high-integrity credits.
Who Operates Here
Landowners / Producers
Generate revenue from regulating services your land provides.
Key questions:
- • Which services does my land provide?
- • What standards apply?
- • Can I stack multiple revenue streams?
Watch out for: Lock-in periods, additionality requirements, ongoing management obligations.
Corporates / Buyers
Procure credible credits for BVCM and residual emissions.
Key questions:
- • Which standards ensure credibility?
- • How do I avoid greenwashing risk?
- • How do credits fit my SBTi targets?
Watch out for: Quality variance, price-quality correlation, evolving standards.
Project Developers
Connect landowners with capital and markets.
Key questions:
- • How do I aggregate small landholdings?
- • What due diligence do buyers need?
- • Can I structure blended products?
Watch out for: Verification costs, landowner retention, market timing.
Investors / Finance
Deploy capital into nature-based assets.
Key questions:
- • What's the risk/return profile?
- • How do I verify impact claims?
- • What's the exit strategy?
Watch out for: Permanence risk, regulatory change, market illiquidity.