Recent Defra consultation contains significant signals on adaptions to delivery of environmental compensation

Offshore wind (OFW) will play a central role in achieving the Clean Power by 2030 mission and accelerating to net zero by 2050. The recently published Clean Power 2030 Action Plan sets a capacity range of between 43 to 50GW by 2030.

To facilitate the delivery of the pipeline of OFW developments, there is a need to improve access to environmental compensation measures beyond those which directly offset the impact to the feature affected by the development. The need for greater flexibility has arisen due to difficulties for OFW projects in identifying appropriate environmental compensation.

Current practice, in accordance with the Natura 2000 guidance, is generally to require environmental compensation to address damage from development to the same habitat or species either at the same location or elsewhere in the feature’s natural range, to protect the overall coherence of the national site network.

It is anticipated that OFW plans and projects will increasingly impact Marine Protected Areas (MPAs) and therefore increasingly rely on derogations under the Habitats Regulations and similar processes under the Marine and Coastal Access Act 2009 (MCAA).

Key proposals

The Department for Environment, Food & Rural Affairs (Defra) has published a consultation on Offshore wind: environmental compensatory measures reforms, 22 July 2025. It seeks views on the proposed environmental compensation measures reforms for offshore wind. It also contains some significant signals to industry. The key proposals are summarised below.

Enabling wider compensatory measures

The reforms propose enabling environmental compensation through wider compensatory measures that benefit the UK MPA network, even if they do not directly target the impacted feature. This includes creating safeguards and a hierarchy requiring that compensatory measures directly targeting the impacted feature are considered ahead of wider measures.

The Defra consultation proposes that the UK Statutory Instrument (UK SI) mandates the use of a compensation hierarchy, including a requirement that the compensatory measure that will be most ecologically effective for the impacted feature is always considered first. There may be circumstances to move down the compensation hierarchy to wider compensatory measures even though measures targeted at the impacted feature are available. For example, where it would have a greater ecological benefit on the overall UK MPA network.

Hierarchy of compensatory measures for the marine environment

Measures are considered available if they are considered feasible and likely to be effective.

Promoters will be expected to demonstrate that they have explored and considered measures directly targeted at the impacted feature first. Where they consider it appropriate to move through the hierarchy and to use wider compensatory measures as environmental compensation, reasoning will be required. It is strongly recommended that developers engage with Statutory Nature Conservation Bodies (SNCBs) as early as possible (at the pre-application stage) so they can consider SNCB advice before submitting their application. Choosing to not do this or disregarding SNCB advice could risk delays.

It is proposed that the guidance will set out how to demonstrate a wider measure has an ecological benefit to the UK MPA network.

Identification of wider/strategic compensatory measures

Strategic compensatory measures (SCMs) will be developed in collaboration with SNCBs. Developers and other interested stakeholders will be able to make suggestions on SCMs to be considered for the inclusion to the Library of Strategic Compensatory Measures (LoSCM).

There may be different processes for approving SMCs for each devolved administration. Wales and Northern Ireland may choose to apply a similar process.

The Scottish government has published a separate consultation, also on 22 July 2025, on the policy underpinning a separate SI and guidance for Scotland, in parallel with Defra’s consultation.

The Defra consultation proposes that in England and Wales, SCMs that will be enabled by the UK SI, must first be approved by the relevant Minister and entered in the LoSCM.

Welsh Ministers will be involved in the approval of SCMs for use in Welsh waters, but the Secretary of State (SoS) for Defra will also approve SCMs for projects in Wales that are consented by the SoS for the Department for Energy Security & Net Zero (DESNEZ).

It is proposed that the SCMs in the LoSCM will be available to projects being developed in waters subject to the new UK SI, i.e. England inshore and offshore, Wales offshore and for projects over 350MW inshore, and Northern Ireland offshore.

The consultation states that it is expected that, In England and Wales, SCMs should then be delivered through the Marine Recovery Fund (MRF).

When is it suitable to use wider compensatory measures?

Currently, environmental compensation measures can only be used after ways of avoiding, reducing and then mitigating the impacts have been exhausted. The full legal process for a derogation must also be followed.

It is proposed that the consenting authority must ensure the mitigation and then the compensation hierarchy have been correctly followed, before deciding on whether a wider compensatory measure is appropriate. There should be sufficient evidence to demonstrate that the mitigation hierarchy has been adequately followed, and compensatory measures targeted at the impacted feature have been fully explored.

At project level, if it is proposed to move down the compensation hierarchy to a wider compensatory measure then the justification for this must be set out, including any feedback from SNCBs and how this has been addressed.

Wider compensatory measures may be delivered alongside compensatory measures targeted at the impacted feature. For example, where there isn’t enough environmental compensation available to target at the impacted feature (Tier 1), wider compensatory measures (Tier 2 or 3) may be delivered to make up for the remaining impacts or as part of a package.

In some circumstances, developers would not be able to rely on SCMs. The consultation states that SCMs are not suitable for use to compensate for damage to certain Marine Irreplaceable Habitat (MIH). For such features and subject to derogation processes (and equivalents under the MCAA), only compensatory measures that address the impact should be considered. The relevant SNCB will provide advice on this on a case-by-case basis.

The consultation states that further work is required to clarify what habitats will be considered MIH but goes on to state "in essence MIH are considered to be habitats which are very difficult (or it takes a very long time) to restore, create or replace once they have been destroyed. This may be due to their age; uniqueness; species diversity or rarity." Defra will be publishing a list of MIH in guidance for England in due course.

Checks with the relevant SNCB should be made at the earliest possible opportunity whether the relevant proposal will affect any MIH. This should be documented in the consent application.

It is intended to include much of what is summarised above in guidance.

Supporting evidence for wider compensatory measures and demonstrating ecological benefit

The consultation states that the intention to use a SCM must be informed by best available scientific evidence. Government would expect to see evidence that demonstrates positive measurable effectiveness, as described within a strategic compensation Implementation and Monitoring Plan (IMP).

Extra contingency must be built in for more uncertain measures where there is limited scientific evidence or doubt about the feasibility. This could include a higher compensation ratio or proportion and, specific conditions requiring adaptive management which will be used for wider compensatory measures (see adaptive management section), enhanced monitoring and building in additional time to the timetable to allow for measures to show effectiveness. Ultimately, it is for the decision maker to be satisfied having considered proposals and advice from SNCBs.

Developers or plan promoters must provide evidence that they have fully considered the mitigation hierarchy in relation to potential MPA related impacts in their plan or project. This can be done in the Report to Inform Appropriate Assessment and 'without prejudice compensation plan' (see, paragraph 5.4.28 of the Overarching National Policy Statement for energy (EN-1), DESNZ, updated January 2024).

Adaptive management requirements

It is proposed that the adaptive management process will apply in largely the same way for measures delivered through the MRF, except where responsibility for certain steps in the process would shift from the developer to the Marine Recovery Fund Operator (MRFO). Adaptive management will still be applicable to all compensatory measures, including wider compensatory measures. 

Public compensation register

It is proposed to create a register that tracks the impacts of the proposed reforms on the UK-wide site network, by collating information of environmental compensation delivered to date. This could be published as a register which can be regularly updated.

Additionality

Existing guidance and practice generally specify that compensatory measures should go beyond the 'normal practice', or standard measures required for the designation, protection and management of protected sites (referred to as the additionality principle).

The government wants to allow certain conservation measures, to count as compensatory measures for OFW impacts on the UK MPA network where they might reasonably be expected to accelerate sites achieving their conservation objectives or where the measures go beyond what can be delivered by government. This is intended to increase the number of compensatory measures available to developers and plan promoters. The consultation indicates that this will be achieved by the UK SI amending the Habitats regulations (inshore and offshore). 

Timing of compensation

The consultation also addresses the timing of compensation, proposing that in certain circumstances, compensatory measures may be in place and operational after the impact to a protected site begins, provided there is a reasonable guarantee of success.

It is proposed, via the UK SI to set out that, in addition to existing requirements set out in any Development Consent Order, the consenting authority may set a limit on any time lag between impact and environmental compensation on a case-by-case basis. This will apply across the UK, but the relevant government will determine this time limit.

The Defra consultation states that the timings and rationale should be established during the pre-application process and set out in the without prejudice compensation plan which should also specify how this will be secured. The consultation notes that 'overcompensation' (i.e. a higher than usual benefits-to-impacts ratio) will usually be required to account for interim environmental losses.

The consultation sets out compensatory measure principles which the consenting authority, subject to advice from relevant SNCB, would need to be satisfied the proposed measures are likely to meet, including:

• Address impacted feature in the first instance
• Demonstrate ecological benefit to the UK MPA network
• Do not negatively impact on any other sites or designated features
• Can be monitored
• The measure is being delivered by government or via the MRF if the developer has entered a contract with the MRFO and paid into the MRF before construction starts and so has a high likelihood of delivery.

Note that in Scotland, the approach will be laid out in Scottish government guidance following separate consultation. For plans and projects consented in Wales and NI a similar approach as outlined above will apply, though the devolved governments may produce specific guidance in due course. 

Small impacts

The government wants to clarify (but do not believe legislation is required), circumstances where mitigation or environmental compensation is required for small levels of impact at a site, and that SNCBs can already advise that a small impact can be excluded from further consideration and not require environmental compensation.

Application to live projects

The consultation seeks to clarify the application of reforms to live projects, allowing developers and plan promoters who are already in the planning process to make use of measures enabled by the proposed reforms.

The consultation notes that, applicants and plan promoters wishing to use compensatory measures under the UK SI or published guidance may need to apply to use existing change processes in each administration to amend relevant consents, if necessary. The UK SI will not alter these consenting change processes.

Application of the proposed SI

The proposed UK SI will apply to the offshore waters (beyond 12 nautical miles (NM) from the UK coastline) for the whole of the UK, including all OFW plans and 100MW or over generating capacity projects in inshore and offshore English waters.

It will also apply to qualifying Secretary of State functions in relation to OFW activity in the Northern Irish inshore area, the Welsh inshore areas in relation to SoS qualifying functions and in relation to projects with generating capacity of 350MW or over.

Otherwise, the devolved governments of Scotland, Wales and Northern Ireland are responsible for regulations for their inshore areas and are considering whether to develop an SI in relation to projects consented in their inshore waters. As already noted above Scotland is already consulting. 

Next steps

The Defra consultation runs from Tuesday 22 July 2025 to Tuesday 2 September 2025. Once responses have been analysed, government will outline next steps.

Defra intends to lay the UK SI and publish final guidance as soon as possible after this consultation closes and responses are analysed. The ambition is to do this in 2025, but this will depend on the scale and complexity of the responses.

The government consulted separately on setting up the MRF. The summary of the responses and the government's response to that consultation are expected 'by autumn 2025' and ahead of the fund becoming operational by the end of the year.

Victoria Redman, partner at Womble Bond Dickinson said,

"This consultation is likely to be welcomed by the OWF sector. It contains some quite significant signals to the industry on adaptions of the current system to make delivery of environmental compensation more achievable and flexible, especially on small impacts, timing for delivery of compensation and additionality. If both the indicated timelines, for the MRF and government guidance on environmental compensation are adhered to, then project promoters may soon have a way forward, including on current projects which stalled due to issues related to environmental compensation."