Why trading rules exist
Without trading rules, a developer who destroys rare woodland could offset it by creating common grassland — an ecologically meaningless trade. The trading rules exist to ensure ecological equivalence: the habitat you create or purchase must be of equal or higher ecological value to the habitat you've lost.
The rules are enforced automatically within the statutory biodiversity metric. When you run the calculation, the metric will flag any trading rule violations and tell you exactly what type and quantity of units you need.
The distinctiveness tiers
Every habitat type is assigned a distinctiveness rating by DEFRA, ranging from Very Low to Very High. This rating determines which trading tier the habitat falls into. Trading tiers are the core mechanism that controls what can offset what.
| Tier | Distinctiveness | Score | Example habitats | Can be offset by |
|---|---|---|---|---|
| A5 | Very High | 8 | Blanket bog, ancient woodland, limestone pavement, lowland raised bog | Bespoke compensation only — cannot use standard trading or statutory credits |
| A4 | High | 6 | Reedbeds, wet woodland, lowland meadows, native pine woodland, saltmarsh | High or Very High distinctiveness habitat of the same broad type |
| A3 | Medium | 4 | Mixed scrub, traditional orchards, most neutral grasslands, ponds | Medium, High, or Very High distinctiveness habitat |
| A2 | Low | 2 | Modified grassland, introduced shrub, intensive green roof, allotments | Any distinctiveness tier (Low or above) |
| A1 | Very Low | 0 | Developed land, sealed surfaces, bare ground, unvegetated garden | Any distinctiveness tier |
Hedgerow and watercourse tiers
Hedgerows and watercourses have their own separate tiers:
- Hedgerow units (H) — can only be offset by other hedgerow units. You cannot substitute area habitat units for hedgerow losses.
- Watercourse units (W) — can only be offset by other watercourse units. Again, no substitution with area units.
This separation ensures that linear features, which provide crucial ecological connectivity, are replaced like-for-like.
The core trading rule: like-for-like or better
The fundamental principle is simple: you can only offset habitat loss with the same tier or a higher tier. You can trade "up" (replacing low-distinctiveness habitat with high-distinctiveness creation) but never "down."
Broad habitat matching
Beyond distinctiveness tier matching, the metric also considers broad habitat type. Where possible, lost habitats should be replaced within the same broad category. For example, lost grassland should ideally be replaced with grassland, not woodland. However, this is a preference rather than an absolute rule — the metric applies it as a weighting factor rather than a hard block.
The Very High distinctiveness problem
Very High habitats are classified this way because they are effectively irreplaceable on any meaningful timescale. Ancient woodland, for example, has taken centuries to develop its ecological complexity — no amount of new tree planting can replicate it within 30 years.
The NPPF provides strong protections for irreplaceable habitats, stating that development resulting in their loss or deterioration should be refused unless there are "wholly exceptional reasons" and a suitable compensation strategy exists.
If your site contains or may contain Very High distinctiveness habitats, engage an ecologist and your LPA as early as possible. This is one of the most common causes of significant project delays and cost escalation.
Geographic trading preferences
When purchasing off-site biodiversity units, the trading rules establish a geographic preference to keep habitat compensation as close as possible to the site of loss:
| Priority | Geographic scope | What it means |
|---|---|---|
| 1st | Same LPA area | Off-site units from a gain site within the same Local Planning Authority boundary as the development |
| 2nd | Same NCA | Units from a gain site within the same National Character Area (one of 159 geographic areas defined by Natural England) |
| 3rd | Adjacent NCA | Units from a neighbouring National Character Area |
| 4th | Wider England | Units from anywhere in England — permitted but the least preferred option |
In practice, geographic supply gaps mean that developers often have to look beyond their immediate LPA. Savills data from early 2026 shows that roughly 300 of the first 1,500 unit allocations were to non-local LPAs or NCAs. With 202 of 309 LPAs still having no registered habitat banks, this pattern is likely to continue until supply catches up with geographic demand.
The Spatial Risk Multiplier (SRM)
When biodiversity gains are delivered off-site, a Spatial Risk Multiplier is applied to reflect the greater ecological risk of compensating at a distance from the impact site. The further away the compensation, the less ecologically connected it is to the lost habitat.
For off-site units purchased from habitat banks, the SRM is built into the metric calculation and varies by distance and geographic relationship.
For statutory credits, the SRM is a flat 2x multiplier — you must purchase two credits for every one unit of shortfall. This is because the government cannot guarantee where the credit revenue will be spent, so the maximum risk discount applies.
Shortfall calculations
The metric automatically calculates your unit shortfall — the number of units you need to source off-site or via credits — broken down by trading tier. The shortfall is calculated in a specific sequence:
- Tiers A5 through A2 report their raw losses directly
- Tier A1 acts as the balancing tier — it absorbs any remaining deficit not covered by higher tiers
- The SRM is then applied to off-site shortfalls
- Hedgerow and watercourse shortfalls are calculated separately
The metric's Unit Shortfall Summary tab shows the exact number and type of units you need to purchase, which you can then take to the off-site market or use to calculate statutory credit costs.
Practical tips
- Run the metric early. Understanding your unit shortfall by tier before you design the site layout gives you maximum flexibility to optimise on-site delivery and minimise off-site costs.
- Check local supply before assuming credits. Off-site units are typically 60–70% cheaper than statutory credits. Even a quick check of available gain sites in your LPA/NCA can save significant costs.
- Watch for Very High habitats. If your ecology survey identifies any Very High distinctiveness habitats, flag this immediately — it changes the entire BNG strategy.
- Hedgerows and watercourses need separate attention. Don't focus only on area habitats. Lost hedgerow must be replaced with hedgerow units — there is no cross-substitution.
- Geographic proximity helps. Units from within your LPA are the smoothest compliance path. Check local availability first.