Sheep farmers reliant on Government subsidies could profit from letting their land naturally return to woodland, a study suggests.

Most sheep farming in the UK is not profitable without subsidies, if farmers are paid for their labour, according to the research from the University of Sheffield.

But farmers could make money by allowing native trees to return to their land and selling “credits” for the amount of carbon dioxide the trees absorb as part of efforts to tackle climate change.

The study comes as the Government shifts the post-Brexit farming payments regime away from subsidies for the amount of land farmed to paying for “public goods” such as storing carbon and stopping flooding.

Livestock farming is heavily dependent on subsidies, and also generates greenhouse gas emissions, with sheep farming accounting for around 1% of the UK’s total climate pollution, the university’s Grantham Centre for Sustainable Futures said.

But the UK, with tree cover of 8%, making it one of the least densely forested countries in Europe, has a large potential for restoring and creating woodlands to help soak up carbon emissions, the study said.

It found that farmers with at least 25 hectares of land (60 acres) could turn a profit if they allowed it to naturally regenerate into woodland and were paid as little as £3 a tonne for the carbon the woods store.

The credits could be bought by businesses or individuals who want to offset their emissions, for example from flights.

If they were sold for £15 a tonne – the current market price for carbon credits – they could make forests of any size profitable, the study published in the journal Environmental Research Letters said.

Sheep farming in the UK is not profitable without subsidies, but forests that sell carbon credits can be economically viable

Natural regeneration would work in areas close to existing woodland which would provide seeds for the land.

If farmers had to plant trees, they would need a price of around £42 per tonne of carbon stored – although Government grants in England can cover 80% of costs, which makes planting profitable from £9 a tonne, the study said.

As well as cutting carbon emissions, switching from sheep farming to native forests could boost wildlife and curb flooding.

It would make sense economically and environmentally to use the post-Brexit environmental land management scheme to pay farmers to return their land to forests, the study said.

The researchers also questioned whether it is right to pay farmers to preserve non-natural pastoral landscapes in the UK, preventing reforestation, while putting pressure on developing countries to curb tropical deforestation.

Professor Colin Osborne, from the University of Sheffield and lead author of the study, said: “Sheep farming in the UK is not profitable without subsidies, but forests that sell carbon credits can be economically viable – so it makes sense for the Government to help farmers transition.

“Using public money to actively prevent reforestation in the UK and Europe is morally questionable given the pressure western governments place on the global south to end tropical deforestation.

“Ultimately, these come down to political questions of how we want our countryside to be used, how we value livestock production over the global costs of climate breakdown, and how the Government supports farmers and rural communities.”

Phil Stocker, chief executive of the National Sheep Association, said expecting sheep farmers to give up farming sheep and plant forests “ignores two basic facts”.

“Firstly sheep farming is more than just a business, it is part of our culture and heritage and farmers get huge pride and satisfaction from farming sheep,” he said.

Secondly, land management had to be looked at on a multi-functional basis, he said, adding: “Sheep farmers are managing one of our most precious resources – grassland – while also producing a fantastic and nutritious food from it.”

He said grassland stored carbon and supported wildlife, and sheep farming was at the heart of rural communities that the public benefited from when they came to the countryside.