New Report: Building a Thriving Biodiversity Credit Market
October 23, 2024
Today the Environmental Policy Innovation Center released a new working paper about biodiversity credits.
Whether the focus is regulatory or voluntary credits, investment in nature through high integrity credits that represent real gains for nature holds tremendous potential. This potential is often obscured by parallel debates about carbon credits, or confusion about how these markets might work. Biodiversity credits are not merely another route to expand funding for nature - they are a tool to restore and protect ecosystems, and when used as offsets (for legal compliance, or to otherwise compensate nature impact), they reinforce other conservation efforts to avoid and minimize impact.
Mitigating harm to nature needs more tools- The vast majority of environmental harm occurs without pause, process, or permit. Most harm to nature outside protected areas is legally permissible, and there is typically no direct cost to actors responsible for damaging nature and biodiversity. However, the status quo is changing: more countries are adopting environmental regulations that require avoidance and minimization of many otherwise significant environmental impacts, and some policies require compensatory action for impacts that remain. Corporate impact disclosure (through TNFD, SBTN, CSRD, etc.) is likewise growing in scale and ambition – and this naturally leads to questions about compensation. When the mitigation hierarchy is carried out correctly, impact can be avoided and reduced, but residual impact will nonetheless remain and we need measured, equivalent, and evidence-based tools address it.
Biodiversity credits provide an effective and efficient source of compensation for growing corporate demand. Biodiversity credits are an emerging and essential piece of providing effective compensation of ecological impacts. In simple terms, a biodiversity credit functions like a unit of currency reflecting some degree of uplift to biodiversity/nature that can be sold and exchanged. A more formal definition comes from the Biodiversity Credit Alliance (BCA): “A biodiversity credit is a certificate that represents a measured and evidence-based unit of positive biodiversity outcome that is durable and additional to what would have otherwise occurred.” Like other compensatory mechanisms, biodiversity credits can be used off-site to offset impacts to nature or to provide net gain, where the transaction creates an overall increase in biodiversity. And this is also true for what is usually called “voluntary” credits. Purely philanthropic purchases of credits will be helpful, but corporate efforts to be nature-positive or “invest in areas of impact” will benefit from being linked to those companies’ own impacts in scale and geography, and by being performance based, even if not formally called “offsets.”
Crediting isn’t new, and we know how to do it right. Experience in developing and operating biodiversity credit markets is readily available - we already have excellent models in a number of countries, with decades of experience. Lessons learned and best practices from these existing biodiversity credit markets should be a guide for how biodiversity credits can be created and used to compensate for environmental impact, and why they are a compelling option for corporate buyers who seek to invest in nature. This document shares this wealth of experience and know-how and includes a set of principles and features of credit markets that will ensure high integrity credits and reduce risks across the board.
Instead of seeing biodiversity markets as simply another version of the carbon market, we know that the tools already exist to turn investment in biodiversity uplift into real gains for nature, with well-functioning, high integrity markets. With these approaches, we can ensure that the benefit for nature is maximized, while risks are minimized for buyers, sellers, and landowners alike, including Indigenous Peoples and local communities. A community of practice that learns from these established principles can create stories of success for nature and people, and a product that responds to growing demand for biodiversity. Whether through regulatory offset markets or the voluntary purchase of credits, high integrity biodiversity credits can turn both global biodiversity goals and corporate “nature positive” commitments into tangible, evidence based, and equitable biodiversity gains. Read the full Working Paper here.
Also see our 3-page synthesis of biodiversity credit principles with a comparison table of principles and governance features of USA, UK and Colombia nature credit markets.
