Biodiversity Credit Markets

A study published in the journal ‘Proceedings of the Royal Society B’ highlights substantial methodological and regulatory gaps in the functioning of the Biodiversity credits markets in its current state.

Key Highlights of the Study

• Subject: To examine how a biodiversity unit or a ‘unit of nature’ is defined in the rapidly growing voluntary biodiversity credits market.
• Aim: To present a framework to explore how biodiversity is quantified, how delivery of positive outcomes is detected and attributed to the investment and how the number of credits issued is adjusted to account for uncertainties.
• Focus: To understand how organisations develop methodologies for biodiversity credits in the voluntary market and how challenges are addressed in defining them.

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• Stages of Creating a Biodiversity Credit:
  • Framing: It defines what kind of biodiversity a credit represents and over what time period.
    • Unit of Measurement: Most methodologies reviewed sell credits by area representing biodiversity in units of one hectare
    • Specificity: Many methodologies are designed to represent any ecosystem (terrestrial, marine or freshwater) but ecosystem specific credits also exist. 
    • Purpose: There are two types of credits based on the purpose i.e. whether they represent units of conserved (sometimes known as ‘avoided loss’ or ‘preservation’ credits) or restored (sometimes known as ‘uplifted’) biodiversity.
    • Time: The time period that one credit represents is often issued for five years but can range from one month to the entire duration of a project. 
  • Quantifying: It considers how the biodiversity is measured at the project site at any one point in time. Two broad approaches are taken to quantify the biodiversity, These are,
    • Basket of Metrics: A numeric value is assigned to measure various parameters of an ecosystem like, a range of population, abundance of a target species, species richness,measure of ecosystem structure etc.
    • Binary Condition: As per this approach, A site is marked as healthy or not according to one metric usually reflecting some definition of healthy or not healthy.
      • Example: A site could be marked as healthy if deforestation has not occurred or if a sensitive indicator species is detected as present.. 
  • Detecting: The next stage is to detect the progress of the project by measuring how much of the conservation or restoration objective is attributed to the project.
    • As generally biodiversity is measured across the entire site and nearly all credits are sold per hectare,so detected gains are multiplied by the area of the project site to obtain the number of credits.
  • Adjusting: This final stage determines how the number of credits issued will be adjusted to account for factors outside project control like, leakage, other uncertainties or permanence.
• Challenges: 
  • Fungibility or Interchangeability: Some methodologies standardise biodiversity gains across ecosystems, continents and biomes undermining the fact that biodiversity has an unique, place-specific importance. 

• • • Example: An isolated forest patch cannot be equated to one within a larger, connected landscape.
  • Measuring Biodiversity Value:  Metrics necessarily focus on aspects of nature that are quantifiable, ignoring other aspects like species interactions, the cultural value of nature, or its constitutive value (as a part of the identities of Indigenous peoples and local communities).
  • Commodifying Noise: Credit methodologies based on changes over short to medium time scales run the risk of rewarding, or penalizing, project operators based on measurement error or random fluctuations
    • Example: Butterfly population trends require long-term data due to yearly variations. 
  • Demonstrating Additionality: To show that additional Project investments has led to positive biodiversity outcomes beyond business-as-usual scenarios is a challenge as gathering data on outcomes is expensive and additional investment does not always guarantee success. 
  • Leakage: It occurs when harmful activities, such as deforestation, are displaced to other areas rather than reduced. 
    • Example: Farmers may switch land use to biodiversity credits, prompting others to convert new land for agriculture elsewhere.
  • Permanence: The question of permanence i.e. whether the gains made today will have a permanent nature is just as important as, without long-term management, many conservation or restoration gains could be lost.

About Biodiversity Credits

• A biodiversity credit is a verifiable, quantifiable and tradeable financial certificate that rewards positive nature and biodiversity outcomes (e.g. species, ecosystems and natural habitats) through the creation and sale of either land or ocean-based biodiversity units over a fixed period
  • Example: Some biodiversity credit schemes include, Terrasos, GreenCollar , ValueNature, CreditNature, Wilderlands
• Mechanism: Non-profits, governments, landowners, or companies generate credits, which are then purchased by private companies to meet their biodiversity commitments.
  • One credit might represent a certain amount of land conserved or restored over a specific period of time
• Market: Estimates by the World Economic Forum place the biodiversity credit market’s current value at $8 million, with projections suggesting a surge to $2 billion by 2030 and $69 billion by 2050.

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