Researchers have expressed concerns over the “deep uncertainties” looming over the global market of biodiversity credits, posing serious questions regarding its efficacy
A new study published in the journal Proceedings of the Royal Society B has expressed concerns over the “deep uncertainties” looming over the global market of biodiversity credits, posing serious questions regarding the efficacy of the system in its current form. As per the researchers, the study aims to evaluate and assess "if the benefits of biodiversity credits, and other efforts to abstract nature to a single unit, outweigh the harms."
Recently, World Economic Forum’s Global Risks Report revealed that over 50 per cent of global GDP is ‘moderately or highly dependent on nature and everything it supports’. The report identifies biodiversity loss and ecosystem collapse as one of the four risks for the next decade.
The voluntary biodiversity credit market is a mechanism where private companies fund biodiversity conservation and restoration projects.
In plain terms, voluntary biodiversity credits allow companies and other donors to pay for nature conservation, stewardship or restoration, and in exchange receive an official measure of the positive impact. Biodiversity markets aim to mobilise private sector funds towards conservation and biodiversity schemes.
Biodiversity credits can be issued by non-profit organizations, governments, landowners or companies whose primary goal is to conserve or restore land, as per a WRI report. They are however different from biodiversity offsets, which refer to a different market-based tool intended to compensate for the negative and unavoidable impacts on nature by companies. In contrast, the primary objective of biodiversity credits is to have net-positive impact on nature and biodiversity, add the WRI report.
According to a Down To Earth report, the market for biodiversity credits has been gaining traction across global conferences and frameworks. The 2022 Kunming-Montreal Global Biodiversity Framework under the Convention on Biological Diversity had insisted on a cooperative model of action to "halt and reverse biodiversity loss" by 2030. It had, for instance, called for regulatory and financial sectors to reduce impacts on biodiversity and increase spending to plug the considerable funding shortfall.
Additionally, the framework had also estimated a finance requirement of $200 billion per year from private, public and philanthropic sources. The framework also called for innovative financing mechanisms like payment for ecosystem services, green bonds, biodiversity offsets and credits, and benefit-sharing, with environmental and social safeguards, reported DTE.
According to the new study, “There has been an explosion of actors developing biodiversity credits, a new asset class designed to entice investment into conservation.”
The World Economic Forum estimates the current value of global biodiversity credit market to be $8 million. By 2030, this is expected to reach $2 billion and by 2050 it is likely to surge to $69 billion.
The recent study by the Proceedings of the Royal Society B analyses emerging methodologies being employed by prospective sellers of biodiversity credits in the international market. The study aims to provide an overview of how current markets operate and help stakeholders take an informed decision based on ongoing trends in the biodiversity credit market.
In particular, the study examines how biodiversity units are defined, measured, tracked and adjusted. Most methodologies issue credits based on area, typically in hectares, unlike carbon credits, which use the standard unit of one tonne of CO2, it notes. Biodiversity credits are often valid for five years but their validity could range from one month to the full tenure of the project.
Here are some of the key challenges mentioned in the study:
Fungibility: There have been concerns over the interchangeability of biodiversity credits, especially considering that biodiversity damage or loss in one place cannot be replaced with biodiversity improvements in some place else. Biodiversity credits are hard to standardise due to the unique, place-specific value of biodiversity, making the overall process complex and challenging.
Quantification: Methods only focus on measurable aspects (numerical scores or classifications) of biodiversity, overlooking species interactions, cultural significance and indigenous values. Metrics simplify biodiversity into numerical values or classifications, ignoring species interactions, cultural significance, and intrinsic values critical to indigenous communities.
Detection: Uncertainties exist in tracking conservation or restoration outcomes to confirm biodiversity gains. Tracking conservation or restoration outcomes carries uncertainties and demonstrating positive impacts beyond normal business practices is costly and unreliable.
Leakage and Adjustment: Harmful activities like deforestation could simply be shifted to other locales in certain case. Down To Earth cites an example wherein "farmers may switch land use to biodiversity credits, prompting others to convert new land for agriculture elsewhere." These are indicative of challenges related to calculation and assessment in the overall process.
As for solution, the study has emphasised on "effective enforcement of regulation", "transparency" and "civil society scrutiny" to ensure that meaningful conservation outcomes accrue from biodiversity credits.