Biodiversity credits could help break the nature finance logjam if they can avoid some of the pitfalls that have left carbon offsets open to greenwashing accusations, according to a new study by the UNDP and UK-based think-tank IIED.
Released ahead of the biodiversity COP15, which formally opens in Montreal on Wednesday, the study sought to consider the potential of crediting as a means to help close the $700-billion annual biodiversity funding gap – expected to be a sticky issue at the Canadian talks.
“Biocredits offer a tangible solution to the challenge of how to finance the conservation and restoration of nature,” Tom Mitchell, executive director at IIED, said in a statement accompanying the study.
“Evidence of biocredit schemes already shows they could help to preserve precious plants, animals, and ecosystems, but also meaningfully channel finance to local communities and Indigenous People who are the most effective custodians of biodiversity.”
In order to achieve that, however, the nascent market must find workable solutions to a number of fundamental issues that have yet to be sorted out, such as which metrics should be used to define a biodiversity credit.
Approaches to measure and trace additionality as well as baseline-setting also need standardised approaches to ensure that credited projects generate quality credits.
As for additionality, the study did not touch upon the type of financial additionality used in the carbon market.
Instead, these would be requirements that the projects increase the amount of finance going to conservation efforts already underway, increasing capacity for participants to carry out projects, or changing the distribution of financial compensation in a way that favour those who manage biodiversity most effectively, including Indigenous Peoples and local communities.
PRICING
Price discovery will be a challenge in the early phase of market construction, with expectations being that biodiversity will be significantly more expensive than carbon units due to the higher project costs, though exactly by how much remains uncertain.
“One challenge of ecosystem markets is the high cost of meeting both biodiversity and financial criteria, including the monitoring and verification that is required,” the report said.
“Transaction costs have long been a barrier to developing biocredit schemes because they reduce the amount of profit a biocredit scheme can generate,” it added.
Those costs can rise when projects involve a large number of smaller actors, when institutions or property rights are weak, or when monitoring costs are high, according to the researchers.
Looking at some of the early credits available in the market, such as Colombian Terrasos’ Voluntary Biodiversity Credit and the South African ValueNature Biodiversity Credit, the report found that pricing and marketing both present challenges in the current state of the market.
“Due to the novelty of biocredit markets and lack of maturity in the market, it is difficult to generate sales and set adequate prices, however this remains a crucial element of a successful biocredit scheme,” the report said.
“An increase in sales might naturally occur as the methodologies are more widely understood and tested. There remains value in ensuring biocredit schemes are transparent and clearly explained by various stakeholders to promote trust-building in the biocredits market.”
UNDP and IIED recommended market participants target their marketing and screen buyers, so as to avoid greenwashing, while also ensuring that funding flows to Indigenous People and local communities.
By Stian Reklev – stian@carbon-pulse.com
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