FEATURE: Piloting biodiversity credits sees different methodologies to leverage finance

Published 01:03 on December 16, 2022  /  Last updated at 03:13 on December 17, 2022  /  Biodiversity  /  No Comments

Projects in the nascent voluntary biodiversity credit (VBC) market are already piloting different approaches to measuring biodiversity improvements ahead of larger standards that could emerge as early as next year.

Projects in the nascent voluntary biodiversity credit (VBC) market are already piloting different approaches to measuring biodiversity improvements ahead of larger standards that could emerge as early as next year.

The world’s largest voluntary carbon standard body Verra is slated to launch its first biodiversity credit methodology at the end of next year, version 1.0 of its “nature credits”, adding to the growing ecosystem of methodologies and approaches that will underpin the voluntary biodiversity market (VBM).

To help shape the new methodology, Verra is working with a vast team of technical experts through an advisory group, as well as with global consultants such as McKinsey and the Biodiversity Consultancy.

Verra is also working with conservation organisations, including Conservation International, IUCN, Conservation Finance Alliance, and the Great Barrier Reef Foundation, that when combined with the global consultancies, form the “Nature Framework Development Group”.

“We’re hoping to have one overarching credit, it will likely be area based, and include a ‘permanence’ component,” said Sinclair Vincent, Verra’s director of sustainable development innovation.

“What we need is these credits to be fungible enough for this to actually work in the market,” she added. “We don’t want to have one beetle credit and another elephant credit, for example.”

COMPLEXITIES

The development of this type of overarching methodology is teeming with technical complexities that include, or even surpass, those inherent to the carbon market, such as project additionality and permanence.

The most heavily tracked topic is defining a standardised unit to measure biodiversity-related improvements – something that in the carbon market world is equivalent to one tonne of CO2e avoided or removed.

Unlike the relative uniform nature of CO2 abatement, nature is very context specific, and each project will result in very different outcomes depending on aspects such as their species, ecosystem balance, and water cycle impact.

For this reason, voluntary biodiversity credits are not being proposed as offsets, where this would require a like-for-like improvement in one area to compensate for degradation in another.

Yet despite this widely agreed principle, many experts say that having a standard unit to measure and compare biodiversity outcomes remains key to scaling finance. Businesses and investors want to be able to demonstrate results, not just cash flows, that are comparable and traceable.

Turning related claims from “qualitative” to “quantitative” is key to reporting, tracking, and auditing processes, many observers have pointed out.

“The real question is how can we drive additional finance that hasn’t been in this space,” said Mariana Sarmiento, CEO of Colombian project developer Terrasos.

“And then, how can we do that in a way that is based on outcomes?” she added.

“Whether you call it a ‘credit’ or something else, what’s beneath is a performance-based outcome approach … and the buyer will make claims on that,” she told Carbon Pulse.

TRADABLE UNITS

Terrasos was formed to enable habitat banking as a compliance approach to domestic regulations.

But one of their seven projects, El Globo in Colombia’s Niebla forest, is piloting credits for the VBM.

The relatively-small project aims to conserve some 304 hectares of biodiversity-rich area for 30 years, while enriching 27 ha of secondary vegetation and restoring 14 ha of forests that are currently shrublands and pastures.

The company has developed its own methodology to measuring results, aiming to issue biodiversity credits that would cover the direct and indirect costs of managing the project plus the cost of capital.

Version 3.0 of this methodology was published last month, and the involved credits are primarily based on 10 square metres of threatened habitat being preserved or restored, and maintained for at least 30 years.

“The fundamental element behind the methodology is the design of a homogeneous and tradable transactional unit, but that recognises that conservation projects are different,” the methdology document outlined.

Taking account of the site-specific differences means factoring in opportunities for ecological connectivity, and the IUCN’s threat category of the ecosystem where the project is located.

But Sarmiento also highlighted the importance of “keeping it simple”, noting that local landowners as well as potential credit buyers need to be able to understand the basics of the methodology.

She noted that being able to quantify results has been key to buyers’ interest to date – with sales initiated through word-of-mouth deals as well as marketplace ClimateTrade.

“You’re not just giving a donation, you’re putting your money in a project that is resulting in tangible, measurable outcomes,” she said.

“And the methodology around that can’t be a black box,” she added. “Making this work – including for local people on the ground – implies simple metrics.”

THE CPI OF NATURE

Visibility around the 30×30 target at the COP15 biodiversity negotiations has helped improve public understanding of moving beyond an area-based approach to biodiversity conservation, several observers have pointed out.

Protecting a void desert does not have the same benefit as protecting a cloud forest, though both could count under a 30% protection target, unless parameters around the “quality” of that protection are well defined.

Scientists and other experts convened under the Wallacea Trust, a science-based research and conservation group, have explored the topic of “quality” or “improvements in quality” for many years.

An emerging methodology from the group is being piloted for use under the VBM by group lead Tim Coles, who is also director and chief executive officer of project developer rePlanet.

The methodology is modelled off the Consumer Price Index (CPI) in economics, that measures changes in average prices used to maintain a constant standard of living – where the “goods” within this basket differ from jurisdiction to jurisdiction.

In the case of a “biodiversity basket”, at least five metrics are chosen relevant to the project area, and then weighed by importance, based on metrics such as domestic or international endangerment rankings.

These metrics could be species-based like butterflies, or they could be functionally based, like soil health, Coles said.

Biodiversity credits are then issued as equivalent to a 1% increase, or avoided loss, in the median value of the basket of metrics, per hectare.

“We’ve managed to get financial commitments for 5 million biodiversity credits on numerous projects around the world,” Coles said, noting that the company is currently working on biodiversity credit issuance from some 30 projects.

One of these projects is within the Cusuco National Park in Honduras, where 18,000 hectares of some of the most biodiversity-rich habitat on the planet is quickly shrinking due to illegal clear cutting – including for cardamom fields and pastures.

“Some 24 new species have only been described in this park,” said Coles. “So, under BAU, at least 24 species would be wiped out.”

Pharmaceutical company GSK has committed to purchase the credits stemming from the project for the first 12 years, valued at $5/biodiversity unit and $10/CO2 outcome. 

The revenue from these credits will help cover monitoring and patrolling of the project area, as well as help finance programmes designed to help local populations realise economic opportunities beyond cardamom agriculture, through sustainable development programmes.

In fact, rePlanet’s business model sees 60% of revenues distributed to local communities, one of the key reasons why they favour the VBM over other types of funding arrangements that may not result in direct benefits to local communities.

RePlanet is working with standard body Plan Vivo, that will be incorporating the CPI-styled methodology into their forthcoming biodiversity credit methodology.

Both Terrasos’s Sarmientom and rePlanet’s Coles are part of the technical advisory group informing Verra’s upcoming nature credit standard.

By Katherine Monahan – katherine@carbon-pulse.com

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