Non-profit Inevitable Policy Response (IPR) has released a first integrated climate and nature policy scenario for investors, predicting that on top of nature-based carbon projects a biodiversity credit market is set to emerge that could be worth $18-43 billion by mid-century.
In cooperation with Energy Transition Advisors, Vivid Economics, and others, IPR regularly releases a Forecast Policy Scenario (FPS) for investors, based on existing and emerging policies to combat climate change.
For the first time it has now added nature in the mix in a FPS+N scenario to take into account policy trends emerging amid the increased focus on the global nature crisis, which led to the Post-2020 Global Biodiversity Framework being agreed at COP15 in Montreal last month.
“The policy response to the nature crisis could result in material shifts to economic and financial value in critical sectors. Regulators increasingly expect financial institutions manage these nature-related impacts and risks alongside climate risk,” Jason Eis, executive director at Vivid Economics, said in a statement.
The analysts predicted a number of outcomes from the growing focus on biodiversity, such as potential region-specific market access, liability, and risks associated with tropical commodity trade, rising costs of minerals such as lithium, cobalt, nickel, and copper, and reduced production of oil crop feedstock in biodiverse regions, such as oil palm in Southeast Asia.
Despite biodiversity outcomes playing an increasing role in the carbon market, with carbon offsets with documented biodiversity benefits fetching a $5 premium, the report said this trend would likely become even stronger in coming years, driven by the emergence of national targets and reporting requirements.
“Companies adhering to best practice when purchasing NBS-based carbon credits may demand high-quality credits that do not harm biodiversity or have clear biodiversity co-benefits,” the report said.
“Growing appetite for biodiversity enhancement could also be met in separate biodiversity credit markets, which are emerging at the local level and could scale up by 2030,” it said.
FPS+N concluded, based on supply side analysis and preliminary assumptions, that the biodiversity credit market could be worth $18-43 bln annually by 2050, stressing that it was only taking into account land-based developments while the report did not at all touch upon marine environments.
The total nature-based solutions market, including carbon projects, could balloon to $204 bln by that year, it said.
It remains uncertain which metrics the emerging market will settle on for issuing biodiversity credits and what the price may be, though the IPR report said project developers might be looking at a price of around $12 per hectare per year by 2030, rising to $45 twenty years later.
COP15 in Montreal agreed to protect 30% of all land and sea areas by 2030.
The FPS+N, meanwhile, said the world is currently on track to protect 20% of biodiversity-rich land by the end of the decade, though stressed that this number was not directly comparable with the Montreal target, as decision-makers are yet to specify how that is to be defined.
“By 2050, policy action targeted at degraded land could lead to an additional 6% of land being restored globally, with over 70% of this achieved by 2030,” the report said.
“The largest share of global restoration could be seen in the EU and UK regions as well as biodiversity-rich Tropical Africa, followed by China, with limited restoration in low commitment regions such as Russia and Developed East Asia,” it added.
That growth will be driven by a mix of public sector programmes, NGO action, and private-sector led activities, likely financed through carbon and biodiversity credits, the analysts said.
By Stian Reklev – stian@carbon-pulse.com
*** Click here to sign up to our weekly biodiversity newsletter ***
