Special trader accreditations, a price floor on credits, and potential sellers’ clubs that guarantee high-quality supply are some of the elements proposed by Geneva-based non-profit NatureFinance and the Taskforce on Nature Markets to help govern a scaled-up market for biodiversity credits.

The two groups this week published for consultation a report seeking to describe potential building blocks governing a biodiversity credits market with the capability of attracting sufficient demand for the market to make a difference in halting and reversing the loss of nature without falling into the same traps as previous nature markets.

Backing the development of a heterogenous, vibrant global biodiversity market, the report noted that meaningful performance outcomes of these new markets would need to be three-fold – scale, price, and impact.

“Developing a new set of markets is pointless unless there are clear ways to rapidly scale the volume and value of what is traded, and so scale the value of investment flows into protecting and regenerating nature, as well as equitably benefiting nature’s stewards,” the report said.

Nature market credits would also need to systematically deliver a fair price to nature’s stewards as well as a nature positive outcome that contributes effectively in addressing climate challenges.

“Without agreeing to this performance specification and having a credible way to deliver the requisite outcomes and impact, it is questionable whether too much effort should be spent in designing, developing, and implementing nature credit markets,” said the report.

The report pointed to previous efforts in establishing nature markets, most notably nature-based carbon markets, where little effort had been put into what the market was supposed to deliver and how.

That has now led to a situation where the market’s credibility is at risk while belatedly initiated high-integrity working groups are trying to walk back the market developments of recent years.

“Purposeful nature credit markets need to be framed by their indivisible public purpose, set out in integrity principles that inform every aspect of their design and practice,” the report said.

“Credible product quality is a central need, but it is not sufficient by itself.”

GETTING THERE

In order for the biodiversity market to achieve the three-fold performance outcome, a number of essential design elements must be put in place, including a more radical approach to transparency and accountability, according to NatureFinance and the Taskforce on Nature Markets.

“High-integrity markets need more transparency on what deals are being done, on what terms, and by whom. Traders need to be accredited, not least to end the ‘carbon-cowboy’ phenomenon,” the report said.

It referred to a number of other markets, such as finance and pharmaceuticals, where there are clear restrictions on which actors are allowed to sell and buy products.

In carbon, meanwhile, there is no limits on who can participate, and that market’s lack of transparency means vastly differing prices are being paid for the same products.

“It is time to establish minimum price floors. It cannot be accepted that payments for credits to nature’s stewards are a fraction of what is being paid for the same credits in wealthier countries,” the report said.

“It is neither equitable nor viable for the prices paid to be insufficient to sustain either the underlying biodiversity or those who steward it. Setting a price floor will crowd out poor-quality offsets and actors, and advance more equitable outcomes, especially in the Global South and for Indigenous peoples and local communities.”

SELLER’S CLUB

The authors expect a wide range of biodiversity credit types to emerge, from untradeable philanthropic certificates and regulatory offsets to biodiversity financial assets traded in a secondary market.

Scaled up, stable demand will rely on policy interventions, such as offsetting requirements, nature impact risk obligations, or other policies.

But collective action is likely to be needed to secure the enabling conditions to deliver credibly at scale over extended time periods, the report said.

One way that might happen is for selling jurisdictions to team together in a sellers’ club that might introduce a minimum price level for all units they supply, according to the authors.

“Such a Seller’s Club might well be a group of governments which come together to guarantee quality in return for an agreed price floor. This approach, over time, might attract other countries to develop the governing conditions that enable them to join given the price premium on offer,” it said.

The issue of a market place is also one that biodiversity market participants will need to grapple with.

Voluntary carbon trades were largely done bilaterally or over-the-counter in the first decade or so after the market started, but as liquidity has increased massively over the past few years, a growing number of exchanges have emerged to capitalise.

That may not be the best outcome for the biodiversity market, however, according to the report.

“There is the potential of developing international credit markets governed by a single integrated, inter-governmental regulator. Notwithstanding this, it is more likely that an ecosystem of voluntary or partially regulated markets will emerge, connecting scaled demand with credible supply,” it said.

“This would nevertheless need to be effectively overseen through a collaborative governance platform, most effectively involving state and non-state actors, including Indigenous peoples and local communities.”

The NatureFinance and Taskforce on Nature Markets report is the second set of recommendations for the biodiversity market to be released this week, after the Global Environment Facility put one earlier in the week based on the outcome of a working group, in which it urged governments to help build and drive the market for nature certificates.

By Stian Reklev – stian@carbon-pulse.com

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