The footprint of eight of the most developed existing biodiversity crediting schemes covers more than 800,000 hectares with $8 million in funding so far pledged toward investment in the creation of the resulting units, a report has estimated, also assessing each mechanism’s credentials across various criteria, such as additionality and scalability.
The analysis, published this week by BloombergNEF and seen by Carbon Pulse, considers eight case studies of existing market-based mechanisms for crediting biodiversity around the world, drawing conclusions on key challenges and themes, and providing an assessment based on several parameters.
EIGHT CASE STUDIES
The eight schemes “represent a selection of the most developed existing or proposed programmes in their regions”, according to the report.
Five are private-sector led – ValueNature, Replanet, Terrasos, Ekos, and South Pole – and three are administered by governments – Australia, Gabon, and South Pacific island nation Niue.
The majority of projects are based in the Global South, with a particular focus on Central and South America.
This is mainly due to the fact that increased pressure on resources in these areas have catalysed individuals and governments to act, with regulators more open to novel approaches to the biodiversity crisis, and conservation costs in these areas are less expensive, the authors suggested.
As part of its study of the eight schemes, BloombergNEF proposed an assessment framework, analysing and ranking each one against additionality, permanence, transparency, scalability, and integrity of measurement criteria.
Overall, UK-headquartered Replanet received the highest score, with a top mark across all five criteria, followed by that of South Africa-based ValueNature with four top marks.
The two largest private schemes, covering an estimated 500,000 ha across five countries and 300,000 ha in nine nations, respectively, have had a combined total of more than $5 mln invested of the estimated $8 mln across the eight examples.
These two were specifically commended as having created credits based on strong principles and robust methodologies, while also achieving early scale.
The other three private schemes are relatively much smaller in terms of coverage and size.
Colombia’s Terrasos has seen a significant $1.6 mln pledged but covers only around 4,000 ha, while New Zealand-located Ekos and Switerland’s South Pole each have schemes with a much lower coverage area and either undisclosed or much lower investment figures.
That said, the three smaller private schemes were each described as having “well-developed methodologies”, though scored less favourably due to challenges with scale so far, the authors stressing this was not intended as a critique given their purpose was not necessarily with expansion in mind.
In an interview with Carbon Pulse earlier this year, the Colombian firm outlined plans for expansion towards 40 projects by 2025 based on its protocol.
In contrast, some judgement was reserved for national schemes, however, which were described as “a mixed bag”.
According to BloombergNEF, Australia has developed “a sprawling legal framework” which enables the creation and trading of certificates but “faces questions over additionality and depth of measurements”.
Meanwhile, Niue and Gabon have each released few details on their policies, and were marked down across certain fields due to this.
The authors noted that ratings would change as and when new data comes to light.
In addition, due to the wide range of approaches across the schemes, none have credits which are considered fungible, though all except Niue’s ocean-specific credits are tradeable.
Stated prices also vary wildly from around $5 in the Replanet scheme, up to $30 for Terrasos, $100 for ValueNature, and NZ$250 in Niue.
The metrics used were generally in a measure of hectare protection or restoration over a period of time, though this too saw significant variation across methodologies.
Buyers are generally corporations and individuals, though in Niue, government and philanthropy purchase the units.
Following its analysis, BloombergNEF acknowledged the important data and use cases that these schemes, both national and private, had already provided to the market, given its nascency and need to mature.
“Early efforts are imperfect, but their impact should deliver significant improvements to the natural world,” the report said.
CLOSING THE GAP
The study quantified the small fraction of total biodiversity finance that currently goes into biodiversity credits, adding that it expected this to significantly increase in response to market-enabling policies and nature-related disclosure guidelines, such as those to be released by the Taskforce on Nature-related Financial Disclosures (TNFD) in September.
One of the key reasons that crediting has come to the forefront of the conversation is that within the historic Global Biodiversity Framework (GBF) agreement at COP15 in Montreal last year.
Several sections of the GBF called on private finance to help make up the current gap in investments in nature protection and restoration, with explicit mention of crediting as a potential avenue to achieve this.
The report estimated, however, that just $8 mln of the roughly $169 bln currently spent on biodiversity has been via credits.
The vast share of the total is channelled via public-domestic funding which stands at $126 bln, with a calculated $30.5 bln from private financing, and $6 bln from public-international sources, the analysis found.
A specific goal within the GBF is that developed nations must scale their financial contributions to protect and restore nature to $20 bln per year by 2025 and $30 bln by 2030, which Samoa’s climate minister has said should not come from credits at all.
MEASURING THE COMPLEX
Those against biodiversity credits have levelled criticism based on the complexity of measuring nature, a likely reason as to why the different schemes vary to such a degree in approach.
One conclusion from the report is that quantifying biodiversity is demonstrably complex, and as a result, early methodologies employ a range of approaches toward tackling the measurement, reporting, and verification (MRV) question, as the assessment of the eight case studies underlined.
In general, early approaches include traditional manual counting and recording of species and use of historical data.
Newer technologies are now gathering momentum, such as eDNA, which identifies species presence and distribution by cross-checking fragments of genetic material left in a site with a global genetic database.
A carbon offset ratings agency launched a trial project in Uganda this week to assess the use of eDNA to measure biodiversity values in ecosystems, including as basis for the issuance of nature credits.
Another form of newer MRV is bioacoustics, which involves the placing of passive acoustic microphones in an environment for a long period, with the sounds analysed to calculate the variety and abundance of species present.
Satellite technology and chemical analysis are also emerging, specific to biodiversity MRV.
Convergence around several principles is guided by organisations such as the Taskforce on Nature Markets and the Biodiversity Credit Alliance, the report stated.
LESSONS FROM CARBON
So far, biodiversity credits have occupied a space next to the voluntary carbon market (VCM), stacked where carbon offsets have biodiversity co-benefits.
The report calculated that the market has grown at 59% on a compound annual basis since 2015, peaking at 106 mln credits issued in 2021, specifically from projects with biodiversity-related co-benefits.
That said, biodiversity benefits are firmly secondary to emissions, and the majority of the 355 mln offsets issued between 2015 and 2022 to avoided deforestation projects have come under fire recently in the media for historical over-crediting and inflation of baselines.
There is therefore a lot that biodiversity crediting can learn from carbon markets, BloombergNEF noted, as Carbon Pulse reporting has demonstrated.
“Early schemes in the biodiversity market must have concrete principles on purchasing, transparency, and monitoring to avoid mistakes made in carbon markets,” the study said.
“The Biodiversity Credit Alliance is aware that there will be weaknesses in early schemes; this is acceptable only if all stakeholders collaborate in the presence of effective regulation to improve how the markets function.”
CREDITS VERSUS OFFSETS
Another emerging debate in the market tackled in the report, is the push against the use of biodiversity credits for offsetting purposes. Other experts and those developing standards have underlined the need to separate the two.
Clearly defining this separation, however, may be easier said than done, BloombergNEF said.
“Expect to see much disagreement on definitions, eligibility, and, fungibility in the coming months as companies attempt to integrate credits into systems of natural capital accounting, while academics and standards bodies seek to uphold the ‘not for compensation’ principle,” the authors stated.
“Rules must be put in place that control who credit developers are allowed to sell to and for what purpose.”
By Roy Manuell – roy@carbon-pulse.com
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