Part of certifier body Verra’s definition of nature credits, under the proposed standards in its SD Vista Nature Framework, is equivalent to its description of offsets, an executive at UK-funded development agency FSD Africa has said.

The framework risks allowing companies to buy nature credits where operation sites have harmed nature, after applying the mitigation hierarchy, said Kelvin Massingham, director of risk at the non-profit.

This usage is the “exact definition” that Verra gave of offsets, Massingham told Carbon Pulse. “That’s unhelpful. We think that biodiversity credits need to be very clearly distinct from offsets.” (See below for Verra’s wording.)

In response, Verra said it is clear that nature credits cannot be used for offsetting.

In September, Verra launched a consultation on its framework with the aim of scaling investment in nature through the generation of biodiversity credits. The first iteration of the framework is expected to be published in 2024, following pilots with 18 initiatives.

Market onlookers are concerned that biodiversity credits will be used to legitimise harm to nature through being used as offsets, but the definitions of both are in flux as companies seek to set concrete standards.

THE BUSINESS CASE

Beyond offsetting, Massingham said he “does not see strong demand” for voluntary biodiversity credits happening.

“My concern is that the market develops as a kind of offsetting solution. Because that will be the most attractive option to companies to allow them to claim that they are biodiversity positive,” Massingham said.

Verra’s framework proposed that nature credits could help companies secure their dependencies on nature.

Massingham said this idea does not have “a strong argument because there’s no business case for a company to spend all the additional cost that will be required” on generating biodiversity credits.

Beyond dependencies, another potential usage of credits through companies wanting to contribute to global biodiversity goals, such as the COP15 final agreement, is “not going to drive a very significant market”, he predicted.

“There needs to be some genuine commercial business case for [companies] to significantly invest.”

His comments echoed a response by think tank Green Finance Observatory to Verra’s consultation. It said the business case for purchasing nature credits at scale without offsetting is “weak, and the claim that nature credits will not be used as offsets is disingenuous in our opinion”.

The only business case Green Finance Observatory thought was viable was using nature credits to reduce the risk of stranded assets, but this would produce adverse environmental outcomes by enabling lobbying against the reduction of harmful activities.

COMPLIANCE MARKETS

Well-regulated compliance markets for biodiversity credits are likely to become more significant than the voluntary markets for the credits, due to the complexity of proving nature uplift, Massingham predicted.

“It’s not efficient to leave it to the private markets because of the strong commercial incentives that drive those markets, there needs to be proper public guardrails.”

Compliance markets for biodiversity credits are developing in countries including the UK and Australia.

However, the voluntary biodiversity credit concept has “some potential”, although it is difficult to predict how it will develop, he said.

Massingham complimented Verra’s highlighting of the importance of benefit sharing with biodiversity credits, while stressing distribution would need to be enforced by regulation.

FSD Africa will produce a report in Spring 2024 with recommendations for how the biodiversity credits market can develop while benefiting Indigenous Peoples and local communities in African countries, he said.

VERRA’S RESPONSE

A Verra spokesperson told Carbon Pulse that the framework is “very clear that nature credits cannot be used for offsetting”.

“Biodiversity offsets compensate for residual negative impacts after companies adhere to the mitigation hierarchy and must generate equivalent biodiversity to that lost. Since biodiversity is place-specific and not fungible globally, offsetting is almost always local and often regulatory-based,” they said.

“Nature credits are independent and likely spatially or temporally distant from the negative impacts of companies’ value chains. Thus, they are inappropriate to offset, given their inequivalent ecological values to those damaged.”

Verra’s framework said companies can invest in nature credits “where a nature deficit resulting from accumulated existing or ongoing impacts, or through industry-wide impacts that are not attributable to an individual entity, remains in the value chain after application of the mitigation hierarchy”.

The guiding principles of the mitigation hierarchy mean prioritising avoiding impacts, before minimising them, and turning to offsets or credits as a last resort.

The standard setter’s framework defined offsets as conservation outcomes “from actions designed to compensate for significant residual negative biodiversity impacts identified after appropriate avoidance, minimisation, and on-site rehabilitation measures have occurred in the mitigation hierarchy”.

By Thomas Cox – t.cox@carbon-pulse.com

*** Click here to sign up to our twice-weekly biodiversity newsletter ***