RePlanet is partnering with other companies on five biodiversity credit initiatives around the world that could each generate “$10 million or more”, via an impending blockchain process, an executive has estimated.

The initiatives of between 1,000 and 8,000 hectares in size include Romanian grasslands, a coral reef in Anguilla, an Ecuadorian island in the Galapagos, a Scottish island, and agricultural land in the Egyptian desert, said Dan Exton, director of strategy at private UK-based company RePlanet.

These projects could accrue capital based on estimations of conservation costs, “conservative” assumptions of biodiversity credit prices, and the total value of carbon-led projects of similar sizes, Exton told Carbon Pulse.

However, there is “no guarantee” all the five biodiversity credit projects will reach completion, and current earnings projections are “very rough”, he said.

RePlanet helps local organisations prepare to generate credits including NGOs, non-profits, small-scale farmers, communities, and single landowners. For example, in Romania, it works with conservation non-profit Fundatia Adept.

Last week, RePlanet said it was working on a project to generate biodiversity credits from a 2,000-hectare estate in the Scottish highlands. It has two such initiatives in Scotland.

Most of the more than 20 projects RePlanet is supporting worldwide are preparing to generate carbon credits with biodiversity co-benefits, while five schemes with less capacity to sequester carbon hope to launch biodiversity credits exclusively.

The nascent biodiversity credit market has attracted an increasing amount of attention over the last couple of years, with lots of project announcements seeking to help plug the nature financing gap, but few actual transactions have taken place.

THE BLOCKCHAIN “FINAL PIECE”

There is no guarantee RePlanet will acquire funding for the biodiversity credit projects, without any commitments to buy the credits so far, but it remains optimistic. The approaching launch of a blockchain registration process should help enable the market, Exton said.

RePlanet has partnered with a company based in Switzerland working on a process that will be able to issue blockchain tokens for independently verified biodiversity credits in the next “month or so”, Exton said.

“If you’re using blockchain, you can have a smart contract system set up so that any resale of credits triggers payments back to communities. It’s a really clean, transparent system.”

Blockchain is a transparent way of permanently digitally recording transactions, with no risk of market actors editing key data on projects after its initial entry to the database.

The launch of the blockchain method for selling credits will be “the final piece of the puzzle” in the market, Exton said. “Not only do we have the projects, we have a way of verifying them through peer review, and we have a way of issuing and creating a secondary market via blockchain.”

The five projects will measure their credits using the methodology produced by Wallacea Trust, a non-profit partnered with RePlanet.

The Wallacea Trust launched a third version of its methodology for measuring uplift in biodiversity credits last October. The organisation defines a credit as a 1% uplift, or avoided loss, in biodiversity per hectare using a location-dependent ‘basket of metrics’.

The Biodiversity Futures Initiative (BFI) must independently peer review claims made using the Wallacea framework.

RePlanet has had “a lot” of positive conversations with companies interested in buying credits, Exton said.

“They are either waiting to be pushed or they’re waiting for someone else to move first, and it’ll be a snowball effect. You’ll get the pioneering corporates that are trying to push the nature positive agenda.”

In the short term, impact investors will also buy biodiversity credits in expectation of prices increasing, he predicted. “When the market does emerge, there’s going to be a massive supply shortage of credits.”

CREDIT PRICES

The pricing of the credits has not yet been decided for each initiative, as it will depend on the cost of managing the projects, Exton said.

“We’re pricing credits purely on the cost of intervention. I think the market will decide what the value of these credits are once they’re out, [rather] than us trying to do it artificially.”

Some 60% of the issuance price of the credits will go to local communities, under the Wallacea methodology.

Prices for biodiversity credits published last year varied wildly from around $5 in one RePlanet initiative, up to $30 for Terrasos, $100 for ValueNature, and NZ$250 in Niue, according to a BloombergNEF report.

Onlookers have previously said that basing prices on project costs might be difficult for the market to accept.

PROJECTS ON PAUSE

Although the blockchain process for selling credits is not yet live, the projects producing the units are ready for funding.

RePlanet’s financial model is based on investors pre-financing initiatives before they generate credits. This is relatively straightforward with the established market of carbon, but less so with biodiversity.

“The demand side for biodiversity credits hasn’t quite emerged yet. But until we can get them funded they’re on pause, they won’t be generating credits,” Exton said.

Some of the projects already have historical measurements of biodiversity metrics from which they can compare uplift – meaning they can begin to take steps towards issuing credits in theory as soon as they receive funding.

However, there will be a lag from funding until the actual generation of credits because they have to show results to avoid accusations of questionable accounting, Exton said.

“I don’t see any other way of the biodiversity credit market functioning, because there’s such a poor understanding of rates of biodiversity uplift.”

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

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