A New Zealand study has found that a biodiversity market could be a viable, credible solution to encouraging farmers and landholders to making their business climate resilient and meeting environmental expectations, compared to traditional debt funding models.

The New Zealand government is currently consulting on whether or not to set up a voluntary biodiversity credit market, however this will likely depend on the outcome of this weekend’s national election.

Farm management advisory group Perrin Ag released a study on Tuesday appearing to support a market for biodiversity credits, saying it could be “instrumental” in helping farmers fund land-use change to meet environmental goals.

“New Zealand farmers are being prompted to diversify their farm systems to make their businesses resilient to climate change and meet environmental expectations, but funding isn’t always easy to access because the change is less financially viable or the land or enterprise doesn’t fit the traditional debt model,” Perrin AG principal consultant and report author Cara Muller said in a statement.

“Our research showed some types of land-use change were struggling to obtain the necessary funding to get them off the ground.”

The study involved conducting multiple think tank workshops, as well as one-on-one conversations with stakeholders, with participants drawn from a wide range of backgrounds to capture diverse ideas. Participants included representatives from the primary, conservation, financing, and regulation sectors.

An initial long list of potential financing solutions was drawn up, before being whittled down based on an assessment criterion. Existing national, and international funding examples were also assessed.

The report noted that many sustainable land-use practices have characteristics that are expected to lead to slow and low rates of adoption, because they offer limited relative advantage to the land owner, are capital intensive, associated with complex farm system changes, and are difficult to trial and observe.

It said that Maori face additional barriers because of the multiplicity of ownership and access to investment capital or finance.

However, the report also said there was increasing confidence in the environmental and economic spaces that Maori can lead regarding intergenerational, values-led approaches that prioritise collectives and collaboration.

Muller said that landowners needed innovative financing solutions to help them overcome barriers to diversifying their land-use, and that biodiversity credits had “real potential” to encourage them to undertake changes that are environmentally friendly.

Muller said that the primary risk of creating a public market for biodiversity credits would be around the design, longevity, and the credibility of any market and the risk of perverse outcomes if it was not well-designed.

“Examples like the carbon credit scheme through the New Zealand ETS has had success at incentivising land-use change, but the outcomes of this have been met with mixed reviews,” she said.

“It is incredibly complicated to create well-functioning public markets and there is significant work that needs to be done before this financing solution can realise its potential.”

The report said many stakeholders are currently having discussions in New Zealand about the possibility of a national biodiversity market going ahead, noting it was important the discussions cross sectors including policy, landowners, and finance.

The use of collectives was also seen to have significant potential, such as New Zealand’s successful catchment collectives, to combine projects to a scale where these are attractive to domestic and international philanthropic funders.

Other options, such as sustainability-linked loans, had potential, but faced challenges, given that they usually required farmers to cede control of their asset, the study found.

“There is not one single novel financing solution that will be suitable for all situations, but we hope our research will encourage important conversations about the potential options that might be available,” Muller said.

By Mark Tilly – mark@carbon-pulse.com

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