Biodiversity Credits
Understanding the true value of biodiversity and accurately representing this value within market systems is a challenge which is greatly debated. Pollution and other environmental degradation have historically been regarded as negative externalities in the market system, representing aspects which are not accounted for by the market price of goods and services.
However, this could soon change as we see the emergence of biodiversity credits. Biodiversity credits have generated significant interest in recent years, with this trend only expected to continue as we move into the future. The purpose of biodiversity credits is to attach an economic value to the preservation or restoration of ecosystems. This can be achieved through the monitoring of key biodiversity characteristics such as species richness and abundance in accordance with vigorous scientific methodologies which permits the creation of tradeable units.
Just how biodiversity credits may work is still being discussed, with suggestions for operation on a voluntary basis, underpinned by supply and demand. Others suggest that more stringent measures such as policy and legislation may be required for biodiversity credits to function
Nature markets comprise large, mature markets such as agricultural commodities, as well as emerging markets such as biodiversity credits. These markets are worth a total of $9.8 trillion, equivalent to 10% of global GDP, yet the true value of nature remains critically undervalued in these markets. Where biodiversity credits can be implemented correctly, investments in these markets will contribute significantly to closing the estimated financing gap of between $598-824 billion per year by 2030, required to tackle global biodiversity loss.
Biodiversity credits are already being purchased by companies and organisations to achieve their mandatory commitments, such as new Biodiversity Net Gain requirements which will become a legal requirement alongside development projects in England from November 2023. Not only this, but it is also hoped that businesses will use biodiversity credits to meet voluntary commitments to conservation and nature enhancement.
While a promising advancement for including the value of nature within the market, there remain some unanswered questions.
How do we mitigate the risks associated with greenwashing?
Where should the money generated from the sale of biodiversity credits be used?
Who is responsible for the validation and distribution of biodiversity credits?
How do we attach a monetary value to something which is 'invaluable'?
With continued collaboration between policymakers and key stakeholders, it is hoped that these questions can be addressed to unlock the full market potential of using biodiversity credits to conserve and enhance nature.