Can A ‘Biodiversity Market’ Help Nature? Lessons From Australia
You may have heard that biodiversity is in crisis: according to a leading report on biodiversity, the “The Economics of Biodiversity: The Dasgupta Review”, we are now witnessing the sixth great biological extinction since the beginning of life. We know things need to change urgently.
Case in point: Australia has experienced more mammal extinctions than any other continent over the past two centuries and has the second-highest level of biodiversity loss anywhere in the world. Now, it is looking to change course with an experiment in biodiversity markets–a controversial proposal in conservation and biodiversity circles.
Biodiversity markets are a new tool, designed to direct private sector funding towards projects that help protect and restore biodiversity and include mechanisms such as biodiversity offsets, biodiversity credits, certified products, eco-tourism, and air pollution markets.
Proponents argue that applying market mechanisms to biodiversity will incentivize public and private investment while providing companies involved in unavoidable environmentally damaging practices (e.g. extraction) opportunities to “even out” the damage they cause. Critics are concerned with turning nature into a commodity and question whether trying to fit something as complex as biodiversity into a relatively simplified economic model can be done without compromising nature. The loopholes companies have found in carbon offset schemes are further cause for concern.
Australia is taking the idea of biodiversity markets a step further, with the launch of the world’s first government-regulated voluntary biodiversity credits market, the Nature Repair Market, expected in January 2025. Developments in Australia are being followed closely worldwide. The country’s biodiversity crisis reflects a global crisis; wild mammals now make up only 4% of the world’s total mammal populations. Extinction rates currently surpass those leading up to the historical five mass extinction events.
Professor Brendan Wintle, director of the Melbourne Biodiversity Institute and lead councilor of Australia’s Biodiversity Council, spoke to the Tyler Prize about the pros and cons of market mechanisms at a decisive moment for Australia’s threatened biodiversity.
Biodiversity credits are said to be tradable units representing conservation actions that contribute to biodiversity, which is not an easy concept to follow. Can you explain the mechanism of biodiversity credits in a more accessible or easy-to-understand way?
A biodiversity market is a little bit like a carbon market, where you can somehow either prevent the emission of carbon or prevent the loss of carbon into the atmosphere, or sequester carbon into the biosphere, using tree planting or some other methods. And so the Australian government is trying to create a similar trading scheme for nature, in which individual landowners, for example, can try and restore nature back onto their land. In addition to a pat on the back, now they’ll also get what’s called a biodiversity credit. So if someone assesses that they have actually done enough to bring nature back onto their lands, then they’ll get a unit of biodiversity credit, which then, if they want to, they could sell to another organization like a large, let’s say, travel company like Qantas, or something that has a high environmental footprint. Qantas might buy biodiversity credits to try and offset damage that they do to nature in their actions or their activities.
Doesn’t that just encourage greenwashing for the bad actors that are out there?
I guess the more nuanced way of thinking about that is that there are some activities that companies are doing that are causing harm to nature that should just be stopped with strong laws. And so our argument is, if you stop those egregious biodiversity impacts on nature through stronger laws, then that will mean that the worst of the nature crimes, if you like, are dealt with.
And then perhaps it’s reasonable to get companies thinking about, for example, their supply chain. So if you’re a construction company, and you buy cement, or you buy steel or wood, then the production of those commodities might have impacts on nature that are, from the perspective of that company, unavoidable. There might not be any type of steel or concrete that you can buy that actually has zero nature footprint, because they all involve extraction of various things like sand and lime, and some kind of land use impact.
And so, as a society, we have to decide whether we consider that a reasonable position– that there are growing populations, we need to house people, so we’re going to allow them to continue to have some environmental damage by building cities or building roads and transport or building renewable energy networks, but we would like them to offset some of those unavoidable impacts using something like a biodiversity credit.
And so it becomes quite a technical argument because we would argue, offsets are dangerous …for example, we don’t want this nature market to be used to provide credits that offset environmental damage that is illegal or that should be prevented through environmental laws. But we would argue that maybe it’s reasonable that people can use these biodiversity credits to potentially offset some unavoidable impacts that they might have in their supply chain.
So that then creates a situation where we need a body to essentially judge what is a reasonable use of these credits. What constitutes greenwashing versus what’s a legitimate endeavor to try and reconcile some of the potentially unavoidable damage that you do?
So this is where a scheme like this really requires very strong governance, really strong evidence-based advice about, first of all, what is a legitimate activity that should be able to allow you to be able to accrue a biodiversity credit? What’s the measurement that’s required in order to ensure that that credit has actually been accrued? What’s the recourse if somebody accrues a credit, but then clears the land, or does something to impact on that credit? How do we guard against that, through regulations, and what’s a legitimate activity that you could rightly say is offsettable with a biodiversity credit? You know, we’re having those arguments here in Australia at the moment about what is allowed and not allowed.
What’s your view on the international panorama when it comes to diversity credits, on how that’s being handled in Europe in the US?
The only things that I’ve seen globally that are similar are offset schemes…I’m not convinced that they are a good model. I think the first thing that we would need to see globally is very strong standards being developed around the oversight and governance of markets. I think it’s inevitable that markets need to be managed at a jurisdictional level, by countries, because it’s very hard to have an international organization determining what’s allowable in terms of environmental management in a country, in a sovereign nation.
But what we have seen in other instances, like the certification of sustainable forest products, for example, the Forest Stewardship Council has standards, ISO [International Organization for Standardization] standards, [an] accreditation system that is globally recognized and globally standardized. And so I think there’s no reason why we couldn’t have a credits market that has some kind of oversight by a standards-making organization and draws its mandate, and the rules and standards that it would apply, from global agreements like the Global Biodiversity Framework, or, you know, something at the next level down that would set up specific, internationally agreed principles for the establishment of biodiversity markets or credits.
As far as I understand, the credits are linked to the idea of “no net loss” [meaning an environmental impact is successfully offset such that nature experiences no overall loss or damage]. Is there any consensus as to what exactly constitutes no net loss?
There’s probably not consensus; I think there are some reasonable measures of loss and net loss, and then how that could be compensated through some sort of restoration-type action. … But the measures that you would use for determining how much loss has been incurred, and therefore what you might need to do to offset that loss to create no net loss–in different levels of development in different countries, different places [is more complex]…
You know, nature is multi-dimensional. Any particular place–and the condition of that place, if you like–is determined by the abundance or relative abundance of hundreds, or even thousands, of different species. One ecosystem is very different to another ecosystem. So there’s a lot of complexity and a lot of challenge in the measurement of nature.
Can something as multifaceted as biodiversity or conservation really be reduced to a market value? Is it realistic?
We will never create perfect measures that perfectly reflect the state of nature, and of course, to some extent, it’s also values-based…It’s very complex but
I think we need to use all of the mechanisms, all of the approaches that we have available to us to try and encourage more awareness by individuals, by society and by private businesses of what nature is, and how their actions impact on it, and how they depend on nature so critically. And one of those mechanisms, I think, is market-based approaches. I also would say, at this stage, they’re probably second to just good laws that prevent damage to biodiversity in nature…
We have to just do them as well as we can possibly do them; it will never be perfect.
I think it’s reasonable for us to imagine that we could come up with measures of nature, at least within sort of broad ecosystem types that reflect the condition of a place…. It’s not easy. But you can measure the faunal associations that we expect: are they there, are they not? And also how many invasive species might be there, and that sort of thing. So to some extent we can count and measure most of those attributes, and we can come up with measures of condition. We have already done that and provide these imperfect measures of the state of particular types of ecosystems, and then [we can] use them in an imperfect trading scheme to encourage people to move things from this highly degraded state to this much better condition. …
I think that there are a number of concerns that people rightly hold about the monetization or metricization of nature. I absolutely understand those concerns. And this approach to monetizing, metricizing, and trading is not a panacea at all. It’s just one of the many tools in our toolkit that we have to try and bring some extra effort behind conserving nature. So that tool, combined with programs that educate people, that motivate people, good laws–the [full] suite of tools that we have in our toolkit have to be applied, and measurement markets are just one of them, one family of tools.
What, in your view, is the greatest strength and the greatest weakness of the biodiversity credit mechanism?
The greatest strength is that it potentially drives businesses that create some damage in nature to invest in the restoration and preservation of nature. It provides a market motivation and mechanism to increase positive actions towards improving outcomes for nature. That’s the biggest strength, and at present there’s not much motivation to do that for businesses. All businesses need to do is comply by the law, and then pretty much anything else goes. They can say whatever they like; they can do whatever they like. They can tell stories about things that they might be doing that are good for nature, and that’s usually greenwashing. If we get this right, then we potentially bring some extra rigor and extra scrutiny to some of those claims, and we also potentially motivate people to do more nature-positive things. So to me, those are the combined strengths.
The weakness, of course, is that if you have a poorly structured market, then you’re essentially setting up a vehicle for greenwashing. If you allow the market to effectively offset every kind of damage, then you’re essentially facilitating damage. You’re allowing people to do good things with their left hand, and their right hand is covered in blood, and we can’t allow that to happen. And so to me, this is about getting the governance right, getting the laws right. So that there’s constraints, there’s clear boundaries around what you’re allowed to do in terms of damage to nature, what you’re not allowed to do, and what’s tradable in the market. The biggest risk is that it basically facilitates damage. It prevents people from innovating to actually have lower environmental damage, or, of course, have lower environmental harm. And it provides the opportunity for people to appear to be nature-positive when, in fact, they’re still doing a lot of damage.
Note: This Q&A has been edited from its original length for concision and clarity.