Significant potential for a biodiversity credit system

At any time, across the various ministries and agencies in Aotearoa New Zealand, there are a multitude of consultations and open submissions, not to mention Bills, progressing through Parliament. Among these is a discussion document that has the potential to change the path of environmental recovery in Aotearoa New Zealand; establishing a biodiversity credit system. Biodiversity credits are defined as a legal instrument that represents environmental actions or outcomes that people and organisations can choose to finance. Credit purchasers can claim credit for their contribution to nature-positive actions and outcomes related to the protection, restoration, and enhancement of indigenous biodiversity on public and private land. Biodiversity credits are one tool in the toolkit for funding green initiatives. Other tools include charitable funding, impact investing, sustainability loans, green bonds, levy funding, and government grants.  

One of the key problems facing biodiversity is that native biodiversity has not been valued properly by industrial markets. This is despite the fact that every business and economy in the world depends on resources drawn from nature, whether directly or indirectly. It has been estimated that by 2030, $2.7 trillion of global GDP will be lost annually due to the loss of natural resources. More than half (52 percent) of the world’s agricultural land is already degraded, and further degradation will reduce food productivity to unsustainable levels. The impact of natural disasters is more severe when indigenous forest and marine life have been cleared or depleted in favour of monoculture or polluting industries. 

Aotearoa New Zealand’s tourism industry relies on the country’s natural beauty to attract visitors, and the prominence of nature in our lauded ‘clean green’ reputation is vital for attracting trade premiums. Natural biodiversity in forests, rivers, oceans, and mountains also sequesters emissions and improves water quality. This supports the notion that indigenous biodiversity is a taonga that should be protected for the well-being of future generations. Similar to emissions, restoring biodiversity is crucial. A market mechanism, such as biodiversity credits, could unlock the capital required for restoration and protection activities. 

Statistics New Zealand has estimated that around $2.2 billion was spent by central and local government in 2021 on environmental protection. This spending has been steadily increasing since 2010, as shown in Figure 1, and will continue to increase. This will place further burdens on the budgets of local and central government, and will be passed on to the public through taxes and rates. Bringing private capital into efforts to restore and protect biodiversity is absolutely necessary. 

A biodiversity credit system would have some key differences from the Emissions Trading Scheme (ETS), the market mechanism for reducing national greenhouse gas emissions. The first and most important difference is that ‘offsetting’ logic would not apply to biodiversity credits. Emissions do not recognise boundaries and borders, and can be equivalised by comparing a gas to carbon (e.g., methane emissions are measured in carbon equivalent units). The ETS applies a price to emissions, and funds emissions removal (such as forestry). Because of this, an emitter may offset their contribution to climate change by purchasing ETS units. 

Restoring and maintaining ecosystems does not have a clear-cut unit of measurement. Ecosystem restoration programmes are restrained by area and can take a long time to show evidence of impact. A credit system, however, could encourage innovation that would address these constraints. Community-based credit schemes, such as the East Coast Exchange, are promising and show that there is demand for fair compensation for the effort put in by communities towards an area’s well-being, including restoring biodiversity. 

The focus on net rather than gross emissions has been at the core of the ongoing debate about the effectiveness of the ETS. A national biodiversity credit system would not allow an organisation to clear native forest, and then offset this behaviour by investing in indigenous planting activities somewhere else. When clearing indigenous biodiversity is unavoidable, in special cases, a separate biodiversity offset requirement would require that the party pay for the restoration of biodiversity somewhere else in an arrangement with the government. This would mean that a credit system that encourages biodiversity restoration would be a market mechanism, and a biodiversity offset requirement would be a separate regulatory mechanism. This would help to avoid the potential pitfall of industries aiming for ‘net’ biodiversity. 

Relying on a market opens any mechanism to the uncertainty of human behaviour and the incentive to maximise profits. Greenwashing, where an organisation or business promotes itself as sustainable when it is not, has been a common market phenomenon that erodes sustainability claims. Because market mechanisms rely on trust, greenwashing in a biodiversity system would be disastrous. Verifying biodiversity activities, and their impacts, will be crucial to ensuring trust in the system and in participating organisations. The fact that greenwashing exists also indicates that businesses and organisations value being perceived as environmentally responsible. A biodiversity credit system would add value to businesses and financiers wanting to credibly integrate biodiversity into their operations, while also delivering capital to the programmes that are restoring and protecting our precious biodiversity.