What are biodiversity credits?

Biodiversity credits are a market-based approach to conservation, akin to carbon credits for climate change. They assign a measurable value to efforts that preserve, restore, or enhance biodiversity. Credits are earned based on positive impacts, such as habitat improvement, and can be traded in a market.

This system employs a clear basket of metrics, making the valuation and impact of these credits transparent and quantifiable. Such metrics may include species diversity, habitat connectivity, and ecosystem resilience, among others. This transparency ensures that stakeholders can accurately assess the conservation value and effectiveness of their investments or activities.

How do biodiversity credits from carbon credits?

Biodiversity credits aim to preserve and restore biodiversity, measuring success in terms of species, habitat, and ecosystem integrity. They primarily serve contributions toward conservation, with a strong focus on community involvement at a higher local level. These credits have lower tradeability and liquidity, as their purpose is centered on local initiatives, with more comprehensive monitoring, reporting, and verification (MRV) processes. Implementation costs are higher due to the emphasis on biodiversity preservation.

In contrast, carbon credits focus on carbon sequestration and emission avoidance, measured in tCO2e. Primarily used for offsetting, carbon credits have a lower community and local emphasis, allowing for higher tradeability and liquidity. The MRV processes are less comprehensive, resulting in lower implementation costs for carbon credit initiatives.

Type

Biodiversity Credits

Carbon Credits

Aim

Biodiversity preservation & restoration

Carbon sequestration & emission avoidance

Measurement

Species, Habitat, Ecosystem integrity

tCO2e

Usage

Mainly for contributions

Mainly for offsetting

Community Focus

High

Lower

Locality

High

Lower

Tradeability

Lower

Higher

Liquidity

Lower

Higher

Monitoring, reporting and verification (MRV)

Very comprehensive

Less comprehensive

Impelmentation costs

High

Lower

Biodiversity credits are gaining traction due to increased corporate sustainability goals, regulatory requirements, financial incentives for landowners, and a growing awareness of the importance of biodiversity. The integration into ecosystem services markets, collaborative efforts among stakeholders, and advancements in measurement technologies also contribute to the rising popularity of biodiversity credits as a tool for conservation.

Why biodiversity credits?

Recognizing the importance of biodiversity and the urgent need for action, global efforts to address the funding gap are gaining momentum. The World Economic Forum's New Nature Economy Report 2020 revealed that over 50% of global GDP is 'moderately or highly dependent' on nature and ecosystem services. This underscores the economic significance of preserving biodiversity for the environment's sake and sustaining various industries and livelihoods.

The Paulson Institute has highlighted a biodiversity financing gap of USD 700 billion, urging capital markets to play a crucial role in addressing this shortfall. The call for increased investment is echoed by the World Bank, which warns that inaction could collapse ecosystem services, leading to annual losses of USD 2.7 trillion by 2030. This financial risk threatens the natural world and directly challenges global economic stability.

Biodiversity credits serve as a valuable mechanism to address biodiversity loss by providing financial incentives for businesses, landowners, and individuals to engage in conservation practices. This market-based approach encourages sustainable development by allowing developers to offset their ecological impact through investments in conservation projects, fostering collaboration between private entities, conservation organizations, and government agencies. The credits system promotes habitat restoration, supports measurable conservation efforts, and values ecosystem services, contributing to the preservation of critical biodiversity hotspots. While offering flexibility in compliance with regulations, it is crucial to ensure that biodiversity credits lead to a net positive impact and avoid the risk of greenwashing. Effective implementation, transparency, and ongoing monitoring are essential for realizing the full potential of biodiversity credits in the global effort to mitigate biodiversity loss.