Can monetising nature help repair it?

Two weeks ago, US airline Delta was hit with a whopping class-action lawsuit. In the suit, law firm Haderlein and Kouyoumdjian LLP alleged that Delta’s claim of being the “first carbon neutral airline” is “false and misleading”.

The argument hinges on carbon offsets, which the case cites as deeply flawed.

Despite successive blows to their integrity, offsets of all kinds keep rallying. At COP28 in December this year, the first Global Stocktake – an assessment of how well countries around the world are meeting their Paris Agreement targets – will likely reveal some inconvenient truths about the world’s progress to Net Zero. In that race, “the market” is increasingly seen as a necessary ally for repairing climate and environmental damage.

Australia’s Labor government want to introduce a voluntary biodiversity market – the Nature Repair Market – that could enable companies to trade biodiversity much like they trade carbon.

Announced in August last year, the scheme would look something like this: a landholder can conduct nature repair on a plot of land by, to use the Department of Climate Change, Energy, the Environment and Water’s (DCCEEW) examples, restoring or improving native vegetation through fencing and weeding, planting a new mix of local native species, or protecting rare grasslands.

Australia’s Labor government want to introduce a voluntary biodiversity market – the Nature Repair Market – that could enable companies to trade biodiversity much like they trade carbon.

For each project, a single tradeable certificate will be issued, which can be sold to buyers under commercial contracts. Buyers might be corporations looking to fulfil their ESG responsibilities or developers who aren’t able to preserve biodiversity onsite.

The first biodiversity markets were set up in the US in the 1980s to mitigate the degradation of wetlands, explains Dr Felicity Deane, an associate professor in Law at Queensland University of Technology who has written extensively on emissions trading.

Deane says California’s conservation banking scheme in particular has been signalled as a success story for local and habitat-specific biodiversity credit trading.

But the proposal has raised alarm bells among experts.

“I think as a way to bring more investment into the nature market, it’s good,” says Professor David Lindenmayer, a forest ecologist and conservation scientist at the Australian National University.

But, he says, “most offsets are not viable, most offsets are greenwashing. And that needs to be sorted out”.

“If this changes the current trajectory, if it supports more accountability and supports genuine conservation projects, then it could be a very good thing.”

Felicity Deane

“I think it’s based on false premises,” says Dr Yung En Chee, a quantitative ecologist and senior research fellow in the School of Agriculture, Food and Ecosystem Sciences at the University of Melbourne. “There’s a history of these types of markets, and from that history there’s no evidence so far that they deliver environmental outcomes.”

Part of Chee’s concern is the risk of the market doing more harm than good. Biodiversity markets tend to be based on a principle of no net loss of biodiversity – good markets hope to achieve overall net gain.

But Chee says the literature shows that biodiversity markets around the world are not even meeting their minimum threshold of success.

“In most cases, we’re not even meeting no net loss,” she says. And that’s not new news: “I think we’ve known this since at least 2009.”

That’s when a landmark study by Kiwi researchers, titled Why bartering biodiversity fails, was published in Conservation Letters. That study, which assessed biodiversity trading schemes around the world, found that net gain through these schemes was not plausible.

There are two such schemes operating in Australia already, in New South Wales and Victoria. Both have been plagued with questions of poor effectiveness.

“A common way in which you estimate biodiversity protection is what’s called avoided loss,” she says. “So, instead of being cleared or degraded that degradation is avoided.

“What these investigations have found, including a recent study with the Victorian Government, is that it’s actually really difficult to demonstrate that counterfactual.

“In many cases, what was protected was never at threat.”

Despite concerns, biodiversity markets are high on the international agenda. The UN officially included biodiversity offsets in its new Global Biodiversity Framework at the COP15 biodiversity conference in 2022, and the European Commission has floated the prospect of such a market for more than a decade.

“In many cases, what was protected was never at threat.”

Yung En Chee

The UK is set to institute a compulsory scheme from November this year. Under that scheme, developers will have to prove they’ve either made a 110% improvement to a site, or they’ll have to purchase credits generated by landowners improving biodiversity elsewhere.

Lindenmayer is cautiously optimistic: he says that such a scheme could be run successfully provided monitoring is done by independent experts.

“In the case of the Victorian forests, there’s been lots of discussion around biodiversity credits,” he says. “You can only justify that if there was a demonstrable improvement in biodiversity.

“You need to have both cross-sectional and longitudinal studies to really get a handle on what’s happening,” he explains. “Independence is critical here, because there’s a lot of technical skill involved.”

Frederic Hache, co-founder of the Green Finance Observatory and former investment banker, is less convinced. 

“The science of recreation is in its infancy, and we have incomplete scientific knowledge of ecosystems,” Hache says. “That explains why the track record of biodiversity offset projects is so appalling – between half and three quarters of all projects fail.”

“You need to have both cross-sectional and longitudinal studies to really get a handle on what’s happening.”

David Lindenmayer

The question of demand for credits is heavily implicated in Labor’s new plan, with the government insisting businesses want to invest in nature voluntarily.

“Businesses tell me all the time that they want to invest in nature because their shareholders, customers and staff are demanding it,” environment and water minister Tanya Plibersek said in a speech last year, in which she said she hoped Australia could one day become a “green Wall Street”.

But as Lindenmayer and Chee point out, while the scheme won’t only be used for offsets they’re likely to make up a reasonable portion of the end users.

Deane says that demand is hard to picture without offsetting.

“Demand for a ‘biodiversity unit or certificate’ is not something that will occur without regulation,” she says. “Therefore, the regulation that supports demand could potentially be the problematic aspect as the certificates or units could be applied to ‘offset’ projects that perhaps should never be approved.”

Then there’s the problem of longevity. Deane says the scheme must include a “permanence requirement,” and that permanence must be tied to the land preserved – otherwise, the land preserved to produce a credit could one day be degraded, and the biodiversity simply offset to yet another ecosystem.

“If these certificates are being used to offset projects (and it is difficult to see where else the demand will come from without it) then the project it is offsetting will have modified an area permanently,” she says. “This means the certificate must be accompanied by a registration on the title of the land in question.”

But can a market ever quantify nature?

“When you look at biodiversity, you have millions of species and a complex web of interdependencies, so obviously standardising it into a few assets is incomparably more difficult, and creates infinitely worse environmental integrity issues.”

Frederic Hache

For Hache, the answer is clear. Classically, biodiversity markets used to operate on a requirement to restore the same habitat that’s been destroyed somewhere within ten kilometres of the original site.

“But the biodiversity offsetting that is gaining a lot of traction is called ‘like for like or better’, and you need to compensate somewhere in the country, or somewhere in the world, and not necessarily by restoring the same habitat but by an ecosystem service of equivalent monetary value,” Hache explains.

“Of course, this has absolutely zero environmental integrity.”

Hache compares it to greenhouse gases. There are six problematic greenhouse gases, but the carbon market runs on equivalencies of just one – carbon dioxide (CO2).

“When you look at biodiversity, you have millions of species and a complex web of interdependencies, so obviously standardising it into a few assets is incomparably more difficult, and creates infinitely worse environmental integrity issues,” he says.

The 2021 State of the Environment report found that most indicators of the state and trend of plants and animals showed decline.

“We need stronger laws and we need serious funding. I don’t accept that the scale of investment is beyond government.”

Yung En Chee

In the five-year period between 2016 and 2021, 202 animal and plant species were listed as threatened, up from 175 in the preceding five-year period. Australia has lost more mammal species than any other continent.

“If this changes the current trajectory, if it supports more accountability and supports genuine conservation projects, then it could be a very good thing,” says Deane.

Part of the justification for nature repair markets is that the scale of investment needed to reverse precipitous biodiversity loss is beyond the realm of governments to provide. But Chee is unconvinced, and thinks the Federal Government would be better off introducing stringent biodiversity regulations.

“We need stronger laws and we need serious funding,” she says. “I don’t accept that the scale of investment is beyond government.”

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