Transparency, Rules, Carrots and Sticks are the Building Blocks Environmental Commodities Need to Multiply

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By Maria Bendana

How much is a Fairy Shrimp Worth?


Compared to the forest carbon markets worth a mere $150 million over a 20 year period as reported in the State of the Forest Carbon Markets report 2009--which are driven mostly by voluntary and pre compliance buyers--biodiversity markets show us how important regulatory drivers are for creating demand. Worldwide, there are close to 40 active offset or compensation programs commanding an annual market value of around $2-3 billion. In the US, wetland and conservation banking credits sell at a range of $1,500 - $300,000 per credit, trading in close to 600 mitigation banks. Who knew fairy shrimps and Delhi sand flower-loving flies could be worth between $100,000- $150,000 a credit? In addition to national regulations like the Endangered Species Act, California's Environmental Quality Act drove the creation of 82 banks in California alone. In South Africa, the National Environmental Management Act 107 of 1998 (NEMA) set the stage for offsetting. According to the report, draft guidelines have been prepared in two provinces: a Provincial Guideline on Biodiversity Offsets in Western Cape and draft biodiversity offset guidelines in KwaZulu-Natal. In addition, a national offsets framework policy is currently being drafted. One of the panelists commented, "It's just not human nature... the ability and political will to enforce is what induces the private sector to invest time and money [in biodiversity offsets or compensation]." Ben Guillon from New Forests, a timber and eco-products investment company, said that after reading the report, he is now interested in creating habitat.


A common set of rules


A common set of metrics and rules for credibility are needed for credits to be quantified, verified and traded in a regulated framework. The infrastructure needed to create credible and tradable environmental units starts with standards which set the rules for the highest performance. These rules ensure that credits are real, additional, measurable, permanent and verifiable. Documentation validators, third party verifiers and registries are also part of this infrastructure. In the carbon market, standards such as the Voluntary Carbon Standard, third party verifiers such as Tuv Sud and registries such as the Markit Environmental Registry have blazed trails. Rules create a framework that enable and leverage private and public sector investments. If there is one accountable standard it translates into one accountable and tradable credit. Biodiversity markets are early in the game in developing these pieces of market infrastructure.

Report fills knowledge gap


All the panelists agreed that the information provider role is invaluable to the marketplace and mitigation bankers were encouraged to disclose even more information. Becca Madsen noted "Transparency is pretty terrible... it takes a lot of time and effort to get what information is available."

The Holy Grail


There was also interest in how far environmental markets can take us to achieve conservation goals and how the stacking of credits could happen. Sally Collins, Director of the U.S. Department of Agriculture Office of Environmental Markets, suggested interdepartmental dialogue should occur on how to stack markets, keep environmental safeguards and address landowner needs. The Holy Grail would of course be the ability to obtain water, biodiversity and carbon credits within one project boundary. But you would need a perfect storm and sometimes it wouldn't even make environmental sense to try to layer them. For instance, mitigation and biodiversity credits might make sense in one area to offset impact locally but money might be better spent investing in producing REDD credits from a landscape with a higher deforestation threat and carbon intake.


Paradigm shift: Turning Environmental Liabilities into Ecological Assets


In addition, Michael Jenkins, President of Forest Trends--the parent organization of Ecosystem Marketplace--wondered how to take these instruments that have been created and adapt them to less regulated or unregulated markets where there is usually a lack of governance, scientific knowledge and limited capacity. He explained that the Business and Biodiversity and Offset Program (BBOP), another program of Forest Trends, reaches out to transnational companies--at times as influential as nation states -to voluntarily mitigate their impact in developing countries. BBOP is moving towards developing standards for quality offsets in these contexts and has produced guidelines for creating best practice biodiversity offsets and case studies of their pilot projects. Another example of voluntary biodiversity conservation is the BioBank in Malua, Malaysia, which was driven mainly by European demand for sustainably sourced biofuel.

Jenkins said there needs to be a paradigm shift from viewing environmental issues as a liability to a business opportunity. An environmental commodity can be a profitable unit or ecological asset instead of a burden. "Show me a map of where oil is located and you have a map of potential mitigation banks," he said.

Mitigation banking presents a lucrative opportunity, but you need to ratchet the stick.


A full year in the making and now available for download, the report is a global survey of schemes designed to preserve biodiversity by making it possible for developers to offset their damage to nature by paying for the creation and preservation of habitat.