Biodiversity offsetting works to offset the environmental consequences of construction projects, typically through habitat restoration, land management, or establishing new protected areas. Offsetting is considered the final stage in a mitigation hierarchy. This hierarchy works to see biodiversity impacts first avoided, then minimized, and finally reversed by developers where possible, before remaining impacts are offset. By this hierarchy, it is often concluded that biodiversity offsetting is only appropriate for projects that have previously applied the mitigation hierarchy and many prevention and mitigation measures have already been implemented.
In biodiversity offsetting, there is the possibility for the representation of ecological gains and losses through numerical scores, which sets the base for the creation and exchange of conservation credits.
The idea of biodiversity offsetting, which has also been called compensatory mitigation, mitigation banking, or compensatory habitat, was realized in the late 1980s. However, the scheme was developed and experimented with in the early 1970s in the United States with environmental policy that sought to use the market rather than regulation and laws to achieve environmental goals. In the US, commercial wetland mitigation banking, involving free market in wetland ecosystem services, developed from 1991, and species banking expanded at a similar period driven by the Endangered Species Act. Biodiversity offsetting is also considered a part of shifting the way people think about nonhuman nature and how to appropriately economically value ecosystem services and "natural" capital.
Part of the goal of biodiversity offsetting is to achieve a principle of "No Net Loss" (NNL), and the measures taken in biodiversity offsetting are aimed at achieving NNL rather than achieving a net gain of biodiversity. However, the mitigation hierarchy and NNL is a heuristic decision with no clear rule or standard on how to achieve NNL or the necessary amount of avoidance and minimization before offsetting is necessary.
Example of the NNL framework for biodiversity offset action.
The available evidence, which can be difficult to properly calculate and can be largely subjective, suggests mixed results in terms of environmental effectiveness of existing biodiversity schemes. This is considered by some to be due not to the instrument of biodiversity offsetting, but to the design and implementation of schemes in practice. These programs have mobilized between USD$2.4 billion and USD$4 billion in 2011.
Types of biodiversity offsets
In some cases, adverse impacts to biodiversity cannot be fully compensated. This can be because affected biodiversity can be irreplaceable or vulnerable, without available offset sites, or without conservation approaches to achieve the offset outcomes required. Establishing thresholds for biodiversity impacts is a fundamental environmental safeguard, and further design and implementation features can increase the ability for offsets to be effective.
Design and implementation features of biodiversity offset programs
Market-based instruments (MBIs) for environmental protection are a broad class of policy tools intended to motivate voluntary, environmentally-beneficial behavior through the use of price signals. MBIs are intended to appeal to an individual decision-maker's self-interest to motivate behavior in the common interest. The fundamental concept of MBIs, "externalities," has been recognized in economics as a voluntary transaction between two economic actors (which can include companies, individuals, unions, and governments) and may produce effects beyond the parties included. The effects are external to the consideration of the parties as they are not responsible for them and they have no motivation to minimize negative externalities.
Biodiversity offset programs
Biodiversity banking, also known as biodiversity trading, conservation banking, and biodiversity mitigation banking, makes it possible for developers to turn biodiversity into an asset rather than a liability and works to help preserve biodiversity. The schema of biodiversity banking is also an attempt to factor biodiversity, ecosystems, and species into the economic system, and a part of economic decisions. Australia, Brazil, and the United States have experimented with biodiversity banking schemes. These countries have used specific mechanisms to give value to the ecosystems.
Biodiversity banking is a hybrid system between government regulation and voluntary diversity offsets, which follows a cap-and-trade scheme similar to those used for sulfur dioxide and greenhouse gas emissions used in the United States and Europe, respectively. These systems work to take the responsibility and liability for execution from a developer and place it into the hands of an organization that is intended to be capable of biodiversity offsetting. In most of the cap-and-trade systems, governments set prices, either through the perception of cost or through the real costs of a creation of new biodiversity lands.
In well-developed biodiversity banking schemes, there are mechanisms in which biodiversity offset credits are purchased before the start of operations through a conservation bank, which can either be public or private, depending on the country. The sale of these conservation credits or biodiversity offset credits are then used by the regulatory body to increase biodiversity in applicable areas.
There are concerns over some of the biodiversity offsetting schemes and whether they are as effective as they are considered. A lot of expressed concerns surround the lack of clear rules in areas for how much effort a business or other developer must spend on impact avoidance and local minimization before offsetting. The decision making around the necessary measures for biodiversity offsetting is a subjective process, with measurements of everything having to be taken, and different evaluations and considerations of value made. There is no way to accurately measure for the loss of species based on hectares of land, and because the losses cannot be calculated or predicted accurately, when the diversity is offset there are no clear ways to gauge success.
Furthermore, the definition for NNL is not clear. Gains are counted in relation to a reference scenario that can be generated and used in various ways. But, without a clear understanding of NNL, it is undefined if the principle of NNL is to count for 100 percent of all features or an improvement beyond those original features, or if achieving 50 percent of all features and species and a failure of the other 50 percent of features and species still works in the spirit of NNL.
Even when offsetting is being done, if the offset design is inappropriate the implementation can fail. A study in Australia found that less than 37 percent of offsets led to any offset actions, implying failure in two-thirds of cases. In Canada, an evaluation of 558 projects in wetland environments during 1990 to 2011 found 99 percent net loss of ecological values. In many of these projects, the avoided loss baselines were shown to be false assumptions, and one study found the baseline declines had been estimated five times steeper than plausible based on scientific evaluation. As well, projects in France and England, deployment of biodiversity offsetting projects have been difficult and politically contentious.
Other possible negative effects, even in the success of biodiversity offsetting, can include:
- Reduced voluntary nature conservation
- False public confidence in biodiversity offsets
- Replacement of other mechanisms of nature conservation when market-based mechanisms take hold
- Utilitarian ethics replacing ethical-moral arguments in relationship between people and nature
- Rights of species becoming reduced
- Reduced importance given to place-based value
- Financialization of nature bringing significant, but difficult to evaluate, long-term risks
- Potential for fraud that is greater than usual in the context of the biodiversity offset business as poor measurability, difficulty of monitoring, and potentially large monetary interest might attract fraudulent activity
- Use of inexpensive partial compensation to benefit (greenwash) the image of a business
- Overall economic activity increase and indirect environmental damage through the lifecycle of a product potentially not being accounted for in offsetting
