Incentivising biodiversity net gain with an offset market

Abstract

Most programmes which incentivise the supply of public goods such as biodiversity conservation on private land in Europe are financed through the public purse. However, new ideas for how to fund biodiversity conservation are urgently needed, given recent reviews of the poor state of global biodiversity. In this paper, we investigate the use of private funding for biodiversity conservation through an offset market. The environmental objective is to increase some measure of biodiversity in a region (‘net gain’) despite the loss of land for new housing. Farmers create biodiversity credits by changing their land management, then sell these credits to housing developers who are required to more-than offset the impacts of new housing development on a specific indicator of biodiversity. Combining an economic model of market operation with an ecological model linking land management to bird populations, we examine the operation, costs and biodiversity impacts of such a (hypothetical) market as the target level of net gain is increased. A general result is established for the impacts on price and quantity in the offset market as the net gain target is made more ambitious. For a case study site in Scotland, we find that as the net gain target is increased, the number of offsets traded in equilibrium falls, as does the market clearing offset price. Changes in the spatial pattern of gains and losses in our biodiversity index also occur as the net gain target is raised.

Ecological and economic implications of alternative metrics in biodiversity offset markets

“…For example, as Simpson et al. ( 2021 ) show, increasing a net gain requirement on developers results in fewer landowners choosing to supply offsets and thus less land converted to conservation.…”

“…We focused first on an offset policy that aimed to secure no net loss of a specified habitat (our approach could also be applied to a net gain policy [Simpson et al., 2021 ]). Developers must purchase credits equal to the number of hectares of habitat lost due to development.…”

Aligning ecological compensation policies with the Post‐2020 Global Biodiversity Framework to achieve real net gain in biodiversity

“…It does, however, require absolute gains from compensatory actions (Andreadakis et al, 2021). However, the question of "how much" gain should be provided for a given loss remains a key challenge in ecological compensation policy and practice (Bull & Brownlie, 2017;Moilanen & Kotiaho, 2020;Simmonds et al, 2020;Simpson et al, 2021;Weissgerber et al, 2019).…”

Unlocking the potential of private finance for forest and landscape restoration

“…Policy mechanisms similar to the feed-in tariffs for renewable energy 39 can provide long-term price certainty and cost guarantee for actors developing quanti cation systems and restoration bene t markets. Regulatory establishment of markets with a cap-and-trade system for biodiversity offsets can increase momentum around restoration projects with stronger biodiversity pro les 40 .…”