Biodiversity in Carbon and Biodiversity Credit Markets

Tomorrow is the Day for Biological Diversity.? I wanted to celebrate this day by offering my thoughts on why biodiversity considerations are essential for carbon credit generating projects, especially Nature-based Solutions (NbS). I also share my thoughts on the necessity of developing a Biodiversity Credit market.

Executive Summary

• The most impactful NbS carbon credits offer a vital income stream for nature conservation projects that would not otherwise be sustained. They have so far been one of the most viable market-based solutions for conservation.
• A focus on ensuring biodiversity in a carbon credit project can improve the amount of credits generated from restoring habits that can sequester more carbon and/or improving soil fertility simply by the right choice of species to plant. These projects often, rightfully, attract a premium over other carbon credits. Conversely, there are situations where there is no symbiotic relationship between biodiversity and carbon sequestration. I often use the example of planting monoculture forestry. A significant challenge for Afforestation and Reforestation (ARR) projects is that the majority of credits available today are from plantations. Carbon prices haven’t been sufficient to finance the true costs of biodiverse planting.? In such cases, let’s not solve the problem of climate change at the cost of the equally important biodiversity issues we are facing
• Today’s methodologies do not directly measure the impact of a rich ecosystem of trees and wildlife. Early studies suggest that the introduction of large mammals have not yet turned into direct the ability to claim carbon credits, despite evidence of their positive impact on fauna’s ability to absorb carbon or as carbon sinks themselves. New carbon credit methodologies such as those from Social Carbon focus specifically on the conservation of areas of biodiversity importance.
• The problem with treating biodiversity as a co-benefit of carbon credits is at least two-fold. Firstly, the anthropogenic and intrinsic value of nature is not reflected in the price premium. Additionally, buyers of carbon credits are still most often those that emit greenhouse gases.? In a future where we have reached net zero, we need another mechanism to incentivise the preservation and expansion of areas of high biodiversity. That said, we must not wait to act – we need to incentivise biodiversity conservation now.
• It is worth noting that a project can be rich in biodiversity without having high potential for carbon sequestration. Projects that introduce new predators to complete the ecosystem’s viability is but one example.
• Biodiversity credits are one market mechanism that could create the same incentives that carbon credits have for carbon sequestration. The market however is very nascent and without the right incentive structures to attract buyers, it may be a few years away from realising its potential. The Taskforce on Nature-related Financial Disclosures (TNFD) and the concept of Net Nature Positive are some of drivers which many hope can help to create the right incentives, but I favour regulatory incentives or penalties as I do for the carbon markets.
• And finally, we (in the “Global North”) can never expect communities to care as much about nature as we want them to when they have much more basic socioeconomic problems to deal with. I call that “Living in Maslow’s Penthouse” – we cannot expect others to have the same priorities and we do. If we want to preserve nature far outside our own countries, we have to pay for it.

The power of NbS carbon credit projects in biodiversity

Biodiversity and carbon sequestration often share a symbiotic relationship. Diverse ecosystems, whether forests, wetlands, grasslands or marine, tend to be more productive, resilient and effective in sequestering carbon.

Forests contain 60,000 different tree species, 80% of amphibian species, 75% of bird species, and 68% of the world's mammal species . It is therefore not difficult to see their immediate impact on biodiversity. Similarly, blue carbon solutions store carbon in the world’s coastal and marine ecosystems such as mangroves, saltmarshes and seagrasses while enhancing biodiversity in these habitats. Deep sea carbon credit methodologies focusing on biodiversity in oceans have yet to find prevalence, in part because they are less studied, are not within any national jurisdiction and are expensive .

There are several examples of carbon credit projects that benefit biodiversity. Take for example the Kasigau Corridor REDD+ Project, which is protecting over 200,000 hectares of dryland forest with over 11,000 wild elephants living in the ecosystem ; as well as the reforestation projects developed by re.green , which use exclusively native species and have produced more than a thousand types of Brazilian seeds. Despite these successes, it remains hard to measure and compare the impact on biodiversity per carbon credits across projects. ?That means that it is harder for buyers of carbon credits to determine where do they get most “biodiversity value” for their money.?

Conversely, other carbon credit projects such as those related to planting of mono-culture forest or the development of renewable energy can have a negative impact on nature and biodiversity if incorrectly implemented. This is a topic for my article Can Carbon Credits Promote Welfare for Domesticated and Wild Animals . ??A significant challenge for Afforestation and Reforestation (ARR) projects is that the majority of credits available today are from plantations. Carbon prices haven’t been sufficient to finance the true costs of biodiverse planting, and timber has been the primary revenue driver for these projects which results in exotic monocultures. Those corporates that buy such ?projects may have gotten used to artificially low prices. The true costs of native species reforestation (or rewilding) are much higher and therefore need much higher carbon prices/an additional revenue stream from biodiversity to support.

Biodiversity improve carbon sequestration

Loss of biodiversity affects our climate because there are incredible ecosystems around the world, from trees to soils to peatlands, that are huge carbon sinks. In fact, diverse planted forests store up to 70% more carbon than monocultures . Additionally, many animals perform carbon-sequestering roles as part of their day-to-day. In particular, large vertebrates can increase an ecosystem’s carbon storage capacity?by up to 250%? through behaviours such as trampling, burrowing and foraging. Moreover, as biodiversity also enhances ecosystem functionality and resilience against climate change and environmental stressors , NbS designed to preserve or restore biodiversity can better maintain their functionality under changing climate conditions, including preserving their ability to sequester carbon effectively.

Limitations of carbon markets in promoting biodiversity

In today’s carbon markets, having a positive impact on nature (SDG 14 - Life below water and 15 - Life on land) are considered co-benefits. These Sustainable Development Goals (SDG) receive, on average, a price premium of about USD 1.4 for SDG 14 and USD 3 for SDG 15 according to data from AlliedOffset Even with a project generating 3 million tonnes of credits a year, that premium amounts only to less than USD 10 million given current prices of NbS carbon credits. In contrast, the carbon value of a single elephant over its life is USD 2.6 million . Assuming the restoration of an ecosystem with hundreds of keystone species and the limitation of a co-benefits approach becomes clear. ??Also a small premium is given for credits carrying the CCB label and this is fast becoming a prerequisite for buyers. This premium is very small in comparison to what true biodiversity conservation/restoration is worth to society.? More encouraging is a recent transaction by Pachama with rich biodiversity that, although at small volume, suggest a price of USD 75 per tonne ?(prepaid).?

The buyers of carbon credits are still most often those the emit greenhouse gases (GHG). If we one day reach net zero, we will be missing an incentive for these corporates to preserve and enhance biodiversity through the carbon market. For what is worth, that day is easily 25 years away and with the current biodiversity crisis – with species disappearing faster than ever in human history, and with at least 1.2 million plant and animal species are under threat of extinction globally – we can’t wait 25 years to preserve it. We need to incentivise biodiversity conservation now.

The emergence of a biodiversity market ?

Biodiversity credits are very much talked about these days – and for good reasons as discussed above. Climate Impact X (CIX) is part of the World Economic Forum’s initiative to bring these credits to market.

The biodiversity credit market must solve the same integrity issues as the carbon market (and a few more including measurement units and the comparability of biodiversity across location). These issues have been considered for a long time and I am personally optimistic that robust solutions have been or will be found. The already established compliance markets in Australia and UK have shown that it can be done. Plan Vivo, Verra and others have already issued standards for the voluntary market.

The current consensus seems to be that biodiversity credits should not be used for offsetting claims. This solves one integrity problem that is often raised against carbon credits (partly unfairly as a few studies have shown that those using carbon credits are in fact more likely to take actions to reduce carbon emissions in their own value chain . However, this consensus arguably creates another, maybe larger, problem. It reduces the incentive to buy biodiversity credits.

Currently, that best hope is that the increasing adoption of the Taskforce for Nature Related Financial Disclosures (TNFD) and the potential sentiment of becoming Nature Positive will drive demand. For that to happen, we need to be more explicit in the acceptable use of biodiversity credits. As for the carbon credit market, the key unlock will likely be regulation. With the Kunming-Montreal Global Biodiversity Framework ? (also known as The Biodiversity Plan), 190 countries have committed to the effective protection and management of 30% of the world’s terrestrial, inland water, and coastal and marine areas by the year 2030 .? EU has developed its strategy to a similar effect.

With so many countries in the Global North having only a fraction of their land strictly protected (often due to large areas being used for agriculture), one can only hope that this may foster a robust, cross-border market for biodiversity credits – ideally like we have seen with the Singapore carbon tax system involving the private sector.

Final thoughts

We need to put the right price on nature and biodiversity – which we are not doing so today. In the short-term, the carbon market may be the most viable solution, but it is insufficient. We need biodiversity credits or a similar mechanism. Buyers of carbon credits must be willing to put a premium on NbS projects that genuinely preserve biodiversity, and this needs to be magnitudes higher than today and multiples of the price of the carbon sequestration.

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Let me finish with a personal reflection. When we build the business case for biodiversity risk we normally talk economics. For example, “55% of GDP is at risk from nature loss ” is a common argument. It makes sense when we are talking to corporate and government decision makers in the Global North. However, this argument hardly convinces the Global South, including Indigenous Peoples and Local Communities (IPLCs) trying to make a basic living using the forest. Biodiversity credits offer a way to improve the rights and livelihoods of IPLCs, who make up only 5% of the world’s population but safeguard 80% of its biodiversity . [RK1]? Such incentives can strengthen the ability of these local stewards to deliver positive nature outcomes, while meeting their own access to socioeconomic needs.

But ultimately, we can never expect them to care as much about nature as we want them to when they have much more basic socioeconomic problems to deal with. I call that “Living in Maslow’s Penthouse” – we cannot expect others to have the same priorities as we do. If we want to preserve nature far outside our own countries, we have to pay for it.?

?1) https://carbon-pulse.com/252225/ ?