habitat banking: compliance markets for biodiversity and ecosystem services

Habitat Banking: compliance markets forbiodiversity and ecosystem services

Ian Dickie, eftec ian@eftec.co.uk

Policy Mechanisms for Ecosystem Services Delivery, LSE, 5th May 2011.

Mutli-disciplinary work Led by:

eftec IEEP

With:Stratus Consulting IUCNTechnical University BerlinPels Rijcken Droogleever FortuijnBBOP experts

Outline of Presentation

What is Habitat Banking? Design of Habitat Banking (in the EU?) Issues for Discussion

Turning offsets into an asset traded in a market mechanism

 Offsets rely on credits being equivalent to debits.

With more offsets, equivalence makes use of standardised metrics (in many cases)

Project delays costly Produce credits in anticipation that

damage will happen that causes debits in the future

What is habitat banking?

“a market where the credits from actions with beneficial biodiversity outcomes can be purchased to offset the debit from environmental damage. Credits can be produced in advance of, and without ex-ante links to, the debits they compensate for, and stored over time”.

What is habitat banking?

Biodiversity credits = both habitats and species. Credits can be purchased:

ex ante for planned projects; and can also be used to compensate (ex-post) for accidental

damage to biodiversity (ELD).

Create credits by additional actions (the requirement that the outcome would not have occurred otherwise): restoration or creation of habitats; measures that enhance the viability of species populations (e.g.

removal of alien predators); Averted risk - protection of valuable habitats that are at risk of

loss or degradation

Market Design

 Balancing the need for: Liquidity in a market, with Constraints of regulation necessary to ensure

outcomes

Design

Habitat Banking should be an additional policy instrument for No Net Loss of biodiversity

European framework for habitat banking? – providing consistency: In conservation actions, and Across the single market

Policy objectives to: Reduce damage to biodiversity Ensure compensation for residual damage

Design

Principles: Polluter Pays (the damager compensates) Mitigation Hierarchy Precautionary Principle Market established by regulation Public-sector oversight of the market Transparent information (e.g. all documents on web) Mainly outside designated sites Different approaches for different biodiversity

Status of impacted biodiversity

Opt

ions

for

com

pens

atio

nN

on

e,

irre

plc

ab

le a

nd

p

rote

cte

dF

ew

Ma

ny

Widespread, non-threatened & substitutable

Scarce, declining & degraded

Threatened / unique

Compensation inappropriate /

unfeasible: avoid impacts

Like-for-like compensation usually most appropriate

Simple compensation measures with

trading up

Source: Adapted from BBOP 2009

3 Levels for Habitat Banking I. Critical

II. Strictly protected

(A)

III. Less protected

(B)

IV. Widespread

(C)

Legal status EU Laws & Directives National policy priorities

Limited

Compensation driver

- n/ a

Habitats & other Directives - Guidance

Weak - planning laws None

New mechanism required to ensure no net loss

Potential market None for debits Small

Currently small, but potentially large

Equivalence approach? - Detailed, case by case

Simple checklist, possible fee

Equivalence like for like?

Trading up to credits Strict Strong Weaker (trade up)

No substitution of damage to lower

categories

from lower categories allowed/encouragedTrading up

I. Critical

II. Strictly protected

(A)

III. Less protected

(B)

IV. Widespread

(C)

Legal status

Compensation driver

Habitats & other Directives - Guidance

New mechanism required to ensure no net loss

Potential market

Equivalence approach? Detailed, case by case

Equivalence like for like?

Trading up to credits

Strict Strong Weaker (trade up)

Market Design

Flexible habitat banking framework in terms of:Compensation under different laws and policiesDifferent equivalence approachesRegulate individual offsets and more complex

trades Clear and strong rules

3 Levels for Habitat Banking I. Critical

II. Strictly protected

(A)

III. Less protected

(B)

IV. Widespread

(C)

Legal status EU Laws & Directives National policy priorities

Limited

Compensation driver

- n/ a

Habitats & other Directives - Guidance

Weak - planning laws None

New mechanism required to ensure no net loss

Potential market None for debits Small

Currently small, but potentially large

Equivalence approach? - Detailed, case by case

Simple checklist, possible fee

Equivalence like for like?

Trading up to credits Strict Strong Weaker (trade up)

No substitution of damage to lower

categories

from lower categories allowed/encouragedTrading up

Market Design to Control Risks

Market driven by regulation: Land use planning system Mitigation Hierarchy Biodiversity priorities Governance Transparency

Stronger Regulation – New Mechanism

Market Assurance - Standards

Offset level Equivalence, local consultation

Developer level ~ company policies Implement mitigation heirarchy

System Level (market) Separate governance of developments and offsets Knowledge of biodiversity resources & strategic

priorities

Cost?

Global Markets estimated at $2bn per year (ecosystem marketplace)

Cost to economy? Land development/construction sectors?

No net loss of biodiversity is not free

Issues for Discussion

Is viable market possible? that balances: Biodiversity needs (regulations/constraints) Market liquidity

Sufficient ecological information to reduce transactions costs

In lieu fee (development/damage tax)

Level IV – Simplified System?

I. Critical

II. Strictly protected

(A)

III. Less protected

(B)

IV. Widespread

(C)

Legal status EU Laws & Directives National policy priorities

Limited

Compensation driver

- n/ a

Habitats & other Directives - Guidance

Weak - planning laws None

New mechanism required to ensure no net loss

Potential market

None for debits Small Currently small, but potentially large

Equivalence approach? - Detailed, case by case

Simple checklist,

possible fee

Equivalence like for like?

Trading up to credits Strict Strong Weaker (trade up)

Simplified System - In Lieu Fees?

For instrument to cover as much biodiversity as possible: For simplified (low transaction cost) debit/credit/

equivalence calculation Fees paid to single independent fund (Trust?) Legal requirements on fund Fund would have strategic view of biodiversity needs

– influence habitat banking market, deliver own projects to create credits

Market Design Questions

Maximizing biodiversity gain through trading up and building strategic goals into the system

Issues: viable market possible? (regulation vs liquidity) Ecological information available? In lieu fee (development/damage tax)

Offsetting Ecosystem Services

Offsets for biodiversity or its ecosystem services? Adds incentives for conservation NOT restrospective (as not additional). Merging markets for biodiversity and ecosystem

services could dilute NNL E.g. local amenity and biodiversity provision conflict

Habitat Banking: compliance markets forbiodiversity and ecosystem services

Ian Dickie, eftec ian@eftec.co.uk

Policy Mechanisms for Ecosystem Services Delivery, LSE, 5th May 2011.