Friday, December 8, 2023

Biodiversity credit scheme under microscope

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Report clarifies decisions that need to be taken if credits are route to protecting environment.
A new Ministry for the Environment report lays out the options for setting up a voluntary biodiversity credit scheme.
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The government needs to decide if it wants to take a hands-on or hands-off role in any biodiversity credit market in New Zealand, a consultancy group has advised.

A biodiversity credit scheme would allow businesses, individuals and charities to buy credits to restore and preserve nature on private land.  

A new Ministry for the Environment (MfE) report lays out the options for setting up a voluntary biodiversity credit scheme, which the ministry is now consulting on.

The report, prepared by climate change investment and advisory firm Pollination, says the government needs to sound out the market and other stakeholders on how to run any scheme designed to reverse environmental damage.

A 2020 report co-authored by the China-focused think tank Paulson Institute estimated the biodiversity funding gap – the global investment needed to prevent further biodiversity loss – at between US$598 billion ($1 trillion) and US$824b. 

“The only way to stop global biodiversity loss is to ensure that nature is appropriately valued in all economies,” it said.

The Pollination report says the goal of any biodiversity credit scheme is to divert finance away from activities that degrade NZ’s natural environment towards activities to protect and restore biodiversity.

However, there’s no guarantee the current government’s plans to create a biodiversity credit scheme would survive a change of government.

Australia is already working on a credit system, working in parallel with the carbon market, and there are efforts to set up an international framework.

This month, the United Kingdom-based Taskforce on Nature-related Financial Disclosures (TNFD) is planning to release its final recommendations to set up a nature-related reporting scheme. The idea is based on the climate disclosure system developed by the similarly named Taskforce on Climate-related Financial Disclosures (TCFD).

Climate-related disclosures are now mandatory for many NZ enterprises and it’s possible, in future, that companies will also have to file annual reports on how their business activities affect natural environments.

Depending on the final design, organisations might (or might not) be allowed to use biodiversity credits to offset other development projects as part of the consenting process.

Pollination has advised against making offsets the main route to channelling investment into biodiversity loss, saying similar overseas schemes didn’t measure up.

Rather than rush ahead, NZ might decide to “watch and wait” global developments to see which market trends emerge. Or it could decide to be a global leader in biodiversity markets and make the country a destination of choice for international capital wanting to support a biodiversity credit scheme.

A key issue under discussion is the degree of government involvement in any market-based approach to improve NZ’s biodiversity. 

“A well-functioning, high-integrity voluntary biodiversity market requires appropriate market infrastructure and administration,” the Pollination report says.

The more hands-on option is for the government to act as a market administrator. In that scenario, it would set up a government-managed voluntary biodiversity scheme for NZ and play an active role in running it.

Or it could set up a market but then be more hands-off, at least once the scheme was fully up and running. To get there, the government would put policies in place to support the take-up of a voluntary market, and it would also direct government finance to support the market while it was being set up. 

Any final design could also be a hybrid of the two approaches and would be decided by the response of the market.

So far, there are only a few international examples of voluntary biodiversity credit schemes for NZ to draw on. 

The Australian Government is proposing a market that would be open to all landholders to take part in, including first nations people, conservation groups and the agricultural sector. It is proposing to issue one tradable biodiversity certificate per project. 

These would be traded separately from the land. Unlike carbon credits, which represent a tonne of carbon dioxide equivalent, the certificates wouldn’t be directly equivalent, but would represent project information in a standardised way.

The only other country mentioned in the advice is the west African nation of Gabon, which has announced it intends to work on a scheme but hasn’t yet released any details.

There has also been a recent rapid increase in the number of private-sector programmes around the world, most of them at a pilot stage. 

NZ carbon trading company CarbonZ has just launched a biodiversity credit system for pest control. However, the credits are not tradeable, cannot be used to offset other damage, and function as a donation for environmental projects.

The report says environmental markets aren’t necessarily the most effective policy lever for NZ and lays out several other ways to protect biodiversity. 

One is tighter environmental laws. Another is a tourism tax for all foreign visitors, with the funds going directly into nature-based projects. 

Or it could tax items such as fertiliser, as well as slapping a nature tax on corporate profits or where there have been negative effects on biodiversity.

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