Habitat Banking: compliance markets for biodiversity and ecosystem services Ian Dickie, eftec Policy Mechanisms for Ecosystem Services Delivery, LSE, 5 th May 2011.

Mutli-disciplinary work Led by:  eftec  IEEP With:  Stratus Consulting  IUCN  Technical University Berlin  Pels Rijcken Droogleever Fortuijn  BBOP 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 Options for compensation None, irreplcable and protected Few Many 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

Market Design Flexible habitat banking framework in terms of:  Compensation under different laws and policies  Different equivalence approaches  Regulate individual offsets and more complex trades Clear and strong rules

3 Levels for Habitat Banking

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?

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 for biodiversity and ecosystem services Ian Dickie, eftec Policy Mechanisms for Ecosystem Services Delivery, LSE, 5 th May 2011.