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What are biocredits?

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Lake Malawi in Southern Africa. Biocredits are applied to an ecosystem, landscape or seascape that already has high levels of biodiversity and that is under threat. They are sometimes measured against a reference site, to correct for biodiversity loss caused by external factors such as changes in rainfall patterns or extreme weather events, or proposed development. Image credit: Leon Louw for WhyAfrica.

What are biocredits?

Biodiversity is degrading at alarming rates, and people living in biodiversity-rich areas often bear the heaviest costs of biodiversity loss and inequitable conservation efforts.

By Anna Ducros and Paul Steele

Biodiversity credits, or ‘biocredits’, are emerging as a tradeable unit of biodiversity that can incentivise nature conservation and restoration to benefit marginalised groups living with nature.

Biocredits can complement carbon credits but are most effective as their own new asset class. As a purely positive investment in nature, biocredits are distinct and are preferred to biodiversity offsets, which can cause net damage to biodiversity.

Demand for biocredits is growing amongst private investors, individuals and governments who want to invest in the conservation and restoration of biodiversity.

Biodiversity credits, or ‘biocredits’, are an emerging mechanism to quantify and track biodiversity conservation and preservation efforts and outcomes.

A biocredit represents a unit of biodiversity that is being restored or preserved. Biocredits are being developed to be bought and sold, and when designed carefully, they can channel financial flows towards effective biodiversity conservation and directly support locally-led action to ensure Indigenous Peoples and Local Communities (IPs & LCs) can fully participate in and realise the benefits of the mechanism.

Classification of biocredits (What are biocredits?)

As biocredit schemes develop and become more common, biocredits are being applied broadly in three ways: to avoid biodiversity loss; measure improvement; or reward successful management of pristine sites.

Each of these approaches has appropriate contextual applications as outlined below. Notably, the approaches are not exclusive and one biocredit scheme can provide benefits across more than one application.

  • Preserving or avoiding loss: Biocredits are applied to an ecosystem, landscape or seascape that already has high levels of biodiversity and that is under threat. They are sometimes measured against a reference site, to correct for biodiversity loss caused by external factors such as changes in rainfall patterns or extreme weather events, or proposed development. In some versions of this application, a biocredit maintains value if the biodiversity indicators do not decrease below those of a reference site (ie biodiversity remains the same). Here, biocredits are used to maintain areas that have not been degraded but are at risk of being degraded. However, biocredits can also track increases in biodiversity (ie the biodiversity indicators rise above those of the reference site).
  • Restoration: Biocredits are applied to an ecosystem or landscape that requires restoration for biodiversity regeneration and enrichment, improved ecosystem services and/or landscape connectivity enhancement. Therefore, for the biocredit to maintain value, the biodiversity indicators must be increasing (ie biodiversity is increasing/being restored). Biodiversity indicators could include a rate of change. It is essential that a time frame is set out in which the indicators will be measured and over which the desired positive change is evaluated.
  • Supporting existing efforts: Biocredits can also be used to reward the existing management efforts that go into conserving pristine sites. Here, biocredit schemes are used to generate investment to incentivise further conservation and create opportunities for countries and IPs & LCs that have succeeded in their conservation efforts to date to be rewarded for past efforts and supported to continue these efforts. This application of biocredit schemes suggests that, regardless of the risk profile, all landscapes and seascapes should be afforded the opportunity for investment.

Demand and supply (What are biocredits?)

Demand for biocredits can come from investors and private biocredit resellers and intermediaries, companies with commitments on corporate social responsibility (CSR) and committing to nature-related disclosures (such as under the emerging Taskforce on Nature-related Financial Disclosures (TNFD) Framework1 ), philanthropists and impact investors, and individuals interested in conservation.

Private biocredit resellers and intermediaries may act as conveyors of demand. As with voluntary carbon markets, buyers will often be driven by corporate commitments to nature-positive targets. Here, voluntary biocredits can be used to implement their nature-positive commitments as long as their traceability is ensured.

While private buyers are likely to be a key component in scaling up biocredit schemes, there remains the challenge of ensuring that a substantial part of the proceeds reaches IPs & LCs.

Registry-accounting systems can support biocredits markets, such as:

  • A biocredit inventory that records the physical units of biodiversity at key points in time, including the disaggregated data based on the methodology in use
  • A biocredits register that records specific information on the biocredits and includes serial numbers for each biocredit
  • A transaction registry (or an exchange) that has all the abilities of a register, with the additional capability of transferring biocredit units between market participants
  • A data management system that records information about biocredits and more general information that wouldn’t be stored in a transaction registry or register but is required for transparency purposes.

The article is an extract from the research report “Biocredits to finance nature and people: Emerging lessons” by Anna Ducros and Paul Steele for the United Nations Development Programme (UNDP)

Anna Ducros is a researcher in IIED’s Shaping Sustainable Markets Group. She is an environmental economist and her work focuses on climate and nature finance, small scale fisheries and inclusive food systems. Paul Steele is chief economist in IIED’s Shaping Sustainable Markets Group. His work covers incentives for an inclusive, green economy with a focus on climate finance and biodiversity finance. Corresponding authors: anna.ducros@iied.org paul.steele@iied.org

What are biocredits?

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What are biocredits?

 

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