Biodiversity credits, like other nature-based financing instruments, can be interpreted and understood through three lines of logic: ecological, social, and financial.
Ecological Lens
Unlike carbon credits, which represent one metric ton of CO2e per credit universally, biodiversity credits (BCs) cannot achieve such absolute equivalence due to biodiversity’s heterogeneous nature. But the essence of crediting is establishing equivalence. Therefore, to work around absolute equivalence, BCs are built on the concept of relative equivalence, denoting the nature in which credits are derived from context-dependent variables. This can be explained by the “basket of metrics” concept introduced by Wallacea Trust, which is being referenced by Plan Vivo, a major carbon credit standard-making body, for further development of biodiversity credit standard.
What does one unit of BC mean? Currently, the answers vary depending on the developers and the methodology they use. But categorically, as of now, there are two types: result-focused vs. process-focused.
- Result-focused BCs denote a certain amount (e.g., 1% increase) of quantified biodiversity gain or increase in one unit of biodiversity credit (for example, Wallacea Trust Methodology).
- Process-focused BCs quantify managerial efforts to conserve or restore, and then package the relevant amount of such efforts into one unit of biodiversity credit (e.g., years of commitment, hectares of land, etc.) (for example, Terrasos Methodology in Spanish).
Financial Lens
How are BCs priced? Most models are priced based on the breakeven point (Wallacea, Terrasos, South Pole, etc.). For example, South Pole’s BC uses a reverse calculation to account for the cost of management design, implementation, maintenance, monitoring, and required return, in addition to an accrual for economic incentives for local communities and land managers. In some cases, such economic incentives also mean covering the opportunity of alternative usage for local communities.
- ValueNature’s pricing model is worth noting, as it employs a fixed plus floating model. The fixed part pays for managerial efforts (year-acreage), while the floating part pays for biodiversity gain (increase in biodiversity scoring).
Social Lens
Who benefits and how? Drawing lessons from REDD+ projects, various formulations of BCs attempt to incorporate community benefits from the outset. Certain BC models indicate that three groups of nature guardians should get compensated: the local people, the land manager, and the local government. Ways of benefit sharing include employment, direct payments to households, contributions to community welfare and infrastructure (such as healthcare, education, and transportation), taxes, and levies, as seen in other Integrated Conservation Development Projects, including REDD+.
Who buys and for what? While many BC projects are in piloting phases, with many more in the pipeline, there are already a few completed transactions. The BC project piloted by the Swedish University of Agricultural Sciences has completed a transaction of 91 credits to Swedbank Group; Terrasos sold out its 600 BCs generated from Spectacled Bear Habitat Bank in Colombia. Buyers of Terrasos’ BCs are companies operating oil pipelines, transportation, and electric power transmission. BCs are purchased to support these companies’ Nature Positive endeavors, as the BC players appear to have aligned on the notion that voluntary BCs should not serve as biodiversity offsets but rather only count toward achieving a net positive impact.
Market complications? Turning biodiversity into an asset has merits, but also risks market speculation and arbitrage as it gets complicated into derivatives and securitization. Is the risk justified? This question brings up the relevance of secondary sales. Certain BCs formulate themselves to only serve the primary market. Others (e.g., ValueNature methodology and Wallacea methodology) indicated an intention to tokenize credits to track secondary sales while requiring 80% of the biocredit price inflation in the secondary market to flow back to the biodiversity guardians. This mechanism aims to protect primary owners of credits against price volatility and assure equitable benefit sharing. But ultimately, it raises an ethical question of how far society should go to view biodiversity through a capitalistic asset lens.
This page reflects the author’s perspective. For further discussion and feedback, please contact Jinsui Song jazzy.song@yale.edu.