Check out our answers to the Biodiversity Credit Consultation below, or for a high level overview read our summary post here.
CarbonCrop has been working on our submission for the Ministry for the Environment's consultation on Biodiversity Credits. Below our our answers to some of the key questions posed.
Do you support the need for a biodiversity credit system (BCS) for New Zealand?
Yes.
In principle, we believe in incentivising positive biodiversity outcomes and actions. However, incentives must be carefully structured to avoid inadvertently disincentivising or creating barriers to landholders taking action to support biodiversity.
Below are two options for using biodiversity credits. Which do you agree with? (a) Credits should only be used to recognise positive actions to support biodiversity. (b) Credits should be used to recognise positive action to support biodiversity, and actions that avoid decreases in biodiversity.
Option B - credits should be used to recognise actions and outcomes to restore biodiversity, and actions and outcomes that preserve (Avoid losses) in biodiversity.
Preservation of existing biodiversity is as important (if not more so) than biodiversity restoration and can be much more cost-effective in terms of biodiversity value delivered or maintained.
Financial incentives through credits or otherwise should cover both restoration and preservation. Consideration should be given to differentiation between preservation and restoration, allowing a broader range of activities to be credited while recognising various relative implementation costs and benefits.
In particular, credits and incentives should recognise ongoing activities supporting restoration and preservation, not just new activities. If you don’t reward ongoing activities you risk creating perverse disincentives through disenfranchising those who acted early. Rewarding preservation reduces the risk of delaying positive action in order to achieve a lower baseline/starting point - or in the worst-case scenario, taking negative action.
Which scope do you prefer for a biodiversity credit system? (a) Focus on terrestrial (land) environments. (b) Extend from (a) to freshwater and estuaries (eg, wetland, estuarine restoration). (c) Extend from (a) and (b) to coastal marine environments (eg, seagrass restoration).
Option C - terrestrial, fresh water and estuaries and coastal marine environments should all be in scope for a biodiversity credit system.
All forms of biodiversity warrant protection and restoration.
Incentives should encourage both restoration and preservation across a range of ecosystems. No doubt this complicates setting up a scheme, which might be faster and simpler if it focused on one first, but ultimately the BCS should encompass all ecosystems - terrestrial, freshwater and marine.
We would support an incremental approach for the sake of expedience and pragmatism, where only a subset of environments might be initially supported through a BCS, with other funding mechanisms being used for other environments initially.
Depending on the form of BCS we see that it may be necessary to differentiate credits by environment type, especially if any form of offsetting is considered. Multiple environments further complicates the calculation of equivalence between credits within a BCS - however, this issue is already extremely complicated within a given broad (e.g. ‘terrestrial’) environment category. The question of the relative value of a credit associated with a lowland forest environment as compared to an alpine meadow environment is very complex, and does not seem significantly more complex than the question of the relative value of a lowland forest environment credit and a coastal wetland or marine credit.
Which scope do you prefer for land-based biodiversity credits? (a) Cover all land types, including both public and private land including whenua Māori. (b) Be limited to certain categories of land, for example, private land (including whenua Māori).
Option A - In principle, we should like to see the BCS cover all land types, including both public and private land including whenua Māori.
We see BCS as having the potential to increase the magnitude and impact of biodiversity spending, and limiting eligibility to certain land ownership will limit the potential of both restoration and protection, and potentially lead to sub-optimal spending. For example, it would be a problem if a given dollar could achieve far more impact on public land, but was instead constrained to private land projects.
We also feel that any BCS should be primarily additive to existing funding mechanisms, especially for public land and whenua Maori. We would be extremely concerned if BCS were anticipated to be predominantly private-sector funded, and that this private sector originating funds were seen as an effective substitute for ongoing publicly funded programs (such as DOC’s programs). In time, however, we can imagine that an ‘ideal’ biodiversity credit system could expand to provide a mechanism for public funding allocation and assessment of effectiveness across various land.
Which approach do you prefer for a biodiversity credit system? (a) Based primarily on outcome. (b) Based primarily on activities. (c) Based primarily on projects.
Option A - based primarily on outcome.
Ultimately, focusing on outcomes would better align with rewarding positive actions and recognise those who’ve been proactive around biodiversity, and ensures that the actions taken are effective.
Effective and efficient incentive markets line up the incentives with the outcomes you want to achieve so they’re more likely to happen.However, we see risks with a scheme that is purely outcome-focussed, due to the challenges in measuring biodiversity outcomes and the time periods potentially involved - this is more difficult with biodiversity even than with carbon. We believe that associating biodiversity credits with activities is however the wrong way to address this - the credits should remain outcome focussed. However, thought should be given to biodiversity activity ‘loan’ or ‘grant’ programmes, with the lender/grant agency given rights of some form the future BCS. This has the potential to appropriately align incentives around outcomes while avoiding lack of action through market and outcome uncertainty. This approach has proven effective with carbon incentives,, supporting up front investment cases with the resulting revenue for the achieved carbon removal outcome being funnelled back into fueling the ‘carbon removal flywheel’ - ideally biodiversity credits and associated financing mechanisms will enable and support a similar approach?
Consideration must be given to:
Challenges of outcome measurement considering accuracy and granularity
Challenges of outcome measurement considering time frames - if the outcomes take a very long time to identify, then the delays in BCS issuances and returns will complicate market trust.
Regarding projects :
We do not see either (a) or (b) as being incompatible with (c) - both actions and outcomes are likely to occur within the context of various projects, but it’s the actions and outcomes that should be recognised and incentivised. In fact our view is that recognition of standardised outcomes with BCS is a necessary component of projects being described accurately and consistently in a form that allows comparison between projects. A system in which projects did not have standarised measurable outcomes does not seem to qualify as a ‘BCS’ for any meaningful distinction from the status quo of biodiversity projects. We would also be concerned that a project perspective could lead to significantly higher costs due to loss of standardisation of implementation or monitoring.
We view this question as fundamental to the nature of a BCS and its incentive effects, and its effectiveness in driving and discovering optimal biodiversity protection and restoration approaches. We would have concerns about the checks and controls on efficiency and impact for an approach that did not consider outcomes in credit issuance.
Should there also be a requirement for the project or activity to apply for a specified period to generate credits?
Yes
The recognition of the preservation or restoration of biodiversity outcome should have some associated obligation or expectation of duration of impact. For a trivial example, a preservation outcome that had a duration of a single day would deliver little value.
Indications of the period over which the biodiversity outcome was achieved is also valuable for some claims, and supports traceability and detection of overlapping claims.
Should biodiversity credits be awarded for increasing legal protection of areas of indigenous biodiversity (eg, QEII National Trust Act 1977 covenants, Conservation Act 1987 covenants or Ngā Whenua Rāhui kawenata)?
No - not just for legal protection - though legal protection might well qualify as an activity supporting biodiversity and could be a condition of receiving biodiversity funding in anticipation of future credits.
Increasing legal protection for areas is great, but that alone may not lead to a meaningful biodiversity outcome. There’s no guarantee that covenanting an area would result in increased biodiversity.
The award of biodiversity credits should be linked to the outcomes achieved in the protected area. The fact that these outcomes are more likely to be achieved given the legal protection mechanism (and associated ongoing obligations and likely supportive interventions) should be sufficient incentive and recognition of the protection
Legal protection alone might not align the broader goals for incentivising biodiversity preservation and restoration.
Should biodiversity credits be able to be used to offset development impacts as part of resource management processes, provided they meet the requirements of both the BCS system and regulatory requirements?
Yes, though this will further increase the requirement for accurate quantification and equivalence between credits, and the validity of comparisons of ‘benefits/restorations’ vs ‘harms/losses’.
We think the characterisation of ‘offsets’ vs ‘credits’ in the consultation is confusing and inconsistent with other similar markets (such as carbon markets). Companies making ‘nature positive’ claims using biodiversity credits are likely to be doing some in some proportion to their biodiversity impacts, and this is in effect going to take the form of an offsetting mechanism.
We believe that recognition of offsetting of this form is highly valuable for the creation and motivation of markets around biodiversity and the flow of funds towards preservation and restoration activities, whether within voluntary or compliance markets.
However, the integrity of the quantification of both impacts and credited improvements becomes critical in this scenario to avoid the justification of harms using credited ‘benefits’ that do not actually outweigh the harms.
We do not agree with an aspiration of a ‘zero negative gross impact on biodiversity’ - this seems entirely unrealistic; there will almost certainly always be some level of local biodiversity harms as long as human society exists within the earths biosphere. The objective should be to achieve a strong positive increase in net biodiversity in the biosphere, despite human impacts.
Do you think a biodiversity credit system will attract investment to support indigenous biodiversity in New Zealand?
Maybe.
An increase in perceived projected integrity and efficiency, and confidence in outcomes, seems likely to lead to some increase in even existing philanthropic investment. However our view is that unlocking more significant investment will require mechanisms that support the creation of markets and quantification of biodiversity harms, and claims to the compensation for those harms through the purchase of credits for restoration of past harms. We’ve seen this work for the restoration of forests in the NZ ETS through carbon markets linked to neutralisation of carbon emissions under both voluntary and compliance frameworks. In the absence of some form of ‘offsetting’ activity it is difficult to see how companies will be incentivised to reduce their negative impacts on biodiversity, and how a company might determine an appropriate level of allocation of funds to biodiversity.
We do not anticipate impact investment funds to make significant allocations to biodiversity other than through:
Pure philanthropy, or;
The presence of a downstream secondary market of biodiversity offset buyers to enable a return on that impact investment.
What do you consider the most important outcomes a New Zealand biodiversity credit system should aim for?
- Increased investment in biodiversity (private and public) - Increased restoration and protection of biodiversity - Decreased species on the endangered species list
All three outcomes—increased investment, increased restoration and protection, and decreased species on the endangered list—are key to the success of a New Zealand biodiversity credit system.
Increased investment is likely a necessary enabler of the other outcomes rather than a target outcome in itself, but it will be an important leading indicator of adoption and likely future effectiveness of a BCS.
We consider increased restoration and protection of native habitats as the cornerstone for any successful biodiversity credit system.
Reducing the number of species on the endangered list would be one direct measure of the system's effectiveness, but should not be the only one - other metrics for effectiveness of restoration activities (such as a reduction in pest density, numbers and health of non-endangered species, areas of healthy ecosystems across various categories etc)
We feel the ETS for forestry metrics such as registered native forest areas and credit earnings by native forest are good examples of proxy indicators for the effectiveness of the scheme in promoting durable carbon removals in native forest (the goal).
Of the following principles, which do you consider should be the top four to underpin a New Zealand biodiversity credit system? Principle 1 – Permanent or long-term (eg, 25-year) impact Principle 2 – Transparent and verifiable claims Principle 3 – Robust, with measures to prevent abuse of the system Principle 4 – Reward nature-positive additional activities Principle 5 – Complement domestic and international action Principle 6 – No double-counting, and clear rules about the claims that investors can make Principle 7 – Maximise positive impact on biodiversity
Of the four principles selected, we consider three essential and one other important but possibly not essential, depending on the design of the system.
Essential principles:
Principle 2: Transparent and verifiable claims
Principle 3: Robust, with measures to prevent abuse of the system
Principle 6: No double-counting, and clear rules about the claims that investors can make
Important, but not necessarily essential, depending on design:
Principle 1: Permanent or long-term (e.g., 25-year) impact
Not all biodiversity outcomes can be controlled permanently, and biodiversity outcomes can regress. With carbon, buffer pools guard against this risk. It is more difficult to buffer, for example, a kiwi repopulation project growing at one bird per year.
If the above principles are set in place effectively then the positive impact on biodiversity (Principle 7) will result, and principles 4 and 5 will be satisfied as a consequence.
Have we missed any other important principles? Please list and provide your reasons.
Consistency: A BCS should be based on objectively measurable inputs and outcomes to ensure it is both efficient to administer and of high integrity. This is arguably a subset of the principle of ‘robustness’, but is a noteworthy one and deserves specific mention.
Justice/Fairness: A BCS should not exclude early adopters of restoration/protection activities; for example an existing ongoing funded pest control program having a positive impact on biodiversity should be eligible for credits in the same way that a new pest control program might. Any other approach will create significant disincentives to early action and future restoration activities.
What assurance would you need to participate in a market, either as a landholder looking after biodiversity or as a potential purchaser of a biodiversity credit?
We would need confidence that:
The incentives or claims enabled by the market will be stable, and so enable investment. This is of particular importance for investment in future biodiversity outcomes. The carbon market - and especially the voluntary carbon market - is an example of potential failure modes here (largely through intrinsic integrity issues in the market and methodology designs).
The market and projects will be cost effective for participation, with the vast majority of the funds going to achieving biodiversity outcomes rather than satisfying administrative and monitoring overheads of the BCS mechanisms.
As a prospective buyer, we would need to understand the basis on which we should purchase biodiversity credits, and quantity in which we should purchase them. This is currently extremely unclear, and as a result our purchases would be limited to whatever philanthropic contribution we felt suitable and will likely be quite arbitrary between participants, which will limit investment and impact.
What do you see as the benefits and risks for a biodiversity credit market not being regulated at all?
Benefits
Flexibility: allow for more innovative approaches to biodiversity conservation.
Ease of Entry: Lower barriers to entry could encourage more participants, potentially leading to increased investment in biodiversity.
Quick Implementation: Projects could be implemented more quickly, hopefully achieving outcomes more quickly.
Quality: While regulation can give certainty, and ensure quality, low rates of innovation in regulation can also ‘lock in’ or allow to persist factors that contribute to low quality. We see this as historically endemic in the voluntary carbon market, and a key contributor to the collapse of some classes of carbon offset. An unregulated market where buyers are encouraged to critically assess offerings and push for improvements can (counterintuitively) lead to the discovery and differentiation of high quality approaches more quickly.
Risks
Lack of Accountability: Integrity risk - eg double-counting of credits or misrepresenting the impact.
Quality Concerns: The absence of standards could lead to projects that have little to no actual impact on biodiversity, throwing doubt on the whole scheme.
Inequity: There could be an unfair distribution of benefits, or otherwise undesirable distribution, even through good faith actions. This is already a well known problem within conservation, whereby restoration activities associated with ‘cute’ animals can receive disproportionately large amounts of funding, to the detriment of ‘less cute’ animals. We should be conscious that our instinctive values may not mirror true biodiversity benefits.
Short-term Focus: Lack of oversight could encourage projects that offer quick returns but have no long-term benefits for biodiversity.
What are the main activities or outcomes that a biodiversity credit system for New Zealand should support?
Specific outcomes will be very broad. The BCS should support increased restoration and protection of biodiversity across a diverse set of biodiversity indicators including those outlined in the consultation, and particularly considering:
All ecosystems, with consideration of the risk/scarcity of particular ecosystems.
All species, with consideration of the risk/scarcity of particular species.
We would like to see the scheme focus on outcomes rather than activities, to encourage innovation in the forms of activities to achieve those outcomes, however we would expect to see additional investment in pest control, restoration, breeding, land retirement etc.
A biodiversity credit system has six necessary components. These are: project provision, quantification of activities or outcomes, monitoring measurement and reporting, verification of claims, operation of the market and registry, investing in credits. To have the most impact in attracting people to the market, which component(s) should the Government be involved in?
We see three components for Government involvement: quantification, verification, investing.
Investing in credits - Government investment could serve as a catalyst for further private investment, increasing the market's overall attractiveness.
Quantification - Government involvement in quantification adds credibility and ensures that the credits awarded are based on a standardised, scientific approach. The government's role here should be largely limited to the definition of quantification methodologies. Implementation of those methodologies may be better left to other actors for efficiency of delivery.
Verification - Government involvement in verification is valuable, however special consideration should be given to ensuring this verification is cost effective. Random government audit of independently verified projects may be more appropriate than comprehensive government evaluation. These ‘spot audits’ would still serve to add an extra layer of trust, ensuring that the activities, or outcomes claimed, are accurate and meet the system's standards.
Operation of a registry - The government should either operate a registry, or set the standards by which a registry might be operated.
Project Provision - The government might be permitted to deliver projects, but should not have any exclusivity or special advantages in project delivery.
In which areas of a biodiversity credit system would government involvement be most likely to stifle a market?
We think that the government involvement would be a good thing, but some considerations need to be taken for it not to become too burdensome for participants.
The mistakes seen in the carbon markets by MPI with poor system design and procurement processes and implementation should be avoided.
There needs to be a balance of private sector, NGO and government actors for the system to be effective. A single body trying to cover it all would be put under too much strain.
We believe that the government administrating and providing oversight (without trying to run everything) would be most effective.
Should the Government play a role in focusing market investment towards particular activities and outcomes and if so why? For example, highlighting geographic areas, ecosystems, species most at threat and in need of protection, significant natural areas, certain categories of land.
Yes, the government should play a role here, but to a large degree this role will be achieved through the design of the crediting framework, which ultimately directs incentives with its structure, quantification and separation mechanisms. If consistent and comparable credits are achieved, then they should naturally incentivise suitable market focus.
The government could also support this focus through providing transparency (potentially through a public registry) of the areas of BCS activity, and the form of those activities and outcomes (and perhaps - depending on design - even supporting assessment of the effectiveness of activities).
The government can also play a role in focusing market investment by choosing to invest in biodiversity credits themselves in areas they see as priorities to support a robust and impactful system.
On a scale of 1, not relevant, to 5, being critical, should a New Zealand biodiversity credit system seek to align with international systems and frameworks?
4 - important but not critical
Aligning with international systems can provide credibility and attract international investment. It can facilitate easier trading of credits across borders, increasing market liquidity and trust.
However, New Zealand's unique biodiversity may require some local adaptations to international frameworks. Aligning too closely with international systems might overlook specific domestic needs and challenges.
Further, attempts to align with international standards are likely to enormously delay the implementation of such a framework.
We would encourage an approach whereby New Zealand's framework design was:
Informed and guided by existing international work where appropriate, including involving the ongoing participation of NZ in international governance and alignment bodies.
Periodically refined considering alignment with international best practice
Open to local variations based on local experience and identified issues
Especially, openness to act as a test case for promising improvements discussed at an international level but not yet internationally standardised.
Should the Government work with private sector providers to pilot biodiversity credit system(s) in different regions, to test the concept? If you support this work, which regions and providers do you suggest?
Yes, we strongly encourage the Government to work with private sector partners to pilot biodiversity credit systems. We do not think there should be a particular regional focus, rather the emphasis should be on project quality and diversity. We strongly encourage that these projects include primary sector actors outside the conservation sector, as these have significant biodiversity restoration and protection potential.
We further encourage the engagement with project and monitoring delivery partners with approaches - especially innovative approaches - which are likely to result in increased cost-effectiveness and impact at the desired scale.
We discourage the award of large amounts of funding to individual private entities on an up-front basis, and instead encourage the definition of outcomes and the engagement of a range of entities to deliver solutions which achieve those outcomes on a staged investment basis.
CarbonCrop is interested in supporting project activities in this space and has active collaborations with multiple organisations in the primary sector.
What is your preference for how a biodiversity credit system should work alongside the New Zealand Emissions Trading Scheme or voluntary carbon markets? (a)Little/no interaction: biodiversity credit system focuses purely on biodiversity, and carbon storage benefits are a bonus. (b)Some interaction: biodiversity credits should be recognised alongside carbon benefits on the same land, via both systems, where appropriate. (c)High interaction: rigid biodiversity ‘standards’ are set for nature-generated carbon credits and built into carbon markets, so that investors can have confidence in ‘biodiversity positive’ carbon credits.
Option B - some interaction
This option allows for a more holistic view of land use, capturing both carbon sequestration and biodiversity benefits. It also provides a more comprehensive incentive structure for landowners and investors, encouraging both carbon reduction and biodiversity enhancement.
Note: not all important biodiversity outcomes are related to carbon. Where related, they should work together so there’s no double counting, but it should not be restricted to carbon interaction.
Biodiversity is not carbon, and carbon is not biodiversity. It is possible for an activity to deliver large biodiversity benefits while delivering no (or even negative) carbon removals, and vice versa. Separate quantification will enable the most efficient and effective direction of resources and achievement of outcomes.
Should a biodiversity credit system complement the resource management system?
Yes.
The system should focus on incentivising positive biodiversity outcomes, which aligns with the goals of resource management processes like protecting Significant Natural Areas and endangered species.
The current land use policy is described as punitive, and a biodiversity credit system could serve as a more positive complement to resource management by rewarding those who take early actions for biodiversity.
Allowing positive biodiversity outcomes to be applies as offsets to RMA activities could be an important source of funding for biodiversity action, but must be done in a way that ensures a significant net-positive impact beyond the status quo.
Should a biodiversity credit system support land-use reform?
Yes, though we believe there is high overlap with carbon.
The system should incentivise the restoration of biodiverse native forests on degraded lands, which would indirectly lead to land-use reform and effective carbon removals.
While the primary focus should be on generating positive biodiversity outcomes, the byproduct could be a shift in land use, such as converting erosion-prone or marginal lands to permanent native forests.
The current land use policy is not effective in rewarding those who have taken early positive actions for biodiversity or carbon. A credit system that supports land-use reform could address this issue.