An Incomplete Guide to Biodiversity Credits, Part One

The ​U​pbringing of ​the ​Biodiversity Credit
The capital gap for nature financing stands at over $700 billion per year, according to the Paulson Institute. The familiar solution sources involve philanthropic donations, grants, government subsidies and taxes. This story introduces a market-based source known as a biodiversity credit or biocredit.
Traditional biodiversity credits give financial value to investments in projects that offset regional biodiversity losses. A biocredit is a unit of biodiversity value created through interventions to conserve, restore or sustainably manage a local site. It is the unification of positive change (or “uplift”) in biodiversity conditions, approximated by place-based biodiversity indicators or managerial efforts. Generated on local sites, biocredit aims for a voluntary and globalized market. 
The benefits of biocredits, according to the instrument's proponents, include an incentive to local communities for sustainable investing and a way for investors to make gains from promoting biodiversity. Biocredit sellers also say they can offset negative development impacts.  
Is biocredit something new or part of a longer history? According to Steve Zwick, the Senior Manager at Verra and previous Managing Editor of Ecosystem Marketplace, the evolution of a market mechanism for biodiversity can be dated back to the initiation of the carbon market. Verra sells verification services. It and Ecosystem Marketplace both are organizations focusing on environmental markets and sustainability transformation.
A ​B​rief ​D​etour ​I​nto ​the C​arbon Market
Climate change and biodiversity loss interested sustainability-savvy investors in the 1990s. The carbon market later advanced while the biodiversity market did not because of its multiple inputs and a seeming lack of market appetite.
For the carbon market, there is an established equivalence: one metric ton of carbon, as represented by one carbon credit, released or sequestered is equivalent to another regardless of where and how the carbon travels. Therefore, in theory, carbon credit​s​ can exchange hands regardless of their sources  – thanks to the law​​ of physics, a ton in Yucatan and a ton over Yekaterinburg have the same impact.
For the biodiversity market, there is no established equivalence. As defined by the Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services (IPBES), biodiversity refers to genetic, species, functional, and ecosystem diversity​.​​​ ​ Ethical and modeling confusion sets in quickly when you try to equate, say, a butterfly in the rainforest to a lynx in logging territory. Since equal value exchange is the backbone of any market formation, the difficulties to define equivalence in biodiversity hindered its markets.
Prior ​Attempts to Define Market for Biodiversity
Biocredit equates different biodiversity effects through relative equivalence. But it is not the first market tool for biodiversity. To understand how it evolved, we need to review two earlier broad approaches to mobilize market interests: nature-based carbon markets and biodiversity offsets.
Habitats naturally store and sequester carbon. Carbon credits can arise when a project boosts the integrity of a system for living things, such as a forest, ocean, or cryosphere. ​By emphasizing the co-benefit, n​ature-based carbon markets incentivize and fund biodiversity actions indirectly even when there is no defined equivalence or clear market for biodiversity.
Instruments created under this category include REDD+ (Reducing Emissions from Deforestation and forest Degradation), CCB (Climate, Community & Biodiversity). However, without a market for biodiversity to translate financially, the non-monetary value created remains sizable.
Biodiversity offsets work with the like-for-like principle that finds units of value in specific species, locations and ecosystems. This tool is mostly used for regulatory purposes. Biodiversity offsets include species credit​s​, wetland/mitigation credits, and tradable allowances, all of which can only mobilize funding for the singular conservation interest they represent.  As an example, wetland credits generated in Florida are only sold to development that harms nearby wetlands. For biodiversity offset, markets are formed but restricted and siloed by the like-for-like principle.
From Absolute to Relative Equivalence
Defining an absolute equivalence for multi-faceted biodiversity is challenging, if not impossible.  Biocredit works around this challenge by establishing relative equivalence, so long as the measuring indicators reasonably reflect the local biodiversity conditions.
According to Alex Tozer, the idea stems from the inflation calculation economists make using the Consumer Price Index. Tozer is the Chief Operating Officer at Wallacea Trust, a UK-based organization that recently published its biocredit methodology. The methodology is being referenced by Plan Vivo and Gold Standard, two major carbon credit standard-making bodies, for further biocredit standard development.
Tozer explained that consumer price inflation is calculated by grouping the household consumed goods and services into a “basket”, and periodically tracking percentage changes in the cost of buying the “basket.” The same reasoning applies to biodiversity in the case of biocredit: the basket of indicators for biodiversity measurement can be project-based, but the percentage change or uplift underpinned by the basket is comparable across time.
For other biocredit developers, biocredit does not require utter improvemet. South Pole, the methodology developer behind the Australian Biodiversity Unit, reckons that climate change can alter the effectiveness of management intervention to the point that biocredit projects can have no conservation benefit.  According to Liliana Sarmiento, the Head of Global Biodiversity at South Pole, her firm's biodiversity credit represents results from management intervention on one hectare of land adjusted for climate change scenarios.
Deep Dive into E​quivalence
The core aim of biocredit is to equate changes in biodiversity conditions across time and space, so that the changes are packed into tradable units. What metrics underpin the measurement for such changes? Currently, the metrics for biocredit are place-based. Developers give space for the projects to propose a few locally situated indicators. Upon approval through a registration process, the metrics form the baseline evaluation and the subsequent milestones verification.
For example, a recently approved regenerative agriculture biocredit project under the Wallacea Trust methodology proposed metrics including species richness, abundance and biomass for local plants, butterflies, amphibian​s​, soil invertebrates, and more. The scores for these indicators are further multiplied by IUCN risk status of the recorded species. The biodiversity uplift of the site is calculated by comparing the median score of the baseline with milestone evaluations.
But how do we obtain the species data to determine its change over time when the land is so vast, species are movable, and our resources are so limited? Current solutions mostly use on-the -ground site sampling, which is a bottom-up process, contrasting the top-down approach using geospatial data and satellites images. Importantly, biocredit methodologies do not explicitly adopt existing biodiversity metrics and databases such as IBAT, the IUCN Green List, and ENCORE. Accordingly, certain biocredit projects are piloting more integrative methodologies to be compatible with multi-sourced data.
In essence, the metrics are chosen to contour the project’s vision of success.  Hidden in the definition of success are value judgments that are subject to ambiguity and manufacturability. It is important for us to be conscious about how value judgment shapes the metrics: can the metrics be truly representative of the local biodiversity? To what extent? Can relative equivalence be achieved? To what extent?
Potential Unintended ​C​onsequences
Biodiversity​ markets​ mark exciting opportunities that can bridge interest from the business and finance world with on-the-ground projects to unlock much-needed resources for conservation, restoration, and sustainable management of local ecosystems. However, the formulation of biodiversity market​s​ is grounded in the assumption that ecosystems can be rendered equivalent through metrics—rigorous, context-based, and (i​m​)proper metrics. A market that grows carelessly may assume that the history and legacy that shaped their traits are neglectable. This assumption assigns a value of zero to landscapes, sacred values, and identities.
We should bear in mind the lessons learned from carbon markets: the communities who were evicted from their lands, the people who lost culturally significant crops to carbon sequestering afforestation, the broken promises, double counting, and greenwashing. Therefore, in searching for solutions to save biodiversity, we should never lose sight of social interplay and the cultures, communities, and identities that might be lost in translations.​​
Coming Up… 
In part two of this story, we will discuss more about the market roles, valuation, and the debate around stacking and bundling of biocredits.