Biodiversity offsetting



Biodiversity offsetting is a system used predominantly by planning authorities and developers to fully compensate for biodiversity impacts associated with economic development, through the planning process. In some circumstances, biodiversity offsets are designed to result in an overall biodiversity gain. Offsetting is generally considered the final stage in a mitigation hierarchy, whereby predicted biodiversity impacts must first be avoided, minimised and reversed by developers, before any remaining impacts are offset. The mitigation hierarchy serves to meet the environmental policy principle of "No Net Loss" of biodiversity alongside development.

Individuals or companies involved in arranging biodiversity offsets will use quantitative measures to determine the amount, type and quality of habitat that is likely to be affected by a proposed project. Then, they will establish a new location or locations (often called receptor sites) where it would be possible to re-create the same amount, type and quality of habitat. The aim of biodiversity offsets is not simply to provide financial compensation for the biodiversity losses associated with development, although developers might pay financial compensation in some cases if it can be demonstrated exactly what the physical biodiversity gains achieved by that compensation will be. The type of environmental compensation provided by biodiversity offsetting is different from biodiversity banking in that it must show both measurable and long-term biodiversity improvements, that can be demonstrated to counteract losses. However, there is so far mixed evidence that biodiversity offsets successfully counteract the biodiversity losses caused by associated developments, with evidence that offsets are generally more successful in less structurally-complex and more rapidly-recovering habitats such as loss of biodiversity simplified wetland habitats. For biodiversity offsets to successfully compensate for the loss of biodiversity elsewhere, it is necessary that they demonstrate additionality (i.e. the deliver an improvement in biodiversity that would not otherwise have occurred). While there are individual case studies of offsets that have successfully delivered additional outcomes, other evaluations of large-scale biodiversity offsetting markets have demonstrated serious additionality shortcomings.

Relevant conservation activities
Biodiversity offset projects can involve various management activities that can be demonstrated to deliver gains in biodiversity. These activities very often include active habitat restoration or creation projects (e.g. new wetland creation, grassland restoration). However, also viable are so-called "averted loss" biodiversity offsets, in which measures are taken to prevent ecological degradation from occurring where it almost certainly would have happened otherwise. Averted loss offsets might involve the creation of new protected areas (to conserve fauna species that would otherwise have disappeared), the removal of invasive species from areas of habitat (which otherwise would have reduced or displaced populations of native species), or positive measures to reduce extensive natural resource use (e.g. the offer of alternative livelihood creation to prevent activities leading to deforestation).

Any activities that do not result in a positive and measurable gain for biodiversity would not generally be counted as part of a biodiversity offset. For instance, if a developer funds ecological conservation research in a region that they are impacting through a project, would not count as an offset (unless it could be shown quantitatively how specific fauna and flora would benefit). instead, this would be a more general form of compensation. Note that biodiversity offsets can be considered a very specific, robust and transparent category of ecological compensation.

Receptor sites
Under many offset systems, receptor sites are areas of land put forward by companies or individuals looking to receive payment in return for creating (or restoring) biodiversity habitats on their property. The biodiversity restoration projects are financed by compensation from developers looking to offset their biodiversity impact. The resulting change in biodiversity levels at the new receptor sites should be equal to, or greater than, the losses at the original ‘impact site’; in order to achieve no net loss – and preferably gain – of overall biodiversity. Such systems often rely on the buying (by developers) and selling (by landowners) of conservation credits.

However, characteristics of receptor sites can vary across different jurisdictions. In some countries, for instance, land is primarily state-owned, and so it is the government that owns and manages biodiversity offset projects. For biodiversity offsets in marine environments, receptor sites might be subject to multiple management organisations and not necessarily owned by anyone. Controversially, some biodiversity offsets use existing protected areas as receptor sites (i.e. improving the effectiveness of areas that are already managed for biodiversity conservation).

Requirement to offset biodiversity
Biodiversity offset projects can be found on every major continent besides Antarctica. As of 2019, over 100 countries had, or were developing, policies for biodiversity offsetting and more than 37 countries required biodiversity offsets by law. These policies generally implement biodiversity offsetting within planning systems to compensate for unavoidable residual damage to biodiversity as the final step of a mitigation hierarchy, a tool to manage biodiversity risk. Where damage to biodiversity cannot be avoided or reduced, biodiversity offsetting may then be used as a conservation tool with the idea that development projects will result in either "no net loss", "net gain", or "net positive impact" of/on biodiversity.

The terms used to describe biodiversity offsetting and the method of implementation differ regionally. The term 'biodiversity offsetting' is generally used across Australia, New Zealand, South Africa, and the United Kingdom. However, different terms are used elsewhere: Biodiversity offsetting may also be required by lending institutions that co-finance developments. For example, any project financed by the International Finance Corporation (IFC) must deliver "no net loss" or "net gain" of biodiversity, required under the IFC's Performance Standard 6 (PS6). PS6 is regarded as influential and an example of best practice. However, as of 2019, only 8 offset projects had been implemented directly because of this requirement.

Finally, offset projects may arise from voluntary commitments made by corporations or across a sector. Only a small proportion of offsets arise in this way, but the projects generated tend to be larger than those arising from public policy requirements. For example, the Ambatovy mine in Madagascar uses voluntary avoided loss offsets to mitigate impacts on biodiversity by compensating for forest clearance at the mine. The project is on track to achieve no net loss, but the permanence of conservation outcomes achieved using its biodiversity offsets is not yet known.

Compensatory mitigation in the US
No Net Loss policy (and consequently, biodiversity offsetting) has its origin in US legislation, specifically in the Water Act from the 1970s. This piece of legislation required 'no net loss of wetland acreage and function', leading eventually to the creation of mitigation banks, where wetland credits are bought and sold.

The US also has a Conservation Banking policy in which credits representing areas of habitat for protected fauna species are traded.

In the US, offsetting tends to be called 'compensatory mitigation'.

Offsetting in Australia
Much of the scientific research into biodiversity offsetting outside of the US has been conducted by Australia, especially organisations such as CEED and CSIRO.

Biodiversity offset policies have become established in a number of Australian states (especially Victoria and New South Wales), and there is also a federal biodiversity offset policy. States tend to operate biodiversity banking mechanisms at the regional level. Major species include koalas, the red‐tailed black‐cockatoo, and the green and golden bell frog which required 19 times more habitat to achieve no net loss.

Biodiversity Net Gain in England
Biodiversity offsetting has been formally implemented into the planning process in England through the introduction of Biodiversity Net Gain (BNG) on February 12 2024 under the Environment Act 2021 through modification to the Town and Country Planning Act. BNG is England’s domestic ecological compensation policy, designed to compensate for ecological harms caused by new developments. BNG requires that, to gain planning permission from Local Planning Authorities (LPAs), developers must demonstrate a 10% net gain in biodiversity under the proposed development, relative to the pre-development scenario, using a 'Statutory Biodiversity Metric'.

Failure to meet this criterion obligates the developer to adjust their project plan, or compensate for the shortfall in biodiversity units through the purchase of biodiversity offsets, which are delivered either through a payment to the council or a third party, such as a broker managing a habitat bank. If no compensation sites are available within the local planning authority where the development is planned, compensation is permitted in other local authorities, triggering an increase in compensatory units required due to a spatial multiplier within the Metric. As a final option, developers can purchase 'statutory biodiversity credits' from the national government. Offsetting therefore represents a small proportion of biodiversity enhancements delivered through the policy; the majority of biodiversity enhancements come through habitat management activities implemented within the boundaries of new developments themselves.

Assessments for Biodiversity Net Gain are conventionally integrated into the Ecological Impact Assessment (EcIA) process. This involves using data gathered from pre-development ecological surveys and processing it through the Statutory Biodiversity Metric (an Excel-based tool), to give a measure of the ecological value of a site in 'biodiversity units'. The metric uses habitat as a proxy for biodiversity by combining factors like area, habitat condition, distinctiveness, and multiple parameters (like risk, the time required for habitat development, and the ecological significance of the site on a landscape scale) for each habitat section within the development area. Using the metric, an overall biodiversity score, measured in biodiversity units, is generated. Baseline biodiversity units within the development area and associated compensation areas owned or managed by developers are compared with anticipated biodiversity units following development. For example, if a develop damages a habitat of “high distinctiveness”, they will be required to compensate with habitat of the same type, instead of trading for a less ecologically-valuable habitat.

Preliminary scientific evidence on the ecological outcomes of Biodiversity Net Gain suggests the policy facilitates the trade of habitat losses from construction for smaller, but more ecologically valuable habitats to be delivered in the future. There are concerns that the governance (monitoring and evaluation) of the biodiversity benefits delivered through the policy is insufficient to ensure these future biodiversity outcomes are effectively secured. Additionally, there are concerns that the Biodiversity Metric may not be an effective proxy for biodiversity, and therefore that a net gain in biodiversity demonstrated by the metric may not translate into real-world improvements in biodiversity such as wildlife populations.

Prior to Biodiversity Net Gain
Prior to this policy, developers could voluntarily incorporate offsets into project plans after following a mitigation hierarchy to manage risk to biodiversity by taking steps to avoid and minimise ecological harm at the development site, unless legally required for impacts to protected sites and species.

The Lawton Review in 2010 proposed that biodiversity offsets established through planning processes could be used to enhance ecological networks, but warned that biodiversity offsetting must not become ‘a licence to destroy’. At the time the report was written, offsetting was mandatory only in areas where a development of great public interest would have a significant impact on the European Union’s Natura 2000 network or any site inhabited by a European protected species. The Review recommended the establishment of pilot schemes to test potential biodiversity offsetting systems in the country. A 2011 white paper ‘The natural choice: securing the value of nature’ responded to the Lawton review and announced plans to introduce voluntary biodiversity offsetting through pilot schemes.

In April 2012, the Department for Environment, Food, and Rural Affairs (Defra) launched a voluntary biodiversity offsetting pilot scheme. Developers in pilot areas were required to provide compensation for biodiversity loss under planning policy and were able to choose offsetting to do so. The scheme also aimed to test a biodiversity offsetting metric developed by Defra. This scheme included 6 pilot areas: Doncaster, Devon, Essex, Greater Norwich, Nottinghamshire, and Warwickshire. In March 2014, the pilot scheme ended and was reviewed by Collingwood Environmental Planning Limited in partnership with the Institute for European Environmental Policy (IEEP). However, the scheme also drew criticism from Friends of the Earth who described it as a “licence to destroy” and the possibility of like-for-like compensation of biodiversity loss has been questioned.

In 2012, a standard metric for biodiversity was piloted by Defra for use in the biodiversity offsetting pilot scheme. Consultation from environment, planning, land management, academic, and development sectors led to numerous updated biodiversity metrics over a period of several years. Biodiversity Metric 4.0 was launched by Defra and Natural England in March 2023 to measure Biodiversity Net Gain. A Statutory Biodiversity Metric was later introduced as part of the Environment Act as the legally mandated metric for use under the biodiversity net gain policy. This metric uses habitat as a proxy for biodiversity by combining factors like area, habitat condition, distinctiveness, and multiple parameters (like risk, the time required for habitat development, and the ecological significance of the site on a landscape scale) for each habitat section within the development area.

The Government announced plans to mandate a biodiversity net gain policy in England in March 2019, as part of an Environment Bill that would require 'developers to ensure habitats for wildlife are enhanced and left in a measurably better state than they were pre-development’. The Bill was later enacted as the Environment Act 2021. Initially, BNG was planned to come into force by November 2023, but delays meant that it was not implemented until February 12 2024. This delay was criticised by environmentalists, including The Wildlife Trusts, who called it “another hammer blow for nature.” In response to these criticisms, a government spokesman reaffirmed the government’s commitment to BNG, saying that “we are fully committed to biodiversity net gain which will have benefits for people and nature.”

Economic value
Biodiversity is increasingly seen as having economic value due to growing recognition of the world's finite natural resources and through the benefits of ecosystem services (nature providing clean air, food and water, natural flood defences, pollination services and recreation opportunity). Placing financial value on biodiversity has created a marketplace for retaining and restoring habitats.

Financial gain from biodiversity offsetting is brought about through the sale of conservation credits by landowners through biodiversity banking mechanisms. Individuals or companies who are looking to receive financial payment in return for creating or enhancing particular wildlife habitats on their property can have their land valued in conservation credits by a biodiversity offsetting broker who will then register their credits for sale  to developers looking to offset any residual impact to biodiversity from their approved developments.

Developers can also find the business of biodiversity offsetting appealing financially as the compensation payment for their project's residual biodiversity impact is handled in one agreement and the landowner receiving that payment (and therefore the habitat re-creation duties) is responsible for the biodiversity restoration and management thereafter. The cost may represent a small proportion of a developer's budget and is often outweighed by a project's long-term gains. As corporate social responsibility is often part of larger companies’ business priorities, being able to demonstrate environmentally responsible practices can be an additional incentive.

Biodiversity offsetting based upon showing the economic value of lost habitat is highly controversial. The schemes proposed for the UK have been regarded as failing to protect biodiversity and indeed leading to further losses in the prioritisation of development over conservation. The basic economics has been described by ecological economist Clive Spash as leading to the “bulldozing of biodiversity” under an approach that regards optimal species extinction as being necessary to achieve economic efficiency.

Conservation credits
The cost of re-creating an area of habitat affected by a development proposal (impact site) can be calculated and represented as a number of conservation credits that a developer could purchase in order to offset their biodiversity impact. Land put forward for investment to re-create impacted biodiversity (receptor site) is also calculated in conservation credits (to account for the cost of creating or restoring biodiversity at that particular site and to cover the cost of its long-term conservation management). This situation enables the buying (by developers) and selling (by landowners) of conservation credits. Government approved (quantitative and qualitative) metrics should be used to calculate the number of conservation credits that can be applied to each site, in order to maintain accuracy and consistency in the value of a conservation credit.

Motivation
A decline in global biodiversity is being driven, partially, by land-use changes, including for the purpose of developing infrastructure. Reconciling economic development with the need to conserve biodiversity can therefore be a challenge, particularly in developing countries. The need to address this decline acted as a motivation for creating a system within the planning process that tackles unavoidable and residual impacts to biodiversity.

Putting this into practice often involves formal evaluation of possible impacts on wildlife (and their habitat) at a potential development site before developers can receive approval. This may occur in the form of Environmental Impact Assessments (EIA), which look at how proposed projects would impact the environment (including biodiversity) at the development site in conjunction with social and economic issues. EIAs have become widespread within the work of government planning authorities. In some jurisdictions, they are legally required and these requirements often motivate the use of biodiversity offsetting.

The approval of a project proposal may depend upon the use of measures to mitigate its potential impacts. A package of measures, including biodiversity offsetting, could be recommended as part of the EIA process. The mitigation hierarchy is commonly applied to EIAs to guide the mitigation of negative impacts on biodiversity. The mitigation hierarchy is a framework of sequential steps (avoid, reduce/minimise, restore/rehabilitate, and offset) and biodiversity offsetting is its final step to counterbalance impacts that cannot be avoided or reduced.