Global leaders have committed to halting and reversing the ongoing degradation of nature within the next few decades. But with tight public budgets, governments around the world are looking towards nature markets as one way to attract more private investment into nature.
Author
- Sophus zu Ermgassen
Postdoctoral Researcher, Nature Finance, University of Oxford
Nature markets are systems for measuring an ecological improvement on some land, then creating a representation of that improvement as a credit, which can then be bought and sold. In theory, they allow governments to attract more private investment and diversify funds that help restore nature . The reality is much more complicated.
My colleagues and I recently published a paper that outlines a checklist that can be used to sense-check whether a nature or nature-based carbon credit is likely to be real - and to make sure you really do get what you're paying for.
Nature markets include both voluntary and mandatory nature-based carbon and biodiversity markets. Examples include the EU's nature credits roadmap, England's biodiversity net gain policy and the international voluntary carbon market.
Most of these are offset markets - the buyers of credits use them to claim they have achieved an overall net neutral outcome from their damaging activities; such as improving grasslands in one place to compensate for the conversion of grassland to buildings in another.
These types of nature credit markets are not new. They have been used around the world for more than 30 years and there's plenty of research that tries to quantify what makes them effective or ineffective.
Some nature markets, like the US wetland mitigation markets, have attracted a lot of investment and now create nearly as much new wetland as gets destroyed each year . Other nature markets, such as Australia's human-induced regeneration carbon credits, have delivered limited ecological outcomes and has involved awarding credits to projects claiming to regenerate trees in the Australian desert.
So how can citizens, the commercial buyers of these credits and the governments that oversee some of these systems, ensure that a nature-based carbon or nature credit represents a real improvement in nature?
Our study evaluates lessons from seven major nature markets around the world. It summarises several key elements that are crucial for establishing scientifically credible nature markets.
Ensuring integrity
The environmental feature that the nature market measures and trades needs to actually correlate with the environmental improvement that you want. So if you want to capture more carbon, it often makes sense to have a credit that measures changes in tree cover or biomass, because there's plenty of evidence that trees in a forest store atmospheric carbon .
Some nature markets use proxies that are based on assumptions that are not always true. For example, England's biodiversity net gain system aims to deliver a 10% improvement in biodiversity, but the specific metric that it used measures the extent and quality of habitats such as wildflower meadows. Subsequent work found that this does not necessarily lead to more diverse insect life, for example because the land might be affected by pesticides.
For nature markets to deliver scientifically credible improvements, it's necessary to make sure they're not paying people to deliver ecological improvements that they would have been delivering anyway. This has been the fundamental problem with carbon credits based on the premise of preventing deforestation that would otherwise have occurred - they have mostly paid for the protection of forest that wouldn't have been cleared.
Over the last few decades, there has been immense research effort into studying so-called "additionality" in carbon credits (this means a project's emissions reductions or removals wouldn't happen without revenue from selling carbon credits). Academics have created new methods that allow us to rigorously estimate the additionality of many land management interventions using satellite data.
Evaluations of nature markets consistently show that, in all nature markets, some projects are highly successful while some are unsuccessful. By only issuing credits once they've been proven to work (using advanced statistical techniques such as 'matching' and carefully designed regression analysis), credits are much more likely to represent something additional and this would enable only successful projects to generate credits, giving buyers confidence in the product.
The next consideration is public data availability. Every single evaluation of a nature market that has ever been conducted was enabled by public data availability. And every single nature market that has been evaluated to date has been found to not have achieved its full environmental objectives. Without public data, there's no way of checking whether things are working . Public transparency of data is essential for improving nature markets.
Nature credits often aim to improve nature over relatively long timescales, say 30 years. So laws and regulations that hold people, businesses and markets accountable are essential to avoid the reversal of nature credits in the future. With forward planning and legally binding accountability, the system can maintain its scientific integrity and live up to its promise of attracting more high-quality investment into nature.
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Sophus zu Ermgassen receives funding from NERC and the EU Horizon 2020 programme. He is on the EU Commission's expert group for the EU Nature Credits Roadmap.
