BBOP and aggregated offsets 101
{ Posted on 01:27
by Economics of Biodiversity
}
The BBOP initiative
The Business and Biodiversity Offsets Program (BBOP) is a partnership of companies, government agencies, scientists and NGOs, supported by the Forest Trends and Conservation International . The BBOP wants to show, through a portfolio of pilot projects in a range of industry sectors, that biodiversity offsets can help achieve significantly, better and more cost-effective conservation outcomes than normally occur in infrastructure development. The BBOP also thinks that demonstrating no net loss of biodiversity can help companies secure their license to operate and manage their costs and liabilities.
During the first phase of the BBOP (between 2004 and 2008), six pilot projects were launched, to try to demonstrate the "no net loss" of biodiversity and livelihood benefits. It designed a "how to" toolkit for offset design and implementation, as well as its principles, and tried to influence policies on offsets to meet their conservation and business objectives.
Offsets in general
Biodiversity offsets are measurable conservation actions intended to compensate for significant residual, unavoidable harm to biodiversity caused by major development projects, after appropriate prevention and mitigation measures have been taken. It aims at ensuring that at least no net loss of biodiversity and, where possible, net gain , with respect to the original state of the ecosystem, as well as preserving the people's use and culture of the areas.
To be efficient, such actions should respect the mitigation hierarchy: it should take place after the avoidance, impact minimization, and rehabilitation measures. They have to be conducted in a transparent way, in the landscape context, with the stakeholders' participation, and aim at long-term outcomes.
Biodiversity offsets are necessary for three main reasons. First, there are laws requiring offsets in the US, EU, Brazil and Australia. The second reason is to build a good business case for voluntary offsets, which tends to be an advantage in risk management. As a result, for example, companies obtain permits rapidly, competitive advantage since best companies are preferred partners, and build good relationships with the different stakeholders. The business case for biodiversity offsets also gives the firm an "influence" on emerging environmental regulation and policies . At the same time, it can also be seen as a bad practice if there are permit delays, liabilities, and high costs.
These offsets rely on principles. They have for example to result in a no net loss of biodiversity, and achieve conservation outcomes above and beyond results that would have occurred if the offset had not taken place – while not displacing activities harmful to biodiversity to other locations. They also cannot compensate some losses, because of the irreplaceability or vulnerability of affected biodiversity. Moreover, offsets should be designed in a landscape context, and sharing the revenues in an equitable manner, especially in the case of local communities and indigenous people.
More details on offsets and aggregated offsets.
The offset context in the US is relatively clear. The US offset market is divided in two segments, the Clean Water Act, for wetland and stream mitigation, and the Endangered Species Act, for endangered species mitigation. Mitigation can be performed in three different ways: develop a mitigation parcel, create an in-lieu fee fund ie, paying a government authority), or by buying credits from a bank. This latter is interesting for the client, because of its ecological effectiveness, and administrative efficiency. The demand comes from both the public and the private sector, especially from high land use projects, when the supplies also originates from private actors (such as farmers, ranchers, banking companies,..) and the public sector, with municipalities. Wetland banking stared in the early 1980s, while species banking in the 1990s. There are currently ~800 wetland banks, and 115 species bank, the latter covering 80.000 acres. In 2007, the market was of $2 billion in single offsets, and $1.3 billion of offset banking. Banks in this case represent a "privately or publicly owned land managed for its natural resource values" , whose owner can sell habitat credits to parties wanting to fulfill their legal requirements. The life of a mitigation bank involves several steps: the restoration, enhancement or preservation of an environmental asset; the conversion of resources into marketable credits based on a credit ratio; the sale of credits to offset impacts to similar resources within a service area. It should obtain approval as Mitigation Banking Instrument, taking 1 to 3 years.
The aggregated offsets may be a proposition to answer to the diverse threats and pressures occurring on a important biodiversity area. Moreover, the aggregation can address the issue of fragmented and constrained ecosystems: the conservation of a sufficiently large area can help to maintain the integrity of characteristic biodiversity. In that sense, the respondents of the scoping study have said that aggregated offsets could 'make sense'. The key areas for such tools have been identified as important biodiversity zones with multiple threats and pressures. New regulations will be effective on June 9, 2008, seeking to promote one standard for mitigation, with a preference for mitigation banking.
The principle to aggregate first can lead to a co-ordinated approach focused on priority areas. This also can lead to a greater ecological value, by creating for example a greater connectivity, and reducing the edge effect. Strategically, the offset can be planned to avoid uncoordinated single offsets. They also de facto turn a liability into an asset, since conservation values are usually seen as restricting land development and resale value.
Administratively, it also enables the different developers to gather their resources and to have standardized performance standards, when delivering the offsets. This can actually reduce the different costs through economies of scale, and different synergies, while avoiding the duplication of stakeholders' efforts (eg through easier ecological monitoring, permitting time reduction …). In bank offsets, the bank retains the legal liability for the offset credit, which means the buyer does not bear the performance risk.
However, aggregated offsets also have a set of drawbacks. The teamwork could result in difficult agreements on the right contribution of each party that can meet a consensus, and a complexity of transaction that could lead to increased costs and delays, which can be capital for small users. Too many developers could also mean that there is a reduced transparency of each developer's contribution to the offset. Moreover, the intervention of a third party to supervise the whole process can result in reputation risks, and maybe in financial payments to the operator that will not be translated into 'on the ground' outcomes. The offsets being concentrated in one place, there is also a magnified risk of a catastrophe, with no back-up, diversified portfolio. Adaptation (to climate change for example) should also be considered. Also, the certification process is still evolving: there is no fungibility for credits yet. Finally, in some cases, the market supply is not static. With rising standards for example, some suppliers will disappear.
Aggregated offsets nonetheless remain attractive when the suitable conditions are met. For example, pooling either skills, knowledge or resources can lead to significant, effective biodiversity offsets. This can also be the case for actors in the same sector and area that are required to meet a shared standard. Some conditions need to be fulfilled for the mechanism to be successful. First, it should be demand-driven, either through legislation or EIA policy compliance, or through a voluntary approach (ie for environmental risk management; or to assure the license to operate). The supply also should be cleared of practical (Are there landowners willing provide offsets?) and ethical (Are local small landowners able to supply as well as corporate land owners?) issues. Finally, monitoring should be efficient, to ensure the product legitimacy. The study also reports that some particular approaches should be developed, especially in laws that currently lack amendments to enable aggregated offsets. The collaborative process should also be standardized, in order to reach agreements between the several parties, to determine each contribution to the offset, as well as to explore the use of coalition of key stakeholders to 'steer' the offsets.
The US government seems interested in testing aggregated offsets. The presentation highlights a few factors to consider in developing a pilot, such as : aiming at a particular clustered development sector, having the support of a legal and/or planning system (since regulatory enforcements are key drivers to the creation of markets), and obtaining the support of a individual or organization able to 'champion' an aggregated offset pilot. Key to all of this, is a thorough understanding of supply, demand, and local context. Maybe factors such as clear and uniform standards, as well as uniform mitigation metrics, and other transfers of liabilities and certification process could be useful to facilitate the market.
The Business and Biodiversity Offsets Program (BBOP) is a partnership of companies, government agencies, scientists and NGOs, supported by the Forest Trends and Conservation International . The BBOP wants to show, through a portfolio of pilot projects in a range of industry sectors, that biodiversity offsets can help achieve significantly, better and more cost-effective conservation outcomes than normally occur in infrastructure development. The BBOP also thinks that demonstrating no net loss of biodiversity can help companies secure their license to operate and manage their costs and liabilities.
During the first phase of the BBOP (between 2004 and 2008), six pilot projects were launched, to try to demonstrate the "no net loss" of biodiversity and livelihood benefits. It designed a "how to" toolkit for offset design and implementation, as well as its principles, and tried to influence policies on offsets to meet their conservation and business objectives.
Offsets in general
Biodiversity offsets are measurable conservation actions intended to compensate for significant residual, unavoidable harm to biodiversity caused by major development projects, after appropriate prevention and mitigation measures have been taken. It aims at ensuring that at least no net loss of biodiversity and, where possible, net gain , with respect to the original state of the ecosystem, as well as preserving the people's use and culture of the areas.
To be efficient, such actions should respect the mitigation hierarchy: it should take place after the avoidance, impact minimization, and rehabilitation measures. They have to be conducted in a transparent way, in the landscape context, with the stakeholders' participation, and aim at long-term outcomes.
Biodiversity offsets are necessary for three main reasons. First, there are laws requiring offsets in the US, EU, Brazil and Australia. The second reason is to build a good business case for voluntary offsets, which tends to be an advantage in risk management. As a result, for example, companies obtain permits rapidly, competitive advantage since best companies are preferred partners, and build good relationships with the different stakeholders. The business case for biodiversity offsets also gives the firm an "influence" on emerging environmental regulation and policies . At the same time, it can also be seen as a bad practice if there are permit delays, liabilities, and high costs.
These offsets rely on principles. They have for example to result in a no net loss of biodiversity, and achieve conservation outcomes above and beyond results that would have occurred if the offset had not taken place – while not displacing activities harmful to biodiversity to other locations. They also cannot compensate some losses, because of the irreplaceability or vulnerability of affected biodiversity. Moreover, offsets should be designed in a landscape context, and sharing the revenues in an equitable manner, especially in the case of local communities and indigenous people.
More details on offsets and aggregated offsets.
The offset context in the US is relatively clear. The US offset market is divided in two segments, the Clean Water Act, for wetland and stream mitigation, and the Endangered Species Act, for endangered species mitigation. Mitigation can be performed in three different ways: develop a mitigation parcel, create an in-lieu fee fund ie, paying a government authority), or by buying credits from a bank. This latter is interesting for the client, because of its ecological effectiveness, and administrative efficiency. The demand comes from both the public and the private sector, especially from high land use projects, when the supplies also originates from private actors (such as farmers, ranchers, banking companies,..) and the public sector, with municipalities. Wetland banking stared in the early 1980s, while species banking in the 1990s. There are currently ~800 wetland banks, and 115 species bank, the latter covering 80.000 acres. In 2007, the market was of $2 billion in single offsets, and $1.3 billion of offset banking. Banks in this case represent a "privately or publicly owned land managed for its natural resource values" , whose owner can sell habitat credits to parties wanting to fulfill their legal requirements. The life of a mitigation bank involves several steps: the restoration, enhancement or preservation of an environmental asset; the conversion of resources into marketable credits based on a credit ratio; the sale of credits to offset impacts to similar resources within a service area. It should obtain approval as Mitigation Banking Instrument, taking 1 to 3 years.
The aggregated offsets may be a proposition to answer to the diverse threats and pressures occurring on a important biodiversity area. Moreover, the aggregation can address the issue of fragmented and constrained ecosystems: the conservation of a sufficiently large area can help to maintain the integrity of characteristic biodiversity. In that sense, the respondents of the scoping study have said that aggregated offsets could 'make sense'. The key areas for such tools have been identified as important biodiversity zones with multiple threats and pressures. New regulations will be effective on June 9, 2008, seeking to promote one standard for mitigation, with a preference for mitigation banking.
The principle to aggregate first can lead to a co-ordinated approach focused on priority areas. This also can lead to a greater ecological value, by creating for example a greater connectivity, and reducing the edge effect. Strategically, the offset can be planned to avoid uncoordinated single offsets. They also de facto turn a liability into an asset, since conservation values are usually seen as restricting land development and resale value.
Administratively, it also enables the different developers to gather their resources and to have standardized performance standards, when delivering the offsets. This can actually reduce the different costs through economies of scale, and different synergies, while avoiding the duplication of stakeholders' efforts (eg through easier ecological monitoring, permitting time reduction …). In bank offsets, the bank retains the legal liability for the offset credit, which means the buyer does not bear the performance risk.
However, aggregated offsets also have a set of drawbacks. The teamwork could result in difficult agreements on the right contribution of each party that can meet a consensus, and a complexity of transaction that could lead to increased costs and delays, which can be capital for small users. Too many developers could also mean that there is a reduced transparency of each developer's contribution to the offset. Moreover, the intervention of a third party to supervise the whole process can result in reputation risks, and maybe in financial payments to the operator that will not be translated into 'on the ground' outcomes. The offsets being concentrated in one place, there is also a magnified risk of a catastrophe, with no back-up, diversified portfolio. Adaptation (to climate change for example) should also be considered. Also, the certification process is still evolving: there is no fungibility for credits yet. Finally, in some cases, the market supply is not static. With rising standards for example, some suppliers will disappear.
Aggregated offsets nonetheless remain attractive when the suitable conditions are met. For example, pooling either skills, knowledge or resources can lead to significant, effective biodiversity offsets. This can also be the case for actors in the same sector and area that are required to meet a shared standard. Some conditions need to be fulfilled for the mechanism to be successful. First, it should be demand-driven, either through legislation or EIA policy compliance, or through a voluntary approach (ie for environmental risk management; or to assure the license to operate). The supply also should be cleared of practical (Are there landowners willing provide offsets?) and ethical (Are local small landowners able to supply as well as corporate land owners?) issues. Finally, monitoring should be efficient, to ensure the product legitimacy. The study also reports that some particular approaches should be developed, especially in laws that currently lack amendments to enable aggregated offsets. The collaborative process should also be standardized, in order to reach agreements between the several parties, to determine each contribution to the offset, as well as to explore the use of coalition of key stakeholders to 'steer' the offsets.
The US government seems interested in testing aggregated offsets. The presentation highlights a few factors to consider in developing a pilot, such as : aiming at a particular clustered development sector, having the support of a legal and/or planning system (since regulatory enforcements are key drivers to the creation of markets), and obtaining the support of a individual or organization able to 'champion' an aggregated offset pilot. Key to all of this, is a thorough understanding of supply, demand, and local context. Maybe factors such as clear and uniform standards, as well as uniform mitigation metrics, and other transfers of liabilities and certification process could be useful to facilitate the market.
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