Guest Post: Ecosystem Marketplace

At $3 Billion Per Annum, Biodiversity Markets Dwarf the Voluntary Carbon Market

The biodiversity market posted at least $3 billion in transactions last year, showing steady growth, according to a new report out from Ecosystem Marketplace. The “2011 Update: State of Biodiversity Markets” tracks biodiversity offsets and other compensation mechanisms globally, taking a look at new activity since last year’s benchmark report, “State of Biodiversity Markets.” The new report finds between $2.4 and $4 billion worth of transactions. Actual market volume is likely much higher, since price data is unavailable for about 80 percent of transactions, according to Ecosystem Marketplace.

Most of the action is happening through ‘mitigation banks,’ which generate credits from ecological restoration projects that can be purchased by any party looking to offset their environmental damage, either voluntarily or to comply with the law. (Regulated offsets take place within a ‘mitigation hierarchy’ framework; offsets can only be purchases if all other options – avoidance and minimization – can be exhausted.)

Done right, compensatory mitigation delivers a net environmental benefit: the restored natural habitat is both larger than the area damaged and better integrated into the regional ecosystem. About 70 percent of species banks are private operations that seek to earn a profit; others are run by government or non-profit organizations.

The US wetland and stream mitigation banking industry still dominates, accounting for between $2 and $3.6 billion of payments tracked in 2010. But Australian biodiversity markets are growing fast, and a new European Commission goal of a “no net loss” strategy for biodiversity on the continent by 2015 promises to be a shot in the arm for the EU offset market.

Business’ use of biodiversity offsets to address environmental impacts in their supply chains was another emerging trend noted in the report.  GreenPalm’s sustainably produced palm oil certification, for example, allows producers sourcing palm oil to ensure a biodiversity-neutral footprint by purchasing certificates equal to the volume used. Kellogg Company recently announced that it will begin purchasing GreenPalm certificates to cover 100% of its palm oil use. Meanwhile, Earthmind’s Green Development Initiative is developing a common biodiversity unit (measured in terms of certified land management) that would allow companies to compensate for global supply chain impacts.

Use of compensation mechanisms like these can have huge impact in developing countries, where many of the world’s biodiversity ‘hotspots’ are found and where biodiversity loss continues apace. The gap between rich and poor countries was a major finding in the “2011 Update: State of Biodiversity Markets” report. This is perhaps unsurprising – biodiversity markets have relatively high institutional capacity requirements. But on the other hand, market tools can bring in biodiversity finance when government coffers and traditional conservation approaches are coming up short, as they certainly are these days.

This issue – Can biodiversity markets be made to work in developing countries? How do they compare to traditional foreign aid or conservation financing? What are their limits – is the topic of an upcoming webinar Mission Markets is hosting with Ecosystem Marketplace on Monday July 11th at 10 am EDT (2 pm GDT). We encourage you to attend, learn more about the new “State of Biodiversity Markets” report, and discuss these questions with our panelists, who include Ecosystem Marketplace’s Becca Madsen, Kaavya Varma of the GIST Advisory, Jaime Cavelier of The Global Environmental Facility (GEF), and Andrew Bovarnick of the United Nations Development Program (UNDP). Click here to register.

Download the “2011 Update: State of Biodiversity Markets” report.

Ecosystem Marketplace, a project of the non-profit organization Forest Trends, is a leading source of information on environmental markets and payments for ecosystem services. Our publicly available information sources include annual reports, quantitative market tracking, weekly articles, daily news, and newsletters designed for different payments for environmental services stakeholders. We believe that by providing solid and trustworthy information on prices, regulation, science, and other market-relevant issues, we can help payments for ecosystem services and incentives for reducing pollution become a fundamental part of our economic and environmental systems, helping make the priceless valuable.