The voluntary biodiversity credit market, a mechanism where private companies fund biodiversity conservation and restoration projects, has been touted as a potential game-changer. However, a new review study casts a shadow of doubt on its effectiveness in its current state, noting substantial methodological and regulatory gaps .
The study was published in the journal Proceedings of the Royal Society B, highlighted “deep uncertainties” within the market and questioned whether its benefits truly outweigh the potential harms.
Biodiversity markets are being designed to channel private sector funding towards schemes that aim to conserve and restore biodiversity. Biodiversity credits represent measurable and evidence-based units of positive biodiversity outcomes that exceed what would have otherwise occurred.
These outcomes are quantified as the difference between scenarios with and without project interventions in conserving ecosystems, species and habitats.
The market has grown increasingly prominent, featuring in discussions at global conferences and frameworks. The 2022 Kunming-Montreal Global Biodiversity Framework under the Convention on Biological Diversity also calls for innovative financing mechanisms like payment for ecosystem services, green bonds, biodiversity offsets and credits, benefit-sharing mechanisms, with environmental and social safeguards, aiming to mobilise $200 billion annually by 2030.
“There has been an explosion of actors developing biodiversity credits, a new asset class designed to entice investment into conservation,” read the review paper.
Estimates by the World Economic Forum place the biodiversity credit market’s current value at $8 million, with projections suggesting a surge to $2 billion by 2030 and $69 billion by 2050.
The review study examined how biodiversity credit operators define a biodiversity unit. The researchers focused on methodologies developed by organisations proposing to sell biodiversity credits on the international voluntary market and how they address the challenges in defining them.
They scanned the methodologies for how they are framed (what a single credit represents), quantified (how biodiversity is measured at project sites), detected (how conservation or restoration outcomes are tracked over time and attributed to investments) and adjusted (how the number of credits issued accounts for factors beyond project control).
The researchers found that nearly all methodologies (except one) sell credits based on area, typically measuring biodiversity in hectares. In contrast, forest carbon credits use the standardised unit of one tonne of carbon dioxide (CO₂), or CO₂ equivalent.
Biodiversity credits are often issued for five years but can range from one month to the entire duration of a project, the study pointed out.
A key challenge lies in the fungibility, or interchangeability, of biodiversity credits due to the complexity of biodiversity. Some methodologies attempt to standardise biodiversity gains across ecosystems, continents and biomes, but this overlooks the unique, place-specific importance of biodiversity.
For instance, an isolated forest patch cannot be equated to one within a larger, connected landscape.
Quantification is another issue, as metrics reduce biodiversity complexity to a single value. Two main approaches were observed: assigning a numeric value to the ecosystems at a site, where higher numbers indicate greater biodiversity, or classifying sites as healthy or not.
These methods, however, focus only on measurable aspects, ignoring species interactions, cultural significance and the intrinsic value of biodiversity to Indigenous peoples and local communities — factors that are difficult to quantify.
The review also examined detection, which is important for confirming that biodiversity has either been conserved (preventing degradation) or restored (improving conditions). Metrics for detection, however, carry significant uncertainties.
For example, butterfly population trends require long-term data due to yearly variations. Short- to medium-term assessments risk unfairly rewarding or penalising biodiversity credit projects.
Demonstrating additionality — showing that investments lead to positive biodiversity outcomes beyond business-as-usual — is another challenge. Gathering data on outcomes is expensive and additional investment does not always guarantee success. In some cases, governments use the revenues generated by biodiversity markets to justify their expenditure on public biodiversity, according to the review, raising questions about true additionality.
Lastly, the review addressed adjustment mechanisms, which account for external factors like leakage. Leakage occurs when harmful activities, such as deforestation, are displaced to other areas. For example, farmers may switch land use to biodiversity credits, prompting others to convert new land for agriculture elsewhere. While some methodologies attempt to address leakage, most lack clear guidance on how to calculate it effectively, the researchers noted.
“Regulation could address some of these risks, but effective enforcement of regulation on the voluntary biodiversity credit market would require very substantial industry-generated will, as well as transparency and civil society scrutiny,” they added.