How much of a market is involved in a biodiversity offset? A typology of biodiversity offset policies

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Abstract

Biodiversity offsets (BO) are increasingly promoted and adopted by governments and companies worldwide as a policy instrument to compensate for biodiversity losses from infrastructure development projects. BO are often classified as ‘market-based instruments’ both by proponents and critics, but this representation fails to capture the varieties of how BO policies actually operate. To provide a framing for understanding the empirical diversity of BO policy designs, we present an ideal-typical typology based on the institutions from which BO is organised: Public Agency, Mandatory Market and Voluntary Offset. With cross-case comparison and stakeholder mapping, we identified the institutional arrangements of six BO policies to analyse how the biodiversity losses and gains are decided. Based on these results, we examined how these six policies relate to the BO ideal types. Our results suggested that the government, contrary to received wisdom, plays a key role not just in enforcing mandatory policies but also in determining the supply and demand of biodiversity units, supervising the transaction or granting legitimacy to the compensation site. Mandatory BO policies can be anything from pure government regulations defining industry liabilities to liability-driven markets where choice sets for trading credits are constrained and biodiversity credit prices are negotiated under state supervision. It is important to distinguish between two processes in BO: the matching of biodiversity losses and gains (commensurability) and the trading of biodiversity credits (commodification). We conclude that the commensurability of natural capital is restricted in BO policies; biodiversity is always exchanged with biodiversity. However, different degrees of commodification are possible, depending on the policy design and role of price signals in trading credits. Like payments for ecosystem services, the price of a biodiversity credit is most commonly based on the cost of management measures rather than the ‘value’ of biodiversity; which corresponds to a low degree of commodification.

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Koh, N. S., Hahn, T., & Boonstra, W. J. (2019). How much of a market is involved in a biodiversity offset? A typology of biodiversity offset policies. Journal of Environmental Management, 232, 679–691. https://doi.org/10.1016/j.jenvman.2018.11.080

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