The boom of biodiversity offsets: innovative mechanisms for maintaining healthy ecosystems

Is it possible to achieve a no net loss, or even a net gain of biodiversity while maintaining economic growth? Biodiversity offsets can help achieve such a pressing goal. This emerging conservation strategy consists of actions that compensate for significant residual impacts arising from project development after prevention, minimization, and mitigation measures have been taken, following the mitigation hierarchy, in order to prevent a net loss of biodiversity. Offsets have the potential to enhance environmental values in situations where development implies negative residual impacts, turning cost into benefits, and liability into advantage.

Innovative mechanisms for maintaining healthy ecosystems

Biodiversity offsets have gained momentum across a variety of settings, including national legislation, scientific research, voluntary industry programs, and international lending. The development of policies that not only encourage the development of biodiversity offsets, but also require their implementation, is proliferating at a fast pace. At the Environmental and Social Safeguards Unit of the Inter-American Development Bank (IDB), we are part of this innovative trend. Through our Environmental and Safeguards Compliance Policy (OP-703), we require the implementation of offsets for residual impacts that cannot be fully mitigated for in critical natural habitats.

Amount of private companies with no net loss policies and amount of countries with national policies that require, encourage, or enable the use of offsets globally

As biodiversity offsets flourish, interest on markets for offset credits is also gaining momentum as a way to mainstream and scale-up their implementation. In such a crediting system, a project proponent can secure a certain amount of natural resource value (i.e., credits) within a “bank” to offset the impacts to those same values offsite, thus being able to complete conservation needs through a one-time purchase. The establishment of a banking system for biodiversity offsets invariably leads to a series of advantages for national governments, including:

• A “one-stop-shop” institutional framework that scales up efficient conservation through one simplified transaction;
• A new source of financing for conservation projects at the national level; and
• The potential for directing conservation strategies towards established national priorities, among others.

Currently, the United States dominates the market for offset credits through a Species Conservation Banking System, with annual sales ranging between US$2-US$3.4 billion. Canada, Australia, New Zealand, and several other European countries have similar systems in place.

The offset credit system

The development of a market for offset credits requires three basic elements:

1. The existence of regulations that require offsets, thus creating a demand that conservation banks could supply;
2. Technical infrastructure to support the corresponding transactions; and
3. Baseline biodiversity data available across the national territory.

In Colombia, the co-existence of these three pillars have led to the development of the first Habitat Bank of Latin America and the Caribbean in February of this year, an initiative financed by the IDB and the Multilateral Investment Fund (MIF). This pioneer Habitat Bank, located in the Meta Department of Colombia, has set aside 610 hectares (ha) for the development of restoration and/or conservation projects in compensation for the residual impacts of determined development projects. It is expected that the initiative will result in the restoration of 130 ha of priority savannah and forest ecosystems and the conservation of an additional 475 ha of land for at least 30 years.

Envisioned as an on-the-ground pilot initiative that demonstrates new modes of compensation in Latin America and the Caribbean, the Colombian Habitat Bank has set the precedent for the development of similar market-based mechanisms for the implementation of biodiversity offsets across the region, looking to strike a balance between development and conservation. As with other finance conservation instruments, these initiatives have the potential of significantly unlocking and scaling up conservation investments and contributing towards bridging the current economic gap for financing conservation needs, thus preserving our last healthy ecosystems.