Biodiversity offsets: Views, experience, and the business case Kerry ten Kate, Josh Bishop and Ricardo Bayon November 200 Executive Summary The Executive Summary of this report is available at: http://www.insightinvestment.com/Documents/ responsibility/Executive_ Summary_Biodiversity_Offsets_Report.pdf, and from IUCN at: http://biodiversityeconomics.org/offsets/execsum.htm Acknowledgements This report was written by Kerry ten Kate, Director, Investor Responsibility, Insight Investment; Joshua Bishop, Senior Advisor, Economics and Environment, IUCN-The World Conservation Union; and Ricardo Bayon, an independent consultant. Caroline Barraclough of Insight Investment provided invaluable help in corresponding with all those involved and compiling their comments. The report is based primarily on interviews and discussions with the individuals listed in Appendix 1 (see page 88) and the authors are extremely grateful to them for the information, views and insights that they shared and for their comments on the draft report. Interviewees were speaking in their personal capacity and their views may not be the official policy of the organisations for which they work. Many other individuals have kindly contributed information on particular boxes and information included in the report and the authors would like to thank them as well. The authors have made their best efforts to ensure the accuracy of the information contained in this report and apologise for any inadvertent errors. Publication details The designation of geographical entities in this report, and the presentation of the material, do not imply the expression of any opinion whatsoever on the part of IUCN or Insight Investment concerning the legal status of any country, territory, or area, or of its authorities, or concerning the delimitation of its frontiers or boundaries. The views expressed in this publication do not necessarily reflect those of IUCN or Insight Investment. This publication has been made possible in part by funding from Insight Investment. Published by: IUCN, Gland, Switzerland and Cambridge, UK and Insight Investment, London, UK Copyright: © 2004 International Union for Conservation of Nature and Natural Resources and Insight Investment Management (Global) Ltd, London, UK Reproduction of this publication for educational or other non-commercial purposes is authorized without prior written permission from the copyright holder provided the source is fully acknowledged. Reproduction of this publication for resale or other commercial purposes is prohibited without prior written permission of the copyright holder. Citation: ten Kate, K.., Bishop, J., and Bayon, R. (2004). Biodiversity offsets: Views, experience, and the business case. IUCN, Gland, Switzerland and Cambridge, UK and Insight Investment, London, UK. ISBN: 2-8317-0854-0 Available from: IUCN Publications Services Unit, 219c Huntingdon Road, Cambridge CB3 0DL, UK Tel: +44 1223 277894 Fax: +44 1223 277175 E-mail: [email protected] www.iucn.org/bookstore And also: http://biodiversityeconomics.org/offsets and http://www.insightinvestment.com/Documents/responsibility/Biodiversity_Offsets_Report.pdf 2 Table of contents 1 Introduction 6 1.1 Methodology 7 1.2 Structure of this report 8 2 What is a biodiversity offset? 9 Offset or mitigate? 9 Offset and the environmental mitigation hierarchy 9 Offset or compensate? 9 Onsite or offsite? 10 The value of biodiversity and conservation in the context of sustainable development 10 No net loss (or net positive impact) 11 Biodiversity offsets compared with carbon and other offsets 12 3 Why biodiversity offsets? The conservation case 14 3.1 More conservation 14 3.2 Better conservation 16 3.3 Cost effective conservation 18 3.4 Giving value to conservation: creating value for undeveloped land 20 4 Why biodiversity offsets? The regulatory case 21 4.1 Policy context 21 4.2 Law requiring offsets 22 4.2.1 Wetland Banking in the US under the Clean Water Act 22 4.2.2 Conservation Banking in the US, under the Endangered Species Act 25 4.2.3 Habitats and Birds Directives and implementing regulations in the EU 28 4.2.4 Offsets in Brazil under the Forest Regulation & National System of Conservation Units 29 4.2.5 Federal Law for the Protection of Nature and Landscape in Switzerland 31 4.2.6 No net loss of fisheries habitat in Canada under the Fisheries Act 31 4.3 Facilitating law that can trigger negotiations on offsets 32 4.3.1 Environmental Impact Assessments 32 4.3.2 Planning law 33 4.3.3 Concession agreements 33 4.3.4 Policy that builds on a number of legal provisions 34 4.4 Mandatory or voluntary systems? 36 5 Why biodiversity offsets? The business case 38 5.1 The business case 38 5.1.1 License to operate, reputational risk, and regulatory goodwill 38 5.1.2 Access to capital 40 5.1.3 Lower costs of compliance 42 5.1.4 New market opportunities 43 5.1.5 First mover competitive advantage and the power to influence regulation 44 5.1.6 Clean break 44 5.1.7 Employee satisfaction and retention 45 5.2 Barriers to more voluntary offsets 45 5.2.1 Suspicion of companies’ motivations 45 5.2.2 Increased scrutiny 46 5.2.3 Unfulfilled promise 48 5.2.4 Legal liabilities and new responsibilities 49 5.3 Implementation of biodiversity offsets by companies 49 5.3.1 Signals of industry interest in biodiversity offsets 50 5.3.2 Corporate policies 50 The case until now: purely aspirational goals 50 Ad hoc contributions by charismatic individuals 52 Moves towards the offset mindset: demonstrating net positive effect and transcending environment/development trade-offs 52 3 6 How to offset: technical issues 55 6.1 Measuring impacts and establishing “no net loss” 55 6.1.1 Measuring impacts 56 6.1.2 Establishing equivalence for offsets 57 Ecological proxies 57 Economic valuation 60 6.2 Optimising conservation benefits 61 6.3 Location 62 6.3.1 Proximity to the site affected 62 6.3.2 The bigger picture: offsets further afield 63 6.3.3 International trade 65 6.3.4 Should “no net loss” for companies be at the site or corporate level? 65 6.4 Timelines 66 6.4.1 Duration of offsetting obligations 66 6.4.2 Should offsets be implemented in anticipation of development projects? 67 6.5 What kind of activities count as legitimate “offsets”? 68 6.5.1 Additionality 68 6.5.2 Conservation or capacity building? 69 6.5.3 Conservation or development? 71 7 How to offset: stakeholder issues 72 7.1 Who should be involved in designing an offset and who decides it is acceptable? 72 7.2 Who should implement a biodiversity offset? 73 7.3 National systems to define and administer biodiversity offsets 74 7.4 Who judges success? 75 8 Conclusions 77 8.1 Views on offset 77 8.1.1 Growing momentum and interest in biodiversity offsets 77 8.1.2 Possible advantages of biodiversity offsets 78 8.1.3 Associated risks 79 8.1.4 Lack of clear vision 80 8.2 Key conclusions 80 8.2.1 The meaning of biodiversity offsets and the mitigation hierarchy 80 8.2.2 The Offset Spectrum 81 8.2.3 Flexibility 82 8.2.4 Depends on stakeholders 83 8.2.5 Offsets benefit from clear priorities 83 8.2.6 Further work is needed 84 8.3 What would be needed to make it work? 84 8.3.1 Encourage more dialogue and a shared vocabulary 84 8.3.2 Ensure all stakeholders play their part 84 8.3.3 Pilot projects and case studies to experiment and demonstrate net benefits 86 8.4 Next steps for Insight and IUCN 87 Appendix 1: Interviewees and other informants 88 Appendix 2: Issues discussed during the interviews 90 References 92 4 List of boxes and tables Box 1: No net loss in Uganda 11 Box 2: The definition of “biodiversity offset” 13 Box 3: Ten newts and their £250,000 pond 17 Box 4: Cost-effectiveness arguments in New South Wales 19 Box 5: Legal requirements for biodiversity offsets and compensatory conservation activities 22 Box 6: Growth of wetland mitigation banking in the USA 23 Box 7: The Inland Sea Shorebird Reserve: a wetland offset to mitigate on-site habitat losses associated with Rio Tinto's Kennecott Utah Copper mine 24 Box 8: Potential benefits of conservation banks 26 Box 9: International Paper and the Red-Cockaded Woodpecker 26 Box 10: Conservation Banking in California 27 Box 11: Using chapter 106 for biodiversity offsets in the UK 33 Box 12: Summary of some recent policy on offsets in Australia 34 Box 13: Principles for Green Offsets in New South Wales 35 Box 14: The Equator Principles 40 Box 15: IFC and offsets: From Safeguard Policies to Performance Standards 41 Box 16: EBX: Making a Business out of Offsets 43 Box 17: The Chad-Cameroon pipeline 46 Box 18: The Heavy Crude Pipeline (OCP) in Ecuador 47 Box 19: One approach to enforcement 49 Box 20: Examples of voluntary corporate commitments related to offset 51 Box 21: NAM Protocol for determining the extent of biodiversity compensation 56 Box 22: Habitat Hectares as the basis for the State of Victoria’s “Net Gain Principle” 58 Box 23: Brazilian “Units of Conservation” 64 Box 24: Some company views on the prognosis for biodiversity offsets 77 5 1 Introduction Biodiversity1 offsets are conservation2 activities intended to compensate for the residual, unavoidable harm to biodiversity caused by development projects. Recent experience with regulatory regimes, such as wetland and conservation banking in the USA, tradable forest conservation obligations in Brazil and habitat compensation requirements in Australia, Canada and the EU, has been supplemented by growing interest in the potential of voluntary biodiversity offsets. This experience suggests that biodiversity offsets may be of value to business, government, local communities and conservation groups alike.