This category includes compliance related instruments to mitigate and compensate for planned impacts on nature. Compensation includes both regulatory rules and enforcement surrounding the mitigation hierarchy as well as a range of strategies to achieve what is called “no net loss” or “net positive impact (NPI).” The approach seeks to identify key natural areas or assets prior to undertaking investments and to either avoid damaging these areas during project implementation or compensate for the unavoidable damages caused. Under best practices, compensation and offsets should be used to compensate for residual impacts following the mitigation hierarchy. Compliance markets for carbon offsets are relatively rare but options for offsets are include in the California Air Resources Board cap and trade program. Most carbon offsets are voluntary and included in a separate category.
Different types of compliance and voluntary offsets provide either in-kind compensation for planned damages through on-site restoration or purchase of offset credits, or through payment of “in lieu fee” financial compensation earmarked (in theory) for investments in nature. These instruments are relatively common in the extractive industries but also used in transportation, construction, and other actions that alter natural habitats.
An especially advanced system for compensation and offsets is the USA’s wetland banking system – generally referred to as mitigation banking. Mitigation banking is an environmental market-based approach designed to offset planned adverse impacts to wetlands, species or habitats of concern. Mitigation banks are restored or permanently protected wetlands, streams, or parcels of land. The best mitigation banks have the ability to harbor, preserve, and manage the survival of endangered and threatened species, or other forms of protected habitat such as wetlands, stream corridors and forests. Mitigation banks, once established and approved, generate credits that they sell businesses and governments obligated to mitigate damages from a planned project or infrastructure development.
A range of documents and supporting information for biodiversity offsets can be found on the legacy site for the Business and Biodiversity Offsets Program.
Compensation for planned environmental damage
Financial or other compensation paid by companies, private individuals, or governments for planned environmental damage as part of infrastructure or project development. Compensation levels and forms of compensation are usually determined by law and can be fixed amounts, calculated relative to investment or company sizes, or based on remediation costs and economic damages.
The report “Environmental Compensation: Key conditions for increased and cost effective application” outlines the current use of environmental compensation in the Nordic countries together with some thoughtful recommendations on how to increase its use in a cost efficient and equitable manner. Read the paper here.
Biodiversity offsets
Measurable conservation outcomes resulting from actions designed to compensate for significant residual biodiversity loss arising from project development after appropriate prevention and mitigation measures have been taken. Offsets can, for example, deliver biodiversity benefits (e.g. reforestation) through a transaction, where offset sellers (e.g. a conservation NGO) sell offsets to developers (e.g. a mining company) who seek to compensate the residual biodiversity loss. Offsets have been established in the agriculture, forest, construction, manufacturing and mining sectors. The aggregating of offsets under a policy framework can optimise the biodiversity benefit by increasing ecosystem connectivity, preventing future habitat fragmentation and creating large contiguous sites.
The Biodiversity Banking and Offset Scheme of New South Wales was introduced on July 11 2008, with an aim to implement market-based incentives that both encouraged conservation and discouraged impacts on biodiversity. This scheme is believed to be an appropriate mechanism to ‘counterbalance’ the impacts on biodiversity due to development. It builds on previous government initiatives designed to conserve threatened species and habitat, and ecological communities under threat.
To read more about the scheme of New South Wales, visit here.
Biobanking
Measurable conservation outcome resulting from an exchange system (or market) where offset credits can be accumulated and sold to developers to compensate for their species or habitat impacts. Credits are tradable units of exchange defined by the ecological value associated with intentional changes or management of a natural habitat. Biobanking includes habitat banking and species banking and is usually focused on endangered habitats and species. Biobanking shares certain features with tradable permit schemes whereby an objective of no net loss of biodiversity is established and provides developers with flexibility to determine either to invest in their own compensation or offset or to purchase a credit that has been developed by others (environmental banks).
The Biodiversity Banking and Offset Scheme of New South Wales was introduced on July 11 2008, with an aim to implement market-based incentives that both encouraged conservation and discouraged impacts on biodiversity. This scheme is believed to be an appropriate mechanism to ‘counterbalance’ the impacts on biodiversity due to development. It builds on previous government initiatives designed to conserve threatened species and habitat, and ecological communities under threat.
To read more about the scheme of New South Wales, visit here.
Wetland Banking
Measurable conservation outcome resulting from a trading system (or market) where offset credits are tradable units of exchange defined by the ecological value associated with verifiable changes and management of a natural wetland habitat. A mitigation bank is a wetland, stream, or other aquatic resource area that has been restored and preserved for the purpose of providing compensation for expected adverse impacts to similar ecosystems nearby. The value of a bank is defined in compensatory mitigation credits that can be traded or sold. Most systems are designed for no net loss of wetlands even following residual development impacts.
Wetland Banking is very prominent in the United States, with guidance from U.S. Fish and Wildlife Service (FWS) dating back to 1983 supporting the establishment of the first banks. In 2002, the United States EPA and the Corps of Engineers announced the release of a comprehensive, interagency National Wetlands Mitigation Action Plan to further achieve the goal of no net loss of wetlands. The goals and objectives of the National Mitigation Action Plan were incorporated into the 2008 Final Compensatory Mitigation Rule. Read more about the National Wetlands Mitigation Action Plan here.