Biodiversity and ecosystem services are generally treated as public goods, with no price and no market. In economic terms they are ‘externalities’, i.e. costs not reflected in the market price of goods or services. This has contributed to widespread exploitation and degradation of natural infrastructure. There is growing recognition that this is harming not only human well-being but also the economy, for example when businesses, individuals or governments are forced to invest in expensive technologies to replace natural services, such as flood protection, that have been lost through poor ecological management.

The establishment of markets for biodiversity, ecosystem services and areas of natural habitat is a potentially powerful way of internalising these traditionally externalised costs. One example of this is biodiversity or habitat banking: this involves the trading of credits created by restoration activities to offset the damage caused by development. Thus, the principle of no-net-loss of biodiversity can be sustained whilst also stimulating economic growth. Such systems may be voluntary (generally resulting in sporadic and inconsistent outcomes), or supported by a government policy framework and incentives.

Many countries employ some form of compensation or offset scheme under their Environmental Impact Assessment (EIA) laws, and in recent years the number of initiatives putting this into practice has been growing. A report by Ecosystem Marketplace identified 39 such schemes in operation around the world in 2010, with another 25 in the planning stages. Global annual market size is currently estimated to be $1.8-$2.9 billion (a gross underestimate, as only 20% of existing programs give figures), providing conservation management of at least 86,000 ha per year.

The most established systems are found in the USA and Australia. Wetland mitigation bank schemes have been in operation in the USA since the 1980s, which has also extended to habitats of endangered species. In Australia, schemes in the states of New South Wales (‘BioBanking’) and Victoria (‘BushBroker’) conserve native bush vegetation.

In Europe, this concept is already partially enforced by the EU Habitats Directive and Birds Directive covering Natura 2000 sites (strict like-for-like compensation in the case of damaging development that has overriding public interest), and habitats of threatened species. At a national level, the largest existing scheme, Germany’s Impact Mitigation Regulation, has at least 2,600 hectares conserved in compensation pools. In the UK, there is a form of habitat banking occurring in intertidal areas (with credits being bought by port authorities), however, unclear guidance and weak enforcement of regulation means that compensation activities are rarely carried out.

The recent commissioning of scoping reports on the subject by the EC and Defra (see links below) indicates that there is increasing interest within the EU and the UK in a more formalised and comprehensive biodiversity banking system. In addition, commercial organisations to provide biodiversity credits have begun to appear.

Further Information:

The Royal Society of Biology is contributing to this discussion through the Natural Capital Initiative, which ran a series of three one day inter-disciplinary workshops on biodiversity offsetting in the UK. 

POSTnote 369 'Biodiversity Offsetting' January 2011

POSTnote 281 Ecosystem Services March 2007

The Ecosystem Marketplace ‘State of Biodiversity Markets Report’ 2010.

Scoping study for the design and use of biodiversity offsets in an English Context, final report to Defra, 2010.

Compensation in the form of Habitat Banking: short case study report to the European Commission, 2008.

Everard, M. 2009 The Business of Biodiversity. WIT Press

The Environment Bank.

Briggs BDA, Hill DA & Gillespie R. 2009. Habitat banking — how it could work in the UK. Journal for Nature Conservation 17: 112—122

Business and Biodiversity Offset Program (BBOP)