Could well-designed offset policies actually increase loss?

Perverse incentives may yield unintended biodiversity outcomes

Many people gladly give their time to community plantings. It’s an opportunity to ‘give back’ to the environment. But what if the revegetation work was retrospectively exchanged for an equivalent amount of environmental damage by a developer? Would people still be happy about donating their time?

Many people gladly give their time to community plantings. It’s an opportunity to ‘give back’ to the environment. But what if the
revegetation work was retrospectively exchanged for an equivalent amount of environmental damage by a developer? Would people still be happy about donating their time?

The idea of biodiversity offsetting is that impacts on biodiversity from development are compensated for by actions elsewhere in the landscape. It’s a simple idea but one that is generating a lot of controversy. Despite the noble-sounding goal of ‘no net loss’ of biodiversity, many are sceptical about how realistic this is, and for many reasons.

The pressures for development – be it for new suburbs, mines or farms – are powerful. In the past the impacts on biodiversity from development have often simply been ‘written off’ as the inevitable price of progress. Offsetting is an attempt to compensate for these impacts. Surely we can at least agree that offsetting, for all its imperfections, is probably better than nothing. Or is it?

In a recent paper we authored with Joe Bull (Imperial College London) and Chris Wilcox (CSIRO), we discussed how introducing biodiversity offsetting into the conservation policy mix can create incentives that might actively make things worse for biodiversity, potentially without us even realizing it (Gordon et al, 2015). This can occur even if the offset policy is rigorously implemented and the offsets successfully achieve their intended biodiversity gains.

Perverse incentives

So how could requiring developers to offset their environmental impacts actually be worse than not requiring it at all? Well, we identified four ways that could happen:

1. Exacerbating declines in baseline biodiversity trends

To determine what is required of an offset in order to achieve ‘no net loss’ of biodiversity, a baseline trend in biodiversity must be established from which to measure losses and gains. When a development takes place, the impact causes a drop in biodiversity. The aim of the offset is that, over time, biodiversity gains accrue at an offset site, with the net result of the impact and offset being a return to the baseline trend. The crucial point here is that if this baseline represents a declining trend in biodiversity (which is often the case here in Australia), then the offset gains, when added to the impact losses, are only required to maintain this declining trend.

Because of this, the selected baseline becomes ‘locked in’ by the offset policy: at best the offset gains result in maintaining the assumed baseline. In other words, it becomes a self-fulfilling prophecy across the impact and offset sites. If an unrealistically steep baseline of decline is used due to uncertainty or an incentive to exaggerate it (see below), this steeper rate of decline is then, perversely, made real by the policy. (See box ‘Baselines: locked and loaded’)

If people react to discovering they’re doing work that will be negated by biodiversity impacts elsewhere to generate profit for someone else, they might just withdraw their volunteer labor.

2. Winding back non-offset conservation actions

Offsets can usually achieve biodiversity gains in two ways: by actively generating new biodiversity, for example through restoration or revegetation; or by ‘averted loss’—averting biodiversity losses that would have otherwise been likely to occur without the offset in place. The steeper the baseline of decline is assumed to be, the more credits a given offset site can generate, because more loss is assumed to have been averted.

Averted loss offsetting is often less-expensive and easier than generating new biodiversity. So some parties involved in the offset exchange might have the incentive to assume a steeper baseline of decline than is justified from available information on biodiversity trends.

In addition, government-mandated offset schemes often state an intention to use offsets to ‘reduce green tape’ and ensure offset credits can be obtained at reasonable cost. Yet any conservation action done outside the offset policy effectively competes within the offset market, reducing opportunities for buyers of credits.

For example, the designation of land ‘for conservation’ extinguishes the potential for these areas to be used as offsets. This argument was used against increasing the protection of parts of Cape York under the Wild Rivers legislation in Queensland – protections that subsequently were removed. Thus where the policymaker has an interest (direct or indirect) in facilitating development, there could be an incentive to reduce other conservation activities and maintain these steep baselines of decline, or even to worsen them.

3. Crowding out of conservation volunteerism

Lots of us spend our spare time volunteering with various organisations to plant trees, control weeds, and generally doing good environmental work. What would you think if you found out that the work you were doing was actually part of a legally required offset for a large corporation? Or worse still –what if revegetation work you contributed to over many years was retrospectively exchanged for an equivalent amount of environmental damage by a developer? You’d probably be pretty annoyed – and maybe less likely to volunteer for environmental work in the future.

Sound far-fetched? Think again. In one recent infamous example, Canberra residents learned that their volunteer work to revegetate a local park was subsequently used to ‘offset’ the loss of nearby woodland for urban development. And, increasingly, funding is being made available to community groups to do restoration work for threatened species, like Carnaby’s black-cockatoo, but the fine print reveals that the funding is part of an offset for habitat loss.

So, if people react to discovering they’re doing work that will be negated by biodiversity impacts elsewhere to generate profit for someone else, they might just withdraw their volunteer labour, causing declines in environmental volunteerism and the benefits that it generates. This is referred to as ‘crowding out’.

4. False public confidence in environmental outcomes

In some cases the outcomes of the offset are celebrated in isolation to the damage they aim to offset. So when a newly restored wetland is opened, or a newly protected bit of rainforest announced, the focus is on this positive outcome. Who can blame governments or developers for that? But of course, we shouldn’t celebrate an environmental gain in these cases – the outcome is linked to biodiversity impacts elsewhere and, at best, achieves no net loss of biodiversity. In other words, the biodiversity impact is neutral.

Environmental activism and public pressure are undeniably powerful in improving environmental controls and investment by governments. But if ‘no net loss’ offsets are celebrated in isolation of gains it may create the perception that true biodiversity gains are being achieved, which may in turn reduce the public pressure for governments to do more for conservation – we start to hear these good news stories all the time, so it sounds like all is well.

Out on a limb: Most people would support funding being made available to community groups to restore habitat for threatened species like the Carnaby’s cockatoo. But what if that funding is part of an offset for habitat loss. Suddenly it’s not about adding value to environment so much as allowing the loss of equivalent environmental value. (Photo by Leonie Valentine)

Out on a limb: Most people would support funding being made available to community groups to restore habitat for threatened species like the Carnaby’s cockatoo. But what if that funding is part of an offset for habitat loss. Suddenly it’s not about adding value to environment so much as allowing the loss of equivalent environmental value. (Photo by Leonie Valentine)

Averting the perversities

These are just four of the perverse outcomes that we risk if we are not cautious about how offset policies are designed and how they interact with other environmental policies and behaviours. So what can we do about it?

We have identified a range of measures that could reduce the risk of these perverse outcomes. These include:

(i) being transparent about the baselines from which offset gains are calculated, and the wider biodiversity trends from which they are drawn

(ii) making sure there are processes in place for clear and publicly visible accounting of the gains and losses associated with the offset and impact; and

(iii) better education and outreach regarding offset policies to help increase public understanding that offset activities are not ‘conservation gains’, but are neutral at best because they are making up for losses elsewhere.

Whether you like offsets or not, it looks like they are here to stay. And offsets that work could be crucial to balancing development and conservation. But the rush by many governments to embrace them has left the door open for all sorts of problems.

It’s important, therefore, we ensure that not only are our offsets policies sound, but that they don’t unintentionally undo the benefits of other policies.


More info: Ascelin Gordon ascelin.gordon@rmit.edu.au and Martine Maron m.maron@uq.edu.au

Reference

Gordon A, JW Bull, C Wilcox & M Maron (2015). Perverse incentives risk undermining biodiversity offset policies. Journal of Applied Ecology. 52: 532–537 doi: 10.1111/1365-2664.12398


Baselines: locked and loaded

Determining whether an offset can compensate for a given impact requires assumptions about the counterfactual scenario—that which would have happened without the offset—against which the gain at an offset site can be estimated. Where this counterfactual scenario, or ‘crediting baseline’, assumes a future trajectory of biodiversity decline, the intended net outcome of the offset trade is the maintenance of that declining trajectory. If the rate of decline of the crediting baseline is greater than what is actually occurring, biodiversity offset trades can actually exacerbate biodiversity decline. We examined crediting baselines used in offset policies across Australia, and compared them with recent estimates of decline in woody vegetation extent. All jurisdictions permitted offset credit generated using averted loss—implying an assumption of background decline—but few were explicit about their crediting baseline. We did the calculations and found that the crediting baseline assumed up to 4.2% loss (of vegetation extent and/or condition) every year. On average, the crediting baselines were greater than 5 times steeper than recent rates of vegetation loss. Based on this we conclude that the crediting baselines used in Australian offset schemes actually risk making biodiversity loss worse.

Maron M, JW Bull, MC Evans & A Gordon (2015). Locking in loss: Baselines of decline in Australian biodiversity offset policies. Biological Conservation. http://dx.doi.org/10.1016/j.biocon.2015.05.017.

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