Sophus zu Ermgassen                            BIO0070

Written evidence submitted by Sophus zu Ermgassen

 

Sophus zu Ermgassen is an ecological economist based at the Durrell Institute of Conservation and Ecology at the University of Kent. For the last two years, he has been leading an academic research project to understand the outcomes of Biodiversity Net Gain (BNG); primarily by collecting real data on BNG implementation from a series of ‘early-adopter’ councils in England. His update on the key issues relating to his work facing BNG is below, focusing on issues that are currently under consultation.

 

Monitoring and enforcement, especially of ‘on-site’ gains

The ecological success of BNG depends upon one factor above any other. The entire system is dependent on the assumption that the biodiversity units (as measured by the Metric 3.0) promised by developers at the application stage will be delivered in reality. Many features of the policy architecture rely on this assumption holding. However, the government has not yet proposed credible mechanisms for monitoring progress towards delivering on these promises ‘on-site’, and guidance to local authorities even actively advises them against enforcing these biodiversity promises. Experience from around the world (e.g. compensation systems in France and Australia) tells us that, if these governance issues are not addressed, this is setting up the conditions for the policy to fail to deliver the biodiversity benefits it promises.

The proposed system allows developers to generate losses in biodiversity today with a consent requirement to deliver higher quality biodiversity at some point in the future (which is based on a BNG design, metric and management plan). Whilst this is not necessarily a problem (we want to encourage the creation and restoration of habitats that may take some time to become established like woodlands), if future delivery of Net Gain fails, then developments will fail to compensate for the damage they cause. One would therefore expect that the Biodiversity Net Gain policy proposals would include a watertight framework for monitoring the progress of habitats towards their ecological targets, and for providing councils with the mandate and capacity to take enforcement action against developers if the consent requirements on BNG are not delivered. However this is not yet the case.

The government has proposed some measures for monitoring the biodiversity gains provided by third-party providers such as habitat banks, and a Net Gain register. However, currently, providers are being asked to self-report the quality of their BNG delivery, despite lessons from compensation systems all over the world suggesting that third-party oversight of these reported gains is essential if they are to achieve biodiversity gains and meet the requisite standards. For example, in the USA, after recognising that developer-led and third-party wetland offsets were being delivered to different standards (developer-led were consistently lower quality), legislation was adopted in 2008 for equal standards for both developer-led and third-party mitigation.

However, recent academic work has demonstrated that, in BNG early-adopter councils, the vast majority of the biodiversity gains delivered under Net Gain-type policies are being delivered via habitats within the development footprint itself. While the exact on-site off-site proportion of net gain delivery will change as the off-site biodiversity unit market matures, there is currently no credible system to monitor and enforce delivery of ‘on-site’ gains. The government proposes that these can be monitored and enforced by local authorities through the existing planning enforcement system. But the government’s own guidance to local authorities advises them not to take enforcement action unless the violation of the relevant planning condition constitutes a ‘serious harm to a local public amenity’. Under the current system, it is highly unlikely that a developer’s failure to deliver a habitat of a given quality that was consented when the development was approved years ago will trigger this threshold – leaving these biodiversity gains unenforceable.

In fact, the ongoing consultation on Net Gain has gone one step further, and opened the door to allowing developers to sell surplus biodiversity units from their own developments as ‘offsets’ to other developments. This creates incentives to overestimate how many biodiversity units are being created on-site, as the surplus has the potential to be sold on and generate additional revenue. Watertight monitoring and enforcement mechanisms are clearly required to ensure this option does not lead to unintended negative consequences (i.e. the rise of a market in ‘ghost units’ which are being purchased as offsets but are not delivering any ecological benefits).

 

Under-resourcing of local authorities

Local authorities are chronically under-resourced with respect to ecological capacity – a recent BBC investigation found that just 20% of local authorities have some form of in-house ecological expertise of the kind required to oversee BNG.

We know that, in the absence of quality governance and credible enforcement mechanisms, a large proportion of the biodiversity units promised by developers is likely to fail. An academic study which surveyed UK developments where habitat enhancements were proposed at the application stage found that most of these did not meet the ecological criteria that had been agreed at the consent stage years earlier.

Local authorities play a key role in overseeing the implementation of BNG, and are expected to be the key player in the monitoring and enforcement of BNG. If they are unable to play this role because of a lack of capacity or relevant skills, it will send signals to developers that it is immaterial to actually deliver the biodiversity units that were promised when the development secured planning permission. This will lead to BNG failing to deliver the biodiversity units it promises.

 

Transparency of the biodiversity unit market

The current consultation suggests the government will not set up a trading platform for the exchange of credits, or record the prices of transactions between buyers and sellers. This goes against the lessons from international examples, which suggest a transparent trading platform in which prices are publicly available is essential. Transparency is key for ensuring that net gains are delivered and that the outcomes of the policy can be robustly monitored and evaluated by third parties. It is essential that the prices and transactions between buyers and sellers are not negotiated in secret, but are recorded in a transparent public database. In other offset systems, like New South Wales in Australia, journalists have been able to uncover insider trading and exploitation of the offset system because of the transparency of the offset market and the trades and trade prices taking place within it - it is absolutely essential that the maximum transparency is achieved to detect outcomes like this and to enable third parties to hold the system to account.

 

Cost-shifting

In the ongoing consultation, the government has raised the possibility of allowing developers to fund biodiversity improvements within statutory sites (i.e. where the government already has a legal obligation to deliver ‘favourable’ condition). In the academic literature on biodiversity compensation systems, many are concerned with the concept of ‘cost-shifting’ – where governments use the funds of offsetting to meet biodiversity targets that they would be legally obliged to deliver anyway. The concern here is that biodiversity compensation measures in this case deliver outcomes that are not additional, because the government parasitises funding that should go to compensating for the impact of a development and uses it to deliver an objective it is legally obliged to deliver anyway. Such dynamics have been observed in several ecological compensation policies around the world.

However, I recognise that some of the most valuable wildlife sites in the country are local wildlife sites, and these can sometimes represent the areas that can with additional investment deliver the best outcomes for nature.

To ensure that money invested in local wildlife sites is truly additional, it should be necessary to pass certain additionality tests, such as the managers of the sites demonstrating that the reason they are unable to deliver ‘favourable’ condition for the site is because of a defined funding shortfall.

The other component that is essential, and proposed in the academic literature, is that government track its spending on conservation separately from the spending on conservation that is attributable to funding derived from Biodiversity Net Gain. In short, separate accounts are needed – the ‘core statutory funding’ account should track how much is being spent on improving nature which is not compensating for a loss elsewhere, and the ‘compensation’ account should track how much is being earned and spent to compensate for losses. We propose this alteration is made as early as possible, and should be reported in the JNCC’s biodiversity indicators which report the annual spending on conservation by both the government, and environmental NGOs. The reason for this is for third parties to be able to identify if there is any evidence that the government is reducing its spending in nature conservation in tandem with increased private sector funding for conservation – which would render the ‘benefits’ of net gain unadditional, thereby undermining its ecological outcomes.

 

Stacking of other environmental credits on biodiversity units

The current consultation suggests the government is considering permitting the stacking of multiple environmental credits on top of each other for the same patch of land. A review of stacking and bundling implemented in biodiversity compensation schemes around the world has found that bundling is by far the most common arrangement, because the experience of systems which have allowed stacking is that the benefits are very rarely additional. I therefore do not agree with the approach in this consultation to allow the stacking of biodiversity and other environmental services (i.e. the credits should not be able to be sold independently to different buyers). The more scientifically robust approach is bundling, where it should be permitted for a single buyer to purchase the full suite of biodiversity units and ecosystem service credits generated by a site as a single ‘bundle’.

The major problem with stacking is that it is rare, and very challenging to conclusively prove, that the benefits of environmental credits are additional. If, for example, we allow the purchase of carbon credits from a site where a high-carbon habitat was being created anyway under biodiversity net gain to generate biodiversity credits, then those carbon credits have not sequestered additional carbon, and the polluter who purchases the credits has not compensated for the emissions it has caused.

There is likely to be pressure for landowners to allow stacking of environmental credits, because it potentially increases the number of potential revenue streams. But this should be resisted on environmental grounds, because environmental credits which are not additional are actively damaging – polluters can register them as ‘offsets’ even though the damage they have done has not been compensated for.

Additionally, I have already spoken to several property developers who already see lucrative opportunities from creating habitat banks based on the value of the biodiversity credits alone – allowing them to generate further revenues from selling environmental credits from the same land would deliver no or very small additional environmental improvements. Put simply, stacking risks making landholders richer with no or little ecological benefit.

 

March 2022