7 min read | May 16, 2023

How do Biodiversity Credits Work?

In this blog, we'll explore what Biodiversity Credits are, how they work, and discuss the drawbacks of credits instead of biodiversity offsets through habitat enhancement measures.

Biodiversity Credits will be a key part in the new Biodiversity Net Gain (BNG) regime. They will help to ensure that development projects comply with the new BNG rules so that when - and only when - it isn't possible to offset biodiversity losses from environmental projects, there is an ultimate fall back. Biodiversity Credits are the ‘in emergency break glass' option that will help ensure that every development can comply with biodiversity conservation outcomes under the new rules.

In this blog, we'll explore what Biodiversity Credits are, how they work, and discuss the drawbacks of credits instead of offsetting through habitat enhancement measures. 

What are Biodiversity Credits? 

A biodiversity credit is, effectively, exploitation permit or a form of tariff that enables developers to meet their biodiversity net gain (BNG) requirements when they cannot achieve the necessary gains on-site or through off-site enhancements (not unlike carbon credits - a permit which allows a country, business, private sector or organisation to emit a certain level of carbon dioxide and carbon emissions. Any access can the be traded if the full allowance is not used). Once the developer has followed the mitigation hierarchy and explored all possible options, they may purchase these statutory credits provided by the government.

The power to issue Biodiversity Credits is set out in the Environment Act 2021. Only the Secretary of State can decide who can issue Biodiversity Credits, and the Act states that he must publish information about the arrangements of how the credits will work, including in particular the amount payable for credits.

How do Biodiversity Credits Work? 

Developers have the option to purchase Biodiversity Credits (which are currently not a legal requirement) when they cannot meet their net gain requirements on-site or through the market. They will be expected to demonstrate that it wasn't possible to secure the uplift via any other means. When the developer has to use credits they will need to get in touch with the Government, demonstrate the need of credits and get all the necessary documentation (including receipt of purchase) which will need to be provided to the LPA to justify the use of the last resort option. 

Revenue generated from the sale of these credits is invested by the Government directly into pre-determined local habitat creation projects that demonstrate long-term environmental benefits and contribute to strategic ecological networks. These investments are made transparently, and a public record is maintained for auditing purposes. 

How much will Biodiversity Credits cost?

The government will set the standard cost for Biodiversity Credits, taking into account the administrative costs of delivering habitat compensation schemes and potential interactions with other government payment schemes for environmental land management. 

While it is not yet clear what the price will be, what is clear is that the price of these credits will intentionally be set to be uncompetitive with the market to encourage developers to explore local compensation schemes and other alternatives first. 

The Government has said that Natural England will sell statutory Biodiversity Credits project developers on behalf of the Secretary of State, facilitated by a user-friendly digital sales platform. Further guidance on determining and demonstrating the need for credits in developers' gain plans will be published to support decision-making by developers local communities and planning authorities.

Why are Credits Less Desirable Than Offsets? 

As we have set out in previous blogs, at every stage of climate change, it is vital that biodiversity mitigation and offsets are done as close to the point of impact as possible, which is supported and encouraged by the Global Biodiversity Framework. Credits, by definition, break the link between species loss at the site of original impact and where the mitigation takes place. Thus, while Biodiversity Credits provide a valuable mechanism to take environmental action and support habitat compensation, they should always be considered a last resort, and there are several reasons why relying solely on Biodiversity Credits may not be the most desirable approach; we should be demonstrating biodiversity value.

On top of this fundamental problem, there are other issues with using credits: 

  • Credits can potentially stifle the growth of local habitat creation markets, which are essential for promoting biodiversity conservation and supporting local economies. The Government is aware of this and has suggested that it would like to withdraw credits once it is clear that the market in Biodiversity Units is functioning well. 
  • Credits can create false dependencies: because the Government aims to phase out statutory Biodiversity Credits as the market for biodiversity units matures, it is essential for developers to explore alternative options for meeting their net gain requirements, and trying to limit biodiversity loss.
  • Credits will be more expensive than other solutions. The Government will deliberately offer a less competitive price for Biodiversity Credits, the Government encourages developers to prioritise local compensation schemes and work with local authorities, landowners, and organisations to deliver compensatory habitats. Using credits is rarely going to be the most cost effective solution. 

How Joe's Blooms helps

As believers in the mitigation hierarchy and in encouraging best practice, Joe's Blooms will always encourage developers and potential buyers to avoid using credits wherever possible, as protecting biodiversity is our main goal. Our tool will only make this option available to users who have exhausted every other step and have fully complied the mitigation hierarchy. Wherever possible we will recommend a management approach to avoiding and minimising the impact of developments on priority habitats and natural ecosystems. We then bring this data out in the same way as required in the new BNG regulations (over time we will develop further tools that will help the developer demonstrate BNG at every step of the application and demonstrate this to local stakeholders and the LPA).

In summary, while Biodiversity credits serve as an essential tool for developers to meet their net gain requirements when on-site or off-site enhancements are not possible they come with major flaws - with negative impacts for both the developer and the environment - and should be viewed as a last resort rather than the primary solution. Emphasising local habitat enhancement and working closely with local stakeholders will not only benefit the environment but also contribute to the long-term sustainability, species richness, ecological connectivity, and resilience of local ecosystems.

Oliver Lewis

Oliver Lewis

Founder of Joe’s Blooms
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Oliver Lewis is the founder of Joe’s Blooms, providing end-to-end digital solutions to help you create best-in-class Biodiversity Gain Plans. Expert in this field, he shares his knowledge on the Environment Bill.

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