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Biodiversity Offsets--An Underutilized Source of Support for Protected Areas


Biodiversity offsets offer a promising option for promoting the conservation and sustainable management of natural ecosystems on an expanded scale. In an era of often flat--and sometimes declining--governmental support for conservation in general and protected areas in particular, biodiversity offsets can provide an underutilized opportunity to mobilize substantial new funding. This funding can come from public infrastructure accounts (such as for dams and roads) as well as from the private sector (including extractive industries). An ongoing World Bank Group study is now preparing a Biodiversity Offsets Sourcebook and Toolkit to help facilitate the appropriate use of biodiversity offsets in many countries, at the project-specific as well as aggregated levels.

Problem, challenge or context: 

Around the world--especially in developing countries--the remaining natural ecosystems are under pressure from rapidly-spreading roads, dams, and other infrastructure, as well as the allocation of large areas to commercial agriculture, mining, and other uses that remove natural habitats. Under the “mitigation hierarchy” that underpins the World Bank Group’s environmental standards, offsets are considered to be a last resort--after all feasible efforts to avoid, minimize, and restore any damage to natural habitats still leave a residual adverse impact. In reality, many development projects have a large land or water footprint with significant residual impacts. In such instances, well-designed and properly implemented biodiversity offsets can deliver better conservation outcomes than would otherwise have been the case (provided that the offsets do not facilitate environmentally problematic projects that would otherwise not have been approved).

Specific elements of components: 

Project-specific biodiversity offsets--some with World Bank Group support--have proven to be a valuable tool for supporting protected areas, particularly in some large infrastructure (such as hydropower) and extractive industry projects. However, a key challenge is to systematize and scale-up biodiversity offsets through a national or other aggregated offset approach. A well-functioning national or other aggregated biodiversity offsets system could significantly increase the available financial support to protected area establishment and management, by (i) reducing the inherently high transaction costs; (ii) optimizing conservation area selection; (iii) increasing participation and ownership by governmental authorities; and (iv) addressing the cumulative impacts of multiple infrastructure, extractive, or commercial agriculture projects that involve natural habitat loss or degradation.

Key lessons learned: 

For project-specific biodiversity offsets, success depends upon clear exchange rules governing which impacts can be offset by what types of gains; metrics for measuring losses and gains; and ensuring additionality—real conservation gains in comparison with the baseline situation. As with all types of physical investments, offsets also require well-defined institutional responsibilities, a feasible implementation schedule, sufficient stakeholder engagement, and adequate funding of the up-front as well as recurrent costs. If these basic requirements cannot be met, the proposed offset is not likely to deliver the conservation gains that were promised. In public sector infrastructure projects, the entity responsible for the conservation offset is often different from the entity responsible for the “main” project. In such cases, good coordination mechanisms need to be agreed upon, particularly the pathway to transfer project funds--or operating revenues—to the conservation entity responsible for the offset. The implementation schedule for the offset also needs to be compatible with the main project’s civil works timetable.

Another lesson learned is that project-specific biodiversity offsets tend to have high transaction costs, due to the need to coordinate activities with many different entities and stakeholders, including the main project and conservation offsets entities, various government ministries, NGOs, and local communities. Accordingly, project-specific biodiversity offsets are normally best suited for large-scale projects, where the responsible entity (government agency or private firm) has sufficient institutional capacity and budget to effectively handle the transaction costs.

For aggregated biodiversity offset systems, the key “building blocks” include (i) identification, mapping, and legally gazetting the conservation offset area(s); (ii) a well-governed conservation trust fund or similar mechanism for receiving funds from the infrastructure, extractive, or other projects to be offset and applying the funds to the conservation areas; (iii) a supportive legal and regulatory framework that requires all large-scale public or private projects within specific categories to comply with offset requirements; (iv) sufficient high-level government commitment; and (v) robust stakeholder engagement.

Impacts and outcomes: 

Project-specific biodiversity offsets have been successfully implemented in a growing number of public and private sector development projects. Notable examples of World Bank-supported investments where project-specific offsets have led to the establishment or strengthening of important protected areas include hydroelectric dams (Lao Nam Theun 2, Cameroon Lom Pangar, Argentina-Paraguay Yacyreta) and other large-scale infrastructure (such as the Bolivia-Brazil Gas Pipeline). Furthermore, large private sector and state-owned firms have used project-specific offsets to establish or strengthen important protected areas; these include mining projects in Madagascar (Ambatovy) and Liberia (Nimba) and pumped-storage hydropower in South Africa (Ingula), among others. Additional, future protected areas can be established or strengthened through the use of project-specific offsets, providing significant biodiversity conservation benefits where otherwise none would exist.

With respect to aggregated biodiversity offsets, a growing number of national and sub-national governments have developed policies and legal frameworks, and several have undertaken partial implementation. The approaches underway vary widely in their conceptual framework, metrics, and expected outcomes; most do not yet qualify as fully functional aggregate offsets systems. The ongoing World Bank Group study is preparing Biodiversity Offsets Roadmaps for Liberia and Mozambique, to facilitate the potential development of aggregate offsets systems in those countries. In the case of Liberia, a future aggregate offsets scheme could lead to substantial financial support (particularly from the mining industry) for much-needed expansion of the national protected areas system.

Contact details: 
George C. Ledec, Lead Ecologist, World Bank
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