Regulated destruction of biodiversity

Corporations and governments can legally destroy protected natural areas if they compensate the loss of biodiversity elsewhere. Why that is not working but increasingly happening.

A sign in a nature reserve

Biodiversity compensation is not new: the USA, Germany and India introduced the approach into their environmental regulations in the 1980s. Advocates of the idea claim it ensures that corporations that are damaging biodiversity compensate for their impact by maintaining or improving biodiversity elsewhere. The examples below, however, demonstrate a different reality: Biodiversity offsetting undermines environmental protection. It allows companies to ignore nature protection rules at any particular place of interest to them as long as they promise to compensate for the damage elsewhere. That way, they can claim to be respecting environmental protection laws while, at the same time, destroying biodiversity in places protected by law. In a way, compensation offsetting allows government agencies and financial institutions to maintain a dependable flow of environmental licenses and financing for corporate destruction, even in protected areas and World Heritage Sites, despite the growing catalogue of environmental regulation that has evolved in response to public pressure for better environmental protection since the 1970s. 

The following quote from a New Zealand-based law firm neatly sums up why not only governments but also – or perhaps, particularly – corporations are interested in biodiversity offsetting: “Biodiversity offsets can help companies manage their risks more effectively and strengthen their license to operate by showing regulators that operations can be based on a ‘no net loss’ or ‘net gain’ approach to biodiversity and by securing the support of local communities and civil society. Companies are increasingly seeking to demonstrate good practice on environmental issues to secure their license to operate and access to capital, to obtain consent in a timely way, to operate cost effectively, and to maintain a competitive advantage.”

Little surprise, therefore, that biodiversity offsetting has been rising in popularity. According to the International Union for Conservation of Nature (IUCN), the number of countries where biodiversity offsetting or other forms of compensation offsetting have been introduced into environmental regulation has nearly doubled since the turn of the century. The instrument received a major boost at the international level during the 2012 Rio+20 summit in Brazil. The summit was dominated by proposals on how to achieve a green economy with economic valuation of nature, and compensation offsets were presented as integral parts of the green economy promise. Many of the biodiversity offset initiatives that exist today, both at corporate and intergovernmental level, can be traced back to the run-up and immediate follow-up to the Rio+20 summit. By 2017, 115 countries had adopted regulations that allow the use of biodiversity offsetting or similar compensation offsets. As noted above, the reasons for this increase are manifold, including that:

  • many countries have adopted the political goal of ‘no net loss’ of biodiversity, and biodiversity offsetting is the mechanism to achieve this goal;
  • corporate destruction increasingly targets formally protected areas or particularly biodiversity-rich habitat where the law currently allows licensing of destructive activities only in exceptional cases. As a result, corporate calls for ‘regulatory relief’ are increasing, with biodiversity offsetting and compensation offset schemes proposed as instruments to provide such ‘regulatory relief’ or ‘flexibility’;
  • the World Bank and its private-sector financing arm, the International Finance Corporation (IFC), have been heavily promoting biodiversity offset provisions in environmental regulation in the global South to facilitate implementation of the IFC Performance Standard 6 biodiversity offset provisions. These Performance Standards are a set of requirements and safeguards that must be fulfilled for the IFC to be able to finance a corporate project. The biodiversity offset provisions were added to the Performance Standard in 2012 – the same year the Rio+20 summit provided a major boost to biodiversity offsetting as a policy instrument. The revised 2012 Performance Standards allow the IFC to finance destruction in what the World Bank has defined as ‘critical habitat’. Before the 2012 revision, approval of IFC financing for corporate destruction in such habitat would have been more difficult and controversial.

Regulated destruction of ‘critical habitat’

The IFC Performance Standard 6 has turned out to be a particularly powerful driver for biodiversity offsetting, both at the corporate as well as at the governmental level. With many public and private-sector banks having adopted the IFC’s Performance Standards or standards similar to it, the presentation of a biodiversity offset plan has become almost a prerequisite for securing financing for corporate destruction in what the World Bank has defined as ‘critical habitat’. Because many rivers have already been dammed and many habitats rich in biodiversity as well as ores have already been destroyed to extract the desired minerals, companies in the hydropower and extractives industries increasingly target ‘critical habitat’ for corporate expansion. And because IFC financing is often crucial to securing further private-sector funding for such corporate projects, hydropower, mining and oil and gas companies have been trailblazers for biodiversity offsetting. Presenting biodiversity offset plans, they hope, will provide a public license to operate and ensure the backing of the conservation industry for these corporate projects that are likely to face public opposition due to their location in areas of particular importance for biodiversity conservation.

Biodiversity offsetting as a door opener to oil drilling inside World Heritage Sites and protected areas

In Kenya, biodiversity offsets enabled the oil company KJV to obtain licenses and financing for oil exploration inside two World Heritage Sites, Lake Turkana National Park and the Kenya Lake System in the Great Rift Valley. The drilling also affects protected areas. KJV has committed to undertaking its activities in compliance with IFC Performance Standards and developing biodiversity offset plans in the hope that this will smooth the licensing process for destruction in these areas of outstanding importance to biodiversity conservation.

The French energy company Total also cites IFC Performance Standard 6 as reason for developing a biodiversity offset plan for its Tilenga oil exploration project in Uganda and other operations that involve drilling in national parks or other protected areas: “Total has agreed to meet the performance standards of the International Finance Corporation (IFC, World Bank) for its Tilenga, Papua LNG and EACOP projects, in order to take the particularly sensitive biodiversity of certain sites into consideration.” The Tilenga oil drilling and the East Coast Oil Pipeline (EACOP) will affect one of the world’s biodiversity hotspots, the Albertine Rift and the spectacular Murchison Falls National Park, an area that without any doubt qualifies as ‘critical habitat’. Even the company acknowledges its operation will target “a particularly sensitive area for biodiversity”. Yet, Total’s biodiversity offset plans for drilling oil in one of the world’s biodiversity hotspots blames local land use for degradation of biodiversity (degradation that the company will bring to a halt and reverse, it claims) while mention of the devastation that drilling for oil in this biodiversity hotspot will cause is conspicuously absent from the list of factors that threaten biodiversity.

In Costa Rica, the energy company Instituto Costarricense de Electricidad is experimenting with biodiversity offsetting to compensate for ecological damage as a result of the construction of a large hydropower dam on the river Reventazón. The construction of the dam is financed, among others, by the IFC and the European Investment Bank. According to the company, “the Reventazón River qualifies as Natural Habitat according to IFC PS6,” and changes to the hydrology as a result of the dam will affect Tortuguero National Park. As a compensation measure, the company promised to restore another river, the Parismina, and the Costa Rican government has committed to not develop any hydropower dam on the Parismina for the coming decades.

In Germany, biodiversity offsetting has become an increasingly common form of compensation for environmental damage, a requirement that has been part of environmental regulation since the 1980s. At the site of Europe’s largest open-pit coal mine – stretching over 85 km2 – biodiversity offsetting facilitates the destruction of ancient woodland, the Hambach Forest. Mining has destroyed forests up to 12,000 years old. Today, only a tiny remnant of these ancient forests, characterized by very high structural and biological diversity, remains. This type of forest is protected under Annex 1 of the EU Habitats Directive. As a result, the mining company is legally required not only to recultivate the area after mining, but to implement additional compensation measures – biodiversity offsets – on land outside the mining concession. Among these is the restoration of former agricultural land located just north of the mine. As part of a much-criticized partnership between the mining company RWE and IUCN, the conservation organization produced a report suggesting, among others, that RWE consider “possible compensatory measures”. Acknowledging the limits of biodiversity offsetting, the same report notes that offsetting measures “will never reach the biodiversity status of a mature forest”.

When perpetuity does not last

The biodiversity offset for the controversial Bujagali dam in Uganda demonstrates how unreliable such compensation promises are. The dam project on the river Nile is co-financed by the IFC. The reservoir created by the dam flooded ecologically significant waterfalls and river banks of great cultural and spiritual importance for the Basoga indigenous peoples in the project area. In its public communications, the IFC assured critics that “comparably important” waterfalls and river banks would be set aside in perpetuity as a biodiversity offset for the Bujagali reservoir. The legal agreement it eventually signed with the government of Uganda, however, didn't mention a commitment to protection in perpetuity. As a result, perpetuity only lasted until another hydropower developer obtained permission for another dam on the River Nile. This new hydro reservoir will submerge the waterfalls and river banks set aside a few years earlier to compensate for the destruction of waterfalls and river banks further downriver caused by the Bujagali dam. The IFC agreed to the destruction of the biodiversity offset site on condition that a new offset location be identified and protected.

In Australia, the Warkworth Sands Woodland, an area dedicated as an offset site for a Rio Tinto mine, was destroyed when it, too, became part of a corporate project to mine.

Those examples show one of many risks that offsetting poses to biodiversity protection: If an area set aside as a biodiversity offset today becomes economically interesting for a company in the future, its destruction, too, can be licensed and financed simply by promising to offset a second time, to replace the area the company now wishes to destroy. Biodiversity offsetting thus allows perpetual destruction rather than dependable protection of biodiversity.

Increasing number of countries enable biodiversity offsetting

But as the number reported by IUCN of 115 countries with environmental regulation providing for biodiversity offsetting indicates, it’s not just companies that are incorporating biodiversity offsetting into their business plans. Liberia and Mozambique are examples of two countries where the World Bank has been funding biodiversity offset policy initiatives. In Liberia, World Bank consultants even developed a national biodiversity offset roadmap. In this World Bank proposal, mining and other extractive projects are to be allowed in protected or high-biodiversity areas with the only condition that developers pay a biodiversity offset fee that is then used for maintaining and managing (other) national parks and protected areas.

In Mozambique, an organization involved in the biodiversity offset roadmap developed with the support of the World Bank explains why companies need not fear biodiversity offsetting: “Far from being a burden to private companies, this new regulation may actually speed up the approval process for new projects by clarifying procedures, giving companies a way forward to comply with national rules and international standards, for which they are increasingly accountable.”

Colombia is yet another country that has overhauled its environmental legislation in the past years, introducing the probably most comprehensive environmental framework for offsetting in the region. Because corporate activities that require biodiversity offsetting have been growing rapidly, one area of conflict resulting from such an environmental framework is quickly emerging: Biodiversity offsetting inevitably amounts to a double land grab, or at least a context in which companies control not only how the land is used at the site of their corporate project but also at the biodiversity offset site. The area of land involved in Colombia will be considerable: Between 2013 and 2015 alone, the potential demand for land declared a biodiversity offset amounted to more than 180,000 hectares.  A major land question is thus looming, as an observer in Colombia pointed out: “With over 8 million hectares under mining titles, over 130 oil and gas companies with operations in the country over at least 1.5 million hectares, including Shell, Oxy, Chevron, ExxonMobil, and Petrobas, and thousands of kilometers of highways in the pipeline that will affect critical biodiversity hotspots, one of the key questions is where are the hundreds of thousands of hectares needed in offsets going to come from.”

Biodiversity offsetting increases conflicts over land

Conflict over land will thus become an increasing corollary of biodiversity offsetting. Existing biodiversity offset projects already demonstrate this reality. Let’s take the example of a mining company that is looking for a biodiversity offset to compensate for the forest that will be destroyed by the corporate mine. In order for a forest to qualify as suitable for compensation, the company needs to demonstrate that without the forest becoming a biodiversity offset, it would have been destroyed. By averting this hypothetical destruction, the company can demonstrate that it is compensating for the loss of biodiversity caused by its mine by preventing biodiversity loss elsewhere. This scenario of hypothetical destruction that the company claims is averted through its biodiversity offset tends to include the following storyline: “Poor peasants have been degrading the land because they use ‘slash-and-burn’ agriculture and take out too much firewood from the forest. Our biodiversity offset will prevent further ‘slash-and-burn’ and firewood collection and help the forest recover.” Variations in detail notwithstanding, this is the hypothetical scenario that underpins most existing biodiversity offset projects in the global South. It has several advantages for the company: Putting the blame for deforestation and biodiversity loss on peasant farming practices and firewood collection helps make the real risk – corporate destruction caused by the mine, dam, etc. – invisible. Because the company will need to ensure that the hypothetical destruction is averted over years, corporate biodiversity offset needs will control land use at the biodiversity offset site as well as at the mining site or the hydro reservoir. That is why many warn that biodiversity amounts to a double land grab, where corporate needs trump peasant farming needs at two locations, the site of corporate destruction and the site of corporate offsetting.

New trends, same conflicts

One tendency in biodiversity offsetting in the past few years has been towards companies making a payment into conservation trust funds which then implement conservation measures labelled as biodiversity offsets, rather than companies being directly involved in the implementation of the offset. As a result, it is becoming more difficult to establish a direct link between a particular biodiversity offset and the corporate destruction paying for it.

Another tendency in the corporate and conservation industry literature is a change in terminology. Many corporate and conservation industry brochures no longer use the expression ‘biodiversity offset’. Instead, industry publications, government policies, planning documents, licensing decisions and funding commitments refer to quantifying ‘losses and gains’, achieving ‘net biodiversity gains’ or ensuring ‘no net loss’ of biodiversity through establishing biodiversity banking and conservation trust funds. A move away from the use of the term ‘biodiversity offsetting’, however, must not be mistaken for the instrument losing appeal in the extractive industries, among the conservation industry or institutions like the IFC and the World Bank.

Literature and references:

World Rainforest Movement (2018): "Mainstreaming biodiversity" in extractive industries: Concealing devastation and land grabbing. 

ReCommon (2017): Your Mine. Video about a biodiversity offset project in Madagascar. 

ReCommon and World Rainforest Movement (2016): Rio Tinto’s biodiversity offset in Madagascar – Double landgrab in the name of biodiversity? 

International Rivers website on the Bujagali dam.

A. Brock & A. Dunlap (2018): Normalising corporate counterinsurgency: Engineering consent, managing resistance and greening destruction around the Hambach coal mine and beyond. Political Geography 62: 33-47.

IUCN and TBC (2017): 'Understanding Government Biodiversity Offset Policies in the Mining Sector.' 

Total (2018): Total and Biodiversity. Commitments and Action.

M. Christensen (2008): RMLA Conference. Biodiversity Offsets – A Suggested Way Forward. Anderson Lloyd Lawyers. September 2008.