A biodiversity marketplace should be underpinned by robust, science-based methods which lead to certifiable biodiversity outcomes in the habitats which need it most. Measuring and verifying these outcomes can, however, be technically challenging, with associated costs threatening to eliminate gains from trade. This will be addressed somewhat as technological improvements and innovative collaborations improve access to reliable data.

However, there remains the question of how the value of a project is translated to a buyer, through the currency of a biodiversity certificate. Typically, marketplaces operate with reference to currencies defined by homogenous, fungible units, such as a dollar or tonne of carbon dioxide. In contrast, biodiversity is by definition diverse, comprised of complex ecosystems which cannot be represented by attributes listed on a certificate. Falsely imposing simplicity could fail to adequately value the costs and benefits associated with biodiversity, and may even pose risks to fragile ecosystems.

For this reason, to effectively channel finance to deliver biodiversity benefits, a biodiversity certificate scheme will need to strike a balance between accessibility and integrity. If the scheme is too complex, it will deter participation and impact supply in the market. However, if it is too simple it may not deliver the positive biodiversity outcomes that are so desperately needed.

It is difficult to determine whether there will be sufficient demand to support a liquid biodiversity market, as it is unclear who the intended ‘end users’ of a biodiversity certificate should be.

The ‘end user’ for carbon credits is clear. Carbon credits may be purchased and traded an unlimited amount of times, but will eventually be retired and removed from the market, usually by entities seeking to comply with regulatory obligations or voluntary decarbonisation commitments. It is the obligations of these ‘end users’ which generate the demand for a competitive market.

At present, it is uncertain whether similar obligations will exist for biodiversity. The vast majority of Australian corporates have yet to announce voluntary biodiversity commitments, particularly in lieu of a globally agreed, ‘net zero’ style target for nature.

The Commonwealth has a central role to play in directing the market to value and fund certain activities in particular locations that require urgent attention. This will help ensure that investment is directed to high-value projects that deliver the biodiversity outcomes that are needed.

Further, the Commonwealth has not yet determined whether the scheme will operate as a regulated offset scheme, similar to those which already exist in some states and territories. While enabling the market to supply offsets could help stimulate demand, this would impede its efficacy as a true market. This is in no small part because biodiversity cannot be truly ‘offset’ – whereas a tonne of carbon on one side of the world is largely equivalent to a tonne on the other, species are heavily location-dependent, and cannot be said to be equivalent across regions. For this reason, the end use of a biodiversity certificate should be carefully defined.

The Commonwealth may consider being an active purchaser of biodiversity certificates in a similar way to how it currently purchases carbon credits through ERF Auctions. This will help give the market much-needed liquidity as it establishes itself and provides potential market participants confidence that certificates earnt will generate reliable financial returns.