Biodiversity Credits
Biodiversity is a key component of our planet’s health, and its rapid decline in recent decades is of serious concern. The statistics are shocking: from 1970 to 2020, wildlife populations shrunk on average by 73% and global wetland coverage decreased by over 35%. Over one million species are currently at risk of extinction.1 Loss of diversity among flora, fauna, fungi and microorganisms is destabilizing ecosystems that are valuable in their own right and provide services essential to human survival such as food, clean water, shelter and medicine. The Canadian government is prioritizing the protection of Canada’s nature through their commitment to protect 30% of the country’s land and waters by 2030.2
However, the World Economic Forum estimates a funding gap of $US700 billion per year between what is needed to halt or begin reversing biodiversity loss and what is currently being spent.3 Many innovative financial mechanisms have been developed and put into use to address the growing concern of biodiversity loss, such as green bonds, payments for ecosystem services, and debt-for-nature swaps. Another relatively new solution are biodiversity credits. Like carbon credits, biodiversity credits are tradeable units in a market-based system that reward efforts to protect or improve biodiversity and impose penalties for actions that harm biodiversity.
Biodiversity credit trading schemes in Canada and around the globe
No biodiversity credit markets are currently operating in Canada, but several other countries have begun implementing them along with their own ways of measuring biodiversity. Two notable examples are the U.K.’s statutory biodiversity metric and the Australian province of New South Wales’ Biodiversity Assessment Method. Both are part of mandatory government programs — the U.K.’s Biodiversity Net Gain (BNG) for developments within England and the Biodiversity Offset Scheme that applies to developments, land clearing, and other activities within New South Wales.4
The U.K.’s offset system works by dividing nature into three types of tradeable units (hedgerow units, area habitat units, and watercourse units) that can be traded in either like-for-like or like-for-better swaps, ensuring that the result is net-positive for the environment.5 The New South Wales scheme offers two types of credits — ecosystem and species — that can be generated, purchased, sold, and retired, with money earned from the sale of credits created at a specific site being used to fund the management of that site.6 Their Biodiversity Assessment Method, introduced in 2017 and updated in October 2020, “assesses impacts on, and gains in, biodiversity.”7 As of March/April 2025, the scheme has protected over 100,000 hectares, paid more than AU$30 million to landholders for the purpose of generating biodiversity gains, and moved almost AU$100 million in credits within their Biodiversity Credits Supply fund.8
Due to the heterogeneity of the Earth’s biodiversity across continents and regions, solutions for biodiversity restoration cannot be one-size-fits-all. Biodiversity loss is caused by a range of factors, and the requirements for halting and reversing it are individual to each country. For Canada, a country with 15 terrestrial ecozones, categorizing the country’s biodiversity into tradeable units without making an overcomplicated market system will be challenging. Another factor that makes the Canadian context unique is the importance of Indigenous Peoples, who are caretakers of their traditional territories and have their own epistemologies and knowledge bases concerning nature.
Furthermore, we have a variety of industries that impact Canada’s biodiversity in different ways across the country. For example, natural resource extraction often comes hand in hand with habitat destruction, while our manufacturing industry can disrupt fragile ecosystems through air, soil, and water pollution.
The challenges of biodiversity credits
All financial mechanisms and solutions have their own challenges, and biodiversity credits are no exception. The foremost concern when it comes to biodiversity is regarding fungibility, or interchangeability, since biodiversity is so varied and hard to standardize. Something like carbon can be easily traded because standardized units of carbon emissions are fungible: a cubic tonne of CO2 is a cubic tonne of CO2 and other gases such as methane can be converted into CO2 equivalents following widely accepted conversion rates. But assigning a comparable value to indicators of biodiversity loss such as habitat destruction or water pollution poses more of a challenge. Even defining a unit of biodiversity is complex, as biodiversity is location- and in some cases even season-specific.9 Issues with carbon markets such as greenwashing and lack of measurement transparency also affect the biodiversity credit markets.10
Challenges specific to biodiversity credits further include the fact that it can take years for human impact on an area’s biodiversity — positive or negative — to show, which may lengthen timelines for granting credits or requiring offset purchases. Finally, questions of additionality, or the possibility that outcomes would have occurred without financial incentives, and of permanence, or the risk that positive effects will be reversed in the future, add further complexity to biodiversity credits.11
The future of biodiversity credits
As the severity of biodiversity loss increases globally, so too does the number of tools and solutions to address it. Credit trading schemes aimed specifically at protecting biodiversity by providing financial incentives to those who have the greatest effect are an option that researchers, policymakers and governments are turning to. While Canada will have to overcome several hurdles to make them feasible across the country’s vast array of ecozones, the U.K. and Australian approaches show that biodiversity can be traded, and that customization is possible.
Sorting a country’s environment into categories based on biomes, implementing equivalency measures to facilitate credit trading, and using multiple sources such as satellite data and eDNA tracking to evaluate an area’s biodiversity are examples of factors that could make up a working, effective credit market scheme. Protecting and restoring the Earth’s biodiversity is an urgent and significant task, and biodiversity credits can be a key component of closing the funding gap required to do so.
For more information including a proposed methodology and a detailed case study of how a biodiversity credit trading scheme can be implemented in Canada, please refer to our working paper “Establishing a Canadian Biodiversity Credit Trading Scheme”12.
- 1World Wildlife Fund. (2024). Living Planet Report 2024 – A System in Peril; World Health Organization. (2025). Biodiversity.
- 2Environment and Climate Change Canada. (2026). A Force of Nature: Canada’s Strategy to Protect Nature.
- 3World Economic Forum. (2024). Nature Finance and Biodiversity Credits: A Private Sector Roadmap to Finance and Act on Nature.
- 4U.K. Department for Environment, Food and Rural Affairs (2023). Biodiversity Net Gain; NSW Government, Environment and Heritage (2026). Biodiversity Offsets Scheme.
- 5U.K. Department for Environment, Food and Rural Affairs. (2026). The Statutory Biodiversity Metric: User Guide.
- 6NSW Government, Environment and Heritage. (2026). Biodiversity Offsets Scheme.
- 7NSW Government, Environment and Heritage. (2026). The Biodiversity Assessment Method.
- 8NSW Government, Environment and Heritage. (2026). Biodiversity Offsets Scheme: Overview and Achievements.
- 9Fenichel, E. P., Dean, M. F., & Schmitz, O. J. (2024). The path to scientifically sound biodiversity valuation in the context of the Global Biodiversity Framework. Proceedings of the National Academy of Sciences, 121(34).
- 10Antonelli, A., Rueda, X., Calcagno, R., & Kalunda, P. N. (2024). How biodiversity credits could help to conserve and restore nature. Nature, 634, 1045–49.
- 11Bull, J. W., Suttle, K. B., Gordon, A., Singh, N. J., & Milner-Gulland, E. J. (2013). Biodiversity offsets in theory and practice. Oryx, 47(3), 369–380.
- 12Walker, T., Naffa, H., Mihoubi, M., Raza, S. Z. B., & Donders, S. (2026). Establishing a Canadian biodiversity credit trading scheme. Working Paper.
