The coming boom in biodiversity credits - Louise Aitken and Erik van Eyndhoven

[Music] Kia ora, I'm Vincent Herringer and you're listening to this climate business. Every week we talk to entrepreneurs, innovators and experts leading New Zealand to New Zero. I hope you enjoy the show. [Music] Biodeversity credits remain somewhat the holy grail in conservation, imagine being paid to manage nature not for farming or mining, but simply for being nature. Yet like the holy grail, the promise outshines the reality. Carbon credits have struggled to meet expectations. Various attempts like Hawaka Eccanoa and the UTS have failed to link markets to nature. But a new report by the BNZ Deloitte and the Nature Conservancy predicts a brighter future. Connecting nature, climate and capital, that's the name of the report, says demand for high integrity. Nature-based carbon credits is strong, with carbon markets projected to grow to 35 billion by 2030 and that New Zealand is uniquely positioned to capitalise. Well to explain that outrageous optimism, I'm joined by authors Louise Eccanoa Deloitte and Eric Vint-Anthoven of the Nature Conservancy. Thanks for joining me on the show. I'm having us. Louise, let's start with you. Carbon markets have been so disappointing. They haven't lived up to their promise. So what convinces you that biodiversity credits will fare any better? Yeah, it's a great question because I think there's probably two elements of it. First of all, it's around the lessons from the voluntary carbon market. A very clear and start for a lot of people and particularly from a biased standpoint, the focus on high integrity and building trust and being able to very clearly articulate the benefit and who has been a fit from that benefit. I think it's really key. We did this report because we recognised that there is a growing understanding of the position of natureism, whether that's in New Zealand or globally and the fact that because of a greater understanding of the risk and dependencies that organisations and businesses and communities have on nature that we need to do something about it. And we can use the financial instruments that have been tested and still have growth to still have the ability to improve but we really should be focusing on what can they do for nature. We have to think about bringing all the tools that we have to be able to help restore nature and we believe that there is a significant opportunity to do that with New Zealand benefit from that. So we decided we needed to do this report drawing on, they're going to deliver it in the market data and interviews and we were really lucky to do that. So obviously with the nature, the support of our bnsd. Like so much in sustainability, there's lots of shudton cuds and I get that because there is addressing the problem but you deloitte, you deal in the facts, ma'am and the facts are that carbon markets haven't delivered but these numbers that you've been quoting here, where do they come from? I guess the confidence that they are going to deliver, what's changed in your mind? Yeah and we didn't come up with these numbers. We went and looked for multiple sources and had to take into account there is of course, particularly the biodiversity market space. This is a real nice market and it is growing so some of those expectations and the estimates for what will be in 2030 and 2050 are various. So what we did is from TMC and Deloitte standpoint and said, "Well, where do we believe the markets will be and how will we evidencing that?" We are as the source of our information and how we are validating those sources and how we have taken obviously a quite conservative view but also really reflecting that to the interviews and both domestically and internationally that we did with buyers in the market as well as being able to source information from the supply base as well. So anything that we both will put out with our own brands on it will of course have significant research behind it and we are confident that we have reflected what we know today but I think it is a really important thing that this constantly changes. Even since we did the report and we have had more information come through, of course this is a ever evolving market but I think critical thing for us to focus on in the report is not necessarily the numbers, it is what are the recommendations, what are we saying that needs to happen in order for us to be as New Zealand to be present in these markets as they do grow and that is really important. Focus of this is not necessarily what is the size of the price, it is how might be part of the price when it actually starts to really flow those extraordinary numbers that we know that we have estimated are possible as the outcomes that we want as far as the impact of this report. Good, well let we will go to the actions later but let us back up the track a bit Eric you talk about these high integrity nature based carbon credits, what are they? What makes them high integrity for a start and is biodiversity and carbon kind of mixed up in that same category? Do you want to just tell us what those are? Yeah, for the report we have used that terminology to capture those credits that are designed to capture carbon as well as provide biodiversity benefits but harnessing the power of nature primarily. It is a bit of a casual term to describe both carbon and the biodiversity credit elements there. When we talk about high integrity credits we mean high integrity by design, you have alluded to the fact that there is a bit of a crisis within the carbon markets in recent years, largely driven by criticisms around the integrity of certain types of carbon credits in the market which naturally led some buyers to question the validity of the credits that they were purchasing and the claims they were making on the back of those credits. So what we are seeing change in the market is a real maturation and a pivot towards quality and integrity. And so your note in the report is there is ample reference to the sorts of structures and systems that allow these sorts of claims to be validated to a really high standard. So we are actually measuring the outcomes of these projects. Is carbon being sequestered? Is biodiversity benefiting from this? And how do parities provide that assurance? And that is a really, really critical piece of the puzzle because it is that kind of trust in the market which will unlock the potential of it in the fullness of time. So I noticed in the report does talk about additionality as being a critical part of that integrity that this has to be in addition to what would naturally happen anyway. 100% and if you think of the criticism that I alluded to earlier, a lot of that stemmed from the fact that it actually was difficult to prove additionality of those gains. So in that case it might be, say for example a tropical forest somewhere that was under some threat of being logged in the project developer would say, well, prevent logging and then we'll claim those carbon credits for the forest that would have been lost had we not intervened in some way either through payments to the local communities or some sort of changed ownership or whatever it was. And I think there was a sort of question of going, really is that the case? Would that have been log? It wasn't for those activities. No, there's plenty of cases now where those sorts of programs can be proven to a high degree of confidence. But the critical turn there is that additionality would it have happened otherwise? And can you prove that it was your activity that is demonstrably responsible for that carbon, additional carbon being sequester or not being lost? And in the case of biodiversity, that the biodiversity state is better as a result of your activity. So yeah, additionality is a key turn. It's not the only one. There's a number of them. And so you'll see them, Mr. Spouse and the core carbon principles, so there's standard setting bodies now. So you're boys that are really taking the charge to actually clarify what high integrity actually means and what the dimensions of that and how people as project developers can prove that their projects meet those high standards. Is that standard Louise, a nationally set thing, I know the government will come to the government program in a minute, but are these standards now international? Yeah, and this is one of the recommendations is from a buyer standpoint. And when we think about it, we have the local buyers, of course, and those organisations that want to be able to invest in New Zealand because that's where they are part of the community and they recognise their importance from our social licence to operate and a contribution to NZ. But then you also have obviously the international buyers and we want to be part of. of their investment portfolio, of course. And so what that means is that we really need to be able to go to those standards where it will unlock both of those potential bi-groups. So actually, aligning to international standards and being part of registries and opportunities to be able to meet what those global buyers are demanding because of that integrity as they are exposed is really vital. So what we have recommended is that we do align two international standards and those standards that are recognised that the buyers have the trust in. Because if we create our own standard and there is concern about the understanding of that, the alignment to different registries, et cetera, we won't have access to those buyers. They're not going to come and find us because they are participating in registries where they have multiple choice. And so we want to be part of that. So yes, we know that guidance is really important in one of those recommendations for the government is to be able to provide guidance. But really, importantly, we've got to be able to understand what are the right standards and methodologies that we want to get behind it as an in-sit anchorable. And then for the projects who have the ability to choose that they choose and the right ones to be able to match to the buyers that will be right for them. Because that's another critical part to this. Not every buyer is going to need a same claim. Not every buyer is going to use that credit in the same way. So it's really important that those buyers and suppliers align and find each other easily. And so using internationally recognized standards is a critical part of that. OK. We've got, in terms of biodiversity credits, we've got, I think, nine pilots underway as part of the government's voluntary nature credits market. In your view, do they kind of-- are they represented of the kind of programs where you're talking about in this report? And what you've just described in terms of international credibility, would they scrub up? Are we there yet? I think it's superly evolving and what's really great. And I think there's now probably 10. I think organizations find that pilot is that they represent different parts of the ecosystem as such. I mean, some are very large and are thinking about their pilots are thinking about how to align to international standards and to be able to then understand the costs both from a reasonable standpoint and a financial standpoint to be able to be verified against those standards. But while others are more community focused and focusing on how are they delivering real benefit back to a particular area and really focus at quite a different scale. So we have focused our report on how do we unlock the buyers? What are the requirements both from all of the stakeholders in order to be able to work together collectively to be able to attract those buyers? We know scale is part of that. We know high trust is part of that. So some of the pilots, they just won't be right for some buyers. They absolutely know that. And we're really focused on this, has got to be an end game because a small organization in New Zealand being able to create credits that are right for the New Zealand domestic market, fantastic. But what we also want to be able to say is when a large multinational buyer enters the market and wants a scale, can New Zealand come together and collectively be able to produce something that needs that scale? And that's also an opportunity for us significantly as well. Eric, I interviewed Helen Hughes and Sean from Sanctuary Mountain, Munga Totiti, and also Sean Weaver from Ecos about probably six months ago now when they issued their first attempted biodiversity credit, which was pretty cool. Let's just use them as an example. So they've done-- this is kind of from what I know of how it works. They've done a biodiversity audit. So they've got a base level. They now, obviously, investing in ongoing credit eradication, weeding, maintenance of that. So they could probably demonstrate over time additionality as the forest grows. And it probably wouldn't grow without all those interventions, so they're doing all-- they're doing God's work, really growing this beautiful forest in this beautiful place. Desperate for money, absolutely. Desperate on the bones of their arses, if you like, trying to make this work. Are you saying through this report that they have a chance of tapping into international corporates who would be looking to offset or participate in the voluntary market? And would they have what it takes to get-- I don't know-- it would be HP or a Siemens or a company and I'm thinking of an IKEA or something that could invest in that project. Is that how it would work, Eric? Yeah, I'm sure that we're really, really hard to secure those sorts of buyers at scale in over a long time period, right? Because that's the critical piece. Don't want this to be just a bit of an a fashionable thing for a period of time. Projects like that need confidence. They've got to flow a revenue for the long haul. You know, the project would want to run indefinitely, or at least until we've eradicated all those prudence from the rest of the mainland. So yeah, they do have an opportunity to do that. Shorns, the cost platform that is built out here, or by credit, or I think is the scheme that is being said as well, let it. And so I think they would be looked upon very favorably by those bodies. The question will be, is the point that Lou raised, do they have sufficient scale to make it worth a while of those large organisations to buy credits from a New Zealand project like that? Monatoto is a big project from a New Zealand perspective, but it's tiny compared to some of the global biodiversity projects out there. And rest assured, there is a lot of competition out there globally for that dollar. You know, some of these early market movers and biodiversity credits are fairly scarce. As soon as they get at scale. And so there will be quite a lot of competition to secure those kinds of buyers. So the question will be, what point of difference can they offer? Can they actually differentiate what they're doing, do they simply internationally sufficiently to attract those buyers? I think the challenge there is, you know, well, perhaps it's a bit of a frame as an opportunity, is again, to Lou's point, around how do we cop to get or leverage from the New Zealand bank? Can't brand it. How do we actually take those advantages as a country, low levels of corruption, a really compelling story around biodiversity that you might know are also around the world. The unique role of Marty in the security of that biodiversity and the fuck up up connections, that's something, which I think could be leveraged. But I think it still such early days, you know, when it comes to biodiversity credits, it's going to be really interesting to see of these large investors can be brought to the table in a way that can actually come start to meaningfully to put this biodiversity finance cap, which is frankly vast. I think the other thing to add to that, it's really important as being really clear from a project development standpoint about what claim can be made as a result of purchasing that credit. So really, you're understanding the strategy of the buyer, understanding what they want to do with that and aligning to that if that's possible, because not all credits will be the same. Not all claims will be the same. So it's about what does the buyer want to do with that credit? What does it, you know, what will they do as far as the claims? And therefore, how do you align to that strategy that that organisation will have, due to that sits behind their purchasing decision? That's a really important aspect for both the buyers to understand, so that they're very clear to the market when they go, but it's also really important from a supplier standpoint to actually make sure right from the start, there is alignment there. Because it's not just. So it's not generic, is it? I mean, were you really talking about finding buyers, it's not just putting a commodity on a market and then it's being purchased, right? They were actually looking for alignment between a buyer and a seller and quite a personal, or not personal, but, you know what I mean, an individualised. And similarly, custom way? Yep, and there will be different drivers for every organisation. Some might be driven by the social licence to operate, by their ability to be able to demonstrate that their committed to nature in a certain way. It may be an offsetting standpoint, it may be stacked that they want to see more than beyond carbon, so they're thinking about their carbon offsetting and adding additional value to that. You know, it may actually just be driven by the chief executive or the board member having a deep connection to a place and that's a way that they can bring in that deep connection to their organisations, operations or in-vistance strategies. You know, it's very, it's very. And so understanding the reason why organisations want to participate is a really great start for organisations and Century Mountain. Reconnecting Northland, they're all really starting to, you know, ask those critical questions. from potential biases, why do you want to participate? - Okay. - And our week back to be the right organisation to support you from the supply side. - It's interesting. I mean, it's more akin at the moment and maybe it will evolve more akin to kind of sponsorship relationships, right? Where you're aligning to each of them has a kind of purpose that aligns with each other, whether it's a sports or a health or whatever the sponsorship is, is that, I know it's not the same, but it's analogous, right? Am I, is that a good analogy? - I'm sorry. - I'll jump in there to the air at far off, but in my view, nature sustainability should be incorporated deeply into every business decision an organisation makes. This is one way that that can be done. So for an organisation to actually say, well, nature matters to us. We're a lot of ironed on nature and if you think about, you know, just about every new deal of businesses already, you know, how are we contributing to nature being restored? How are we reducing our risk and our impact on nature and how are we ensuring that our organisation has sustainability alongside the nature that we depend upon? Those decisions now are moving it well away from being a sponsorship or a corporate social responsibility activity to be core business decision making, which is actually what we need for nature to thrive. - Good. - But I think very much right over the nature of the relationship has been broken at the moment and kind of can like that. It's matchmaking, right? It's these long standing relationships that are trying to be broken between the project developers and those who want to purchase those products and talk about them, but that's not the say that the market's always going to be like that. I think it's at this point in time and I'd like to take the degree of competition out there for those corporates looking to attain those high degree credits, because if you're looking to do that and you see that, it's actually pretty hard. There's not so many large projects that are generating these ICs that ICs receive credit to the credit that sort of scale. So there's a-- - Just explain that acronym, sorry, Eric, I'm interrupting. - So what's that? - The Integrity Council for the Bautra Calumar, the core carbon principles. And so if you were doing a project, if you want to be a creditor to that standard, you kind of need to work with a particular methodology that's been through the process and has got the tick there, right? So a lot of the credits are generating the Z on the generator under the ETS. And so there aren't so many, and the ETS is not the core carbon principles going to certify that it wouldn't-- it's not really eligible to get there at this stage, but so those projects that can generate the credits just aren't there yet, the suppliers, not there, so there's actually a fair degree of competition to kind of form those relationships. But again, in the future, if their supply starts to regenerate, they're maybe just less of that kind of matchmaking and becomes more of an open market scenario. So it's a point in time thing. And yeah, and the other thing I'll just add here is that it's not just all about corporates as well. So now when it comes to biodiversity credits, and I think Sean might have made this point in the past, is that it could be viewed as a sort of philanthropic contribution as well. So those philanthropic organisations that really want to make sure that they've got rock solid accounting of the impact from their investment might like to do it through accrediting mechanism, as opposed to in the past, which might have been more of an open grant, semi-report, every six months, right? They could use accrediting mechanism or some of these platforms designed to make this easy. So really the culprit that they're generating impact from their philanthropic contributions. And so the relationships they'll have. So obviously they're not in the game of making the same claims that a corporate would. It's usually seen just how significantly that opportunity might be taken up for that interest. We're not seeing a lot of that within TNC, but it's possible it could happen in the future. And they can demonstrate as a cost effective way of generating philanthropic outcomes. - Let's talk about, thank you, the good answers. Let's talk about the international demand for these credits. And you've got a lovely table or a chart in the report that mentions two organizations, well one organization is actually called Corsia and one beautifully named Article 6. What are these though and what do they stand for? - Yeah, so not organizations, but you're Article 6 and Eric's probably more of an expert than I am in Article 6, so you've been heavily jump in, but Article 6 is obviously part of the Paris Agreement. And Corsia is really focused on airlines. So they're just different mechanisms. Corsia is going to be, is already significant in being able to manage the offsetting of airline emissions. And there is huge opportunity. We believe, and this is something, obviously we will see continued growth because of the challenges that is in from a technology standpoint to be able to decarbonize aviation. So credits become a really important vehicle while that technology is developing. And we would expect to see that in the medium, it's not long to them, just because of the challenges from innovation and technology standpoint, we're still going to continue to fly. We've got to be able to provide the opportunities for airlines to be able to offset that damage that they're doing while that technology is being developed and zero as a upper-programming that enables that to happen. Right. And so that would be an exact, what we're seeing at the bottom of the Air New Zealand, or any of the airlines that we click on, that would be a manifestation of the Corsia kind of work. Yeah, part of it. Yes, yeah, part of it. Yeah, yeah. And Article 6, Eric? He says, we're literally, two articles. Six comes out of the Paris Agreement, right? So it kind of largely concerns the trade-ings that countries might do. So you mentioned if you're a country that's going to rain behind on your NDCs, or you might struggle to find a cost of effective ways in reducing emissions as a country, you can form an agreement with a country, which is maybe a war can deliver that off bet those emissions at a more cost-effective kind of level. And so it kind of governs the way that those transfers would work, government to government and store an ongoing thing. The store of high degree of uncertainty and how those mechanisms will work, but it's very much a country, a country, kind of focus. Yeah, okay. Lou, you mentioned that New Zealand has to rise to this opportunity. So as much as we want the demand to grow, that actually the supply needs to grow as well, what has to happen to increase the supply of these high integrity credits? Yeah, we've been really lucky since the launch of this report to talk directly with those pilot projects that are going through with the support of government and also others. And what we've been really happy about is that this report has really helped them articulate some of those or reinforce some of the challenges that they're having as Eric said earlier, that the cost of participation is significant and early stage investment to be able to unlock the resourcing and the support that's required to actually enter this market as significant. So you mentioned sanctuary mountain, we know we can ignore the lots of different projects like that are really requiring investment now, whether it's through off-take agreements or even support upfront to be able to be ready to participate when the demand is at a level that will be right to them. So, you know, we, this is an NZ-incompetunity, we've got to think about how we all participate and it's not just necessarily government, it's also the buyers and early stage buyers, probably entering, you know, maybe taking a little bit more risk being able to think about their investments in a different way. But also the suppliers recognizing that they've got to be able to work together with those buyers to be able to meet the strategic goals of those organisations as they evolve. And so I think that's really important that we collaborate. We articulate what the buyer challenges are, what the supplier challenges are, and we work together to try and find the solution. So that's what we're hoping this report will contribute to. - Yeah, you both mentioned scale and that is such an issue for New Zealand, doesn't it? Because we've got these pockets of conservation, you know, our farmers represent something like 40% of native bush, but they're all individually owned how do we join up some of this in a unified package? - Yeah, it's really interesting. On-going conversations happening on that front of the moment, actually, you know, you're a call, the kind of ambition of re-clicking puppets or an UQ kind of initiative, you know, looking for 2.2 million hectares of restoration. We know that the need for, you know, restoring those areas is huge and it's going to be, it's going to be really, really expensive. And just doing this work, you know, one property at a time, everyone running their own scheme, you know, doing this matchmaking, you know, one project, one kind of off-taker, is not going to get us there. And so when you're really doing it, think about that their aggregation piece. And it's something of real interest to us. We know some of the actual, you know, the carbon schemes themselves allow you to aggregate a whole bunch of discreet parcels. And so it might be possible for a, not for profit like TNC to establish a project we rely on. landowners to recruit into it and benefit from the investment on the actual science, like the base lining, the measurement, more the rest of it, as well as the new demand to the market. So these are the guys that don't, you know, the farmer doesn't have to find the IKEA to off-take. There's somebody doing that for them. And I know that although the To-Humarchate place is trying to crack that kind of nut as well and using some really cool technology and finding, you know, reducing the friction of connecting the supply and the buyers side, I think it's really important. I know there's a real interest to you. I mean, let it do it earlier around like the New Zealand Inc. piece. Is there a case to be made for an aggregator at a national scale that, that everybody can, you know, potentially go into. So it might look a little bit like a marketplace. So you're all the shopfront for those large international buyers and you can show them how you can then get to the land owners to kind of recruit them into the scheme and leave it to the people. Right. Because everyone's got their own interests, but it feels like if we want to meet the market where it needs to be, particularly with international buyers, we do have to find ways to aggregate these sort of sites. And we're just going to make a whole industry. Sorry, but so this is going to say I think it's really important from an agriculture standpoint as well. You know, when we think about, you know, the amount of land that sits in private ownership, you know, Ewi Marty land, you know, what's the opportunity at a catchment level? What's the opportunity in an aggregation level to really think about, you know, landholders coming together to unlock additional revenue sources to be able to support the great biodiversity where they're already doing on farm and accelerate that through them. So we're really excited to think about what might come ahead this year announcements from from government around guidance in their space. You know, what's the opportunity to really think about the scaling of great work that sort of within farm are doing that par more are doing and others to think about this as a vehicle for, you know, agricultural sector to really unlock additional opportunities, you know, financial opportunities for them and their farmers. Yeah, it's interesting you brought up civil firm farms because it kind of is one of those rare opportunities to get massive bipartisan agreement. You know, if you said to any one of the parties, would you like to help landowners get more from their land using overseas, you know, mechanisms and fresh capital coming into the country, isn't none of them are going to object to that. It does feel like it needs some sort of bipartisan national conversation. Absolutely. And, you know, the person who holds this portfolio within the current New Zealand government is, you know, Andrew Hoggard. So, you know, he is, he is sponsoring the work that's happening within the Ministry of Environment around biodiversity credits, understanding what it means from a farmer standpoint, bringing the view of he is a farmer. So he's thinking about his own farm in that regard. And I think that's a really powerful thing for us to bring together because, you know, this is a long term opportunity, as you've seen in the report itself, you know, the numbers get big when we're out 2050 and beyond. We need to be able to come together and work on what's the infrastructure, what's the support, what's the NZ conversation, this is not just necessarily what it looks like from a political cycle standpoint. Yeah, yeah, good. Hey, we've got a couple of minutes left. 30 seconds each. What's the dreamy outcome for you, Eric, after I don't know, 10 years, imagine? Well, I want to see these markets normalised. I'd love to see, you know, corporates and other actors, you know, really leaning into the fact that nature underpins our economy here in New Zealand. And to take it seriously and not think that something we're going to get for free. So we need to invest. So in 10 years, I would see these markets matured with us. And we're not questioning the integrity, where, you know, we're full trust in those mechanisms to work, but it's also not displacing the need for core public funding and those outcomes. That is, there's an addition to not instead of their core funding. And ultimately, with signature people thrive. Yeah, good. Yeah, I think that we need to value nature for what she gives us. It's our identity, it's our well-being, it's our economic prosperity. We need to use every single tool we have to be able to support our own well-being and really enable nature to thrive. And I think this is one opportunity. And we've got, you know, some of the most revered nature in the world. We've got the most uniqueness of any country in the world and we should be valuing that and providing that value out to those who will help us restore and unlock that value into the future. And that's hugely exciting to think this might be one opportunity. Well, great. I thank you for doing the report. It's a great reading and we're excited to see it come to life. Thanks for joining us on this climate business. Thanks for listening to this climate business. If you like the show, please give us a star rating or a review that helps other people find the podcast. 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