Biodiversity Offsets in Chile

With a geography that runs from Antarctic wasteland to Andean wetlands, Chile offers an almost incomparable range of natural habitats in a single country. But during years of rapid economic expansion, far too little attention has been paid to protecting the country’s precious biodiversity and ecosystems.

Although around 14 million hectares of Chilean territory are protected through state-run national reserves and parks, the amount spent on conservation is minimal. A 2010 study by the United National Development Program (UNDP) showed that Chile spent just over US$0.60 per hectare on its protected areas; in comparison, Argentina spent over US$8 a hectare, including contributions from international organizations.

Protected marine areas, which are the responsibility of the National Fisheries Service (Sernapesca), receive almost no funding. Another study by universities in the US, Canada, the UK and Brazil placed Chile ninth on a list of 40 countries that spend the least on protected areas, alongside much more troubled countries such as Algeria, Eritrea, and Iraq.

This lamentable situation is the result of widespread misunderstanding of what biodiversity means and its importance, says Bárbara Saavedra, director in Chile of the Wildlife Conservation Society. “People think of the panda in Asia rather than the air that we breathe,” she says. 

Recognizing the gap, the Chilean government is preparing to create a new Biodiversity and Protected Areas Service, which will take over and expand the role currently played by the national forestry corporation, CONAF, in operating the country’s protected areas.

But protecting biodiversity should go beyond national parks. The rapid expansion of cities, as well as mining, forestry, and other activities over recent decades, has wrought incalculable damage to Chile’s biodiversity. The Environmental Impact Assessment System (SEIA), created in 1997, was designed to ensure projects mitigated or repaired damage they caused to the environment. The system, however, has not always worked as planned.

Too often, biodiversity has suffered at the hands of this system, argues Saavedra. Besieged by social demands from local communities, regional authorities have often granted developers permission to intervene in delicate ecosystems in return for an unrelated form of compensation. In one case, a mining company was allowed to carry out work in a rare Andean wetland in exchange for funding a library at a local school.

Where developers have agreed to carry out environmental compensation, the results have been patchy at best.

Often companies agree to relocate a population of a particular species that will be affected by their project. But little preparation and follow-up work is carried out so that a few years later it can be difficult to say whether or not the affected species are thriving in their new habitat. Such work can be costly but the environmental gain is often marginal, critics say.

“In the large majority of cases, it is very difficult to establish their effectiveness. Nor are they measures which deal with all the impacts which biodiversity loss implies,” concedes Ricardo Irarrázabal, director of Chile’s Environmental Assessment Service (SEA). 

Offsetting loss of biodiversity

In response to these failings, the Chilean government is now looking to a new mechanism that aims to ensure that private spending on compensating for loss of ecosystems goes where it is most needed.

Already widely used in number of countries, biodiversity offsetting is an economic instrument that requires developers to compensate for intervening in ecosystems by developing and financing alternative equivalent ecosystems.

Approaches differ; developers can implement the offset themselves or pay a third party to carry it out. But, crucially, the mechanism establishes that the offset land is protected or recovered to an agreed standard and ensures funding to keep the habitat to that standard in perpetuity, potentially outliving the project for which it was created and the company that funded it.

As biodiversity offsetting has become more common, so the mechanisms have become more sophisticated. In the United States, which has the world’s longest-running and best-established system of biodiversity offsets, this has given rise to ‘biobanks’. These institutions invest in the preservation of ecosystems and biodiversity; they then sell these biodiversity services to third parties that need to offset the impact of their own projects on the environment.

In the US, where biodiversity conservation is largely focused on the preservation and recovery of wetland habitats, this has led to the creation of around 1,200 wetland banks across the country with investment totaling several billion dollars.

The rise of wetland banking not only helps preserve critical habitats in perpetuity with private money, but has created a new industry and a new destination for green investment by ethically-minded investors, says Wayne White, who participated in the development of the system during his career at the US Fish and Wildlife Service. Today he is vice-president of the National Mitigation Banking Association. 

By outsourcing biodiversity offsets to a specialist third party, the wetland bank ensures the funds are invested efficiently and are not reliant on the developer’s goodwill.

“[Voluntary] offset systems are basically unsuccessful… When money is tight one of the first things to go is the offset,” said White.

Biobanking also allows dozens of smaller projects to be combined into much large offset programs, which have a greater impact than a number of stand-alone programs.

Recognizing its advantages over individual compensation projects, authorities in the United States encouraged developers to opt for this system by lower compensation requirements if they cooperated with wetland banks, says White.

Towards a global standard

Today biodiversity offsetting is gaining traction around the world. More than 40 countries, including Brazil and Colombia, have put in place legislation or mechanisms to enable biodiversity offsets to take place. The European Union is considering using it as part of its 2020 Biodiversity Strategy.

“It is a mechanism which is gaining a lot of attention in many countries from policymakers and businesses,” Katia Karousakis of the Environmental Directorate at the Organization for Economic Cooperation and Development (OECD) told a recent seminar at the public studies center CEP in Santiago.

Outside the US, some of the most advanced biodiversity offset programs are found in the Australian states of New South Wales, Queensland and Victoria.

Multilateral organizations, such as the International Finance Corporation (IFC) and the Inter-American Development Bank (IDB), are promoting biodiversity offsetting as a means of encouraging investment in conservation. Meanwhile, multinational companies, such as oil major Royal Dutch Shell and mining firm BHP Billiton, are including it in their internal environmental policies.

Work is now underway to create a global standard for biodiversity offsets so that governments, businesses and NGOs have a common understanding of what is meant by a potentially slippery term.

The US-based Business and Biodiversity Offset Program (BBOP), which was formed by an alliance of the NGOs Wildlife Conservation Society and Forest Trends, brings together around 80 organizations, both private and public. Having drawn up standards, it is now developing six pilot programs around the world showing how biodiversity offsets should be implemented.

A mechanism of last resort

Support for biodiversity offsets is not universal. Some environmentalists see the mechanism as allowing developers to intervene in precious ecosystems that would otherwise be off-limits. In the United Kingdom, where the government has proposed its own scheme of biodiversity offsets, legislators have criticized the plans as “too simplistic”, especially in terms of how environmental impacts are to be assessed.

“Environmentalist folk say that all this does is allow development. That’s not true,” says Wayne White.

Saavedra is supportive of biodiversity offsetting but says its role should be limited. It should not be developers’ first option for reducing their net impact on the environment, she said. Instead, it should only be used to compensate for those residual impacts that cannot be avoided, mitigated or repaired by other means; this concept is known as ‘mitigation hierarchy’.

The Chilean government is now looking to implement biodiversity offsets. According to Saavedra, there is huge potential for this mechanism in Chile given the economy’s reliance on natural resources.

The salmon industry, which has a less than optimal environmental history, would benefit from investment in biodiversity by creating a healthier and more sustainable environment in which to farm fish.

Meanwhile, the country’s wineries, many of which are leaders in environmental management, could become providers of biodiversity services that could generate a source of income to help them expand their sustainable production methods.

The new regulations for the Environmental Impact Assessment System, which come into force in 2014, represent a key step to broadening and improving biodiversity offsets in Chile, says SEA director Irarrázabal.

In line with international guidelines, these regulations incorporate the concepts of adequate compensation, ensuring equivalence between the adverse outcome to be compensated and the offset, and mitigation hierarchy, to limit the size of the offset.

But these rules offer just the barebones for the development of a fully-fledged biodiversity offset scheme like the ones found in the United States or Australia, says Irarrázabal.

Chile’s Environment Ministry and the Environmental Assessment Service are now working on the development of a guide for implementing biodiversity offset projects.

“We hope that this will form a framework which allows us to continue advancing in the development of tools which reduce the rate at which we are losing biodiversity,” says Irarrázabal.

Tom Azzopardi is a freelance journalist based in Santiago