Ecological Compensation and Ecosystem Function Offsets

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This entry is adapted from the peer-reviewed paper 10.3390/su151511930

Ecological compensation, which is widely applied, is presumed to be an important mechanism to address environmental degradation that commonly occurs due to activities related to development projects and resource use. In comparison to carbon offsets, the implementation of biodiversity offsets are more challenging due to difficulties in biodiversity measurement, determining ecological equivalence, the relatively longer time taken, the higher level of uncertainty, the uniqueness of ecosystems, and the irreversibility of species loss. Generally, there is a positive relationship between biodiversity and carbon stocks; however, there are also cases where there are no clear or even negative relationships between biodiversity and carbon stocks. Ecosystem functions are directly or indirectly affected by environmental degradation, and ecological compensation measures usually compensate for only a few components of the ecosystem functions.

ecological equivalence biodiversity offsets carbon offsets ecosystem functions Ecological compensation

1. Biodiversity Offsets

Land-use change, habitat loss and fragmentation, and other factors involved in land degradation processes are driving unprecedented losses in global biodiversity. The average abundance of native species in most major land-based habitats has fallen by at least 20%, and around 1 million species face extinction ^[1]. Species extinction rates today are much higher than the background rates, and at present, what is known as the sixth mass species extinction is underway ^[2]. Land degradation and biodiversity loss are strongly related, and biodiversity underpins ecosystem functions ^[1], which are crucial for ecological integrity and the benefits which societies at large acquire. To mitigate the alarming global biodiversity loss, biodiversity offsets are becoming increasingly common in many countries and are implemented by various entities. Biodiversity offsets are mechanisms intended to balance development and environmental goals by compensating for adverse impacts of projects after appropriate steps have been taken to first avoid and minimize impacts ^[3]. Furthermore, the goal of biodiversity offsets is to achieve no net loss and preferably a net gain of biodiversity on the ground with respect to species composition, habitat structure, ecosystem function, and people’s use and cultural values associated with biodiversity ^[4]. Ecological compensation activities can involve the protection of areas that are otherwise at risk of degradation through ecological restoration or other positive management interventions and, in some circumstances, the re-creation of habitat that has been lost ^[5].

Moreover, the type of biodiversity offsetting that is relative to a baseline trajectory of biodiversity decline may result in a net loss of biodiversity compared to a fixed reference ecosystem ^[6]. In this type of biodiversity offsetting, it is assumed that the biodiversity will decline even without the disturbance that will be caused by the development project. In addition, the biodiversity decline trajectory cannot be accurately determined, although it can be predicted. Hence, it is prudent to ascertain what type of offsetting is used in order to determine the potential impact on biodiversity.

1.1. Biodiversity Offsets and Equivalence

In general, biodiversity offsets should conserve the same biodiversity values (species, habitats, ecosystems, or ecological functions) as those lost to the original project, following a principle known as like-for-like (ecological equivalence). In special cases, the biodiversity offset area might be ecologically quite different from the original project area, but with an ecosystem type or species composition that is widely acknowledged to be of higher conservation priority (perhaps in greater overall need of protection) than the biodiversity to be lost under the original project; this approach to offsetting is known as trading-up ^[7]. However, in addition to the uniqueness of natural habitats, it is particularly difficult, if not impossible, to have ecological equivalence between two sites which have different habitat types (ecological context), locations, site histories, socioeconomic contexts, etc. (out of kind). Furthermore, equivalence in biodiversity does not necessarily translate into equivalence in functional diversity. Hence, in addition to biodiversity, offsets should also incorporate some measure of functional diversity ^[8].

1.2. Uniqueness

By and large, any natural ecosystem is unique due to its social–economic–ecological complexity and cannot be replaced or perfectly substituted. Hence, no two sites are ecologically and socioeconomically identical. According to ^[9], ecological uniqueness emerges from at least three environmental attributes: (i) place-specific environment (spatiality), (ii) distinctive site history (historicity), and (iii) complex ecological processes and interactions among the ecosystem elements (complexity). Hence, uniqueness of ecosystems implies that the validity of the concepts of ecological equivalence and substitutability in ecological compensation are questionable.

1.3. Reversibility

At present, the rate of global species loss is accelerating, and the loss of species is an irreversible process which cannot be ecologically compensated. In general, there are habitats and ecosystems which contain rare and threatened species whose losses cannot be offset by compensation. Hence, reversibility should be considered as a prerequisite for the implementation of offset activities, and all biodiversity losses addressed through offsets should be reversible ^[8]. In general, in case of irreversible environmental degradation, some environmental components may be irretrievably lost and cannot be compensated through offsets. Hence, defining thresholds beyond which the use of offsets is considered as inappropriate helps to identify environmental degradations which are reversible or not.

1.4. Complexity and Challenges in Biodiversity Measurement

Biodiversity offset involves measuring both the losses to biodiversity caused by a development project and the commensurate conservation gains achieved by the offset. Biodiversity is hierarchical and scale-dependent, which makes it complex, poorly measurable, and non-interchangeable in its elements. Species are not substitutable by each other ^[10], and biodiversity is multidimensional, meaning it cannot be measured using one metric only. For instance, many studies use species richness alone as a measure of biodiversity. However, species richness does not take species composition into account and may lead to the neglect of particularly rare and threatened species, which are at risk of local extinction ^[11].

Furthermore, understanding the demography and genetic composition of local populations requires major work, time, and resources ^[12]. Hence, measurement of biodiversity and ecosystem services, as well as predicting the outcomes of biodiversity offsets, presents a potentially insurmountable challenge. Consequently, biodiversity offsets can be made operational on the ground only if simplifications are allowed in the measurement of biodiversity. In general, biodiversity offsets rely on measuring few environmental parameters (proxies), and hence, they are inherently highly reductionist. Consequently, these measurements do not fully and accurately capture the biodiversity loss and gain achieved through offsets.

1.5. Time Lag in Biodiversity Offsets

While ecological losses will be immediate, often within a few years of the project commencing, it will typically take a long time for the offset actions to enable the recovery of a degraded site and produce the anticipated benefits ^[13]. Typically, offset gains (particularly restoration) may take decades or even centuries to deliver the desired outcomes ^[12]. For instance, in the restoration of degraded forestlands, plant species richness in secondary forests can approach old-growth forest values within a few decades after the commencement of restoration activities. However, returning to a species composition similar to old-growth forest will be a much longer process, particularly for canopy trees (late-successional species) due to their long turnover time ^[14]^[15]. In general, ecosystem or biodiversity recovery may take such a long time that it is very difficult to predict the outcome of the species successional trajectory, and consequently, it is beyond the range of meaningful policy planning ^[9].

1.6. Leakage

As a result of the offset actions, environmentally damaging activity may relocate elsewhere after being stopped locally by avoided loss offsetting, which is known as leakage ^[16]. However, evaluating leakage is not straightforward. Setting aside and protecting one area may also move pressures from the protected type of habitat into another; pressures could also move from one administration (country) to another (indirect leakage), making leakage difficult to detect ^[12]. For instance, if reducing small-scale mining inside an area targeted for biodiversity offsets is not combined with sustainable and profitable economic alternatives for miners, they may move outside the area and continue mining, thus affecting biodiversity in previously undisturbed areas cf. ^[17].

1.7. Additionality

For any offset to have an overall positive impact, it must be additional. Additionality means that one cannot count offset gains from (conservation and restoration) actions that would have been done in any case—double counting is not allowed ^[12]. In other words, biodiversity offsets must deliver conservation gains beyond those that would be achieved by ongoing or planned activities that are not part of the offset. Another concern related to additionality is the risk of cost-shifting, in which a government might reduce its budgetary allocation to protected areas, in response to the increased revenues from biodiversity offset payments made by a (private or public sector) project developer ^[7]. If offsets allow governments to quietly renege on their commitments, biodiversity offsets could cause more harm than good ^[18]. Following the aforementioned small-scale mining example, if part of the rural development strategy of a local government is to create economic alternatives for small-scale miners in certain districts, thus indirectly reducing human impact on biodiversity, then areas in these districts may not be suitable for biodiversity offsets as positive biodiversity impacts are expected to happen regardless of the offset’s interventions ^[17].

1.8. Longevity

Biodiversity offsets are normally expected to persist for at least as long as the adverse biodiversity impacts from the original project lasts; in practical terms, this often means a very long time period. Protection may be needed to ^[19] ensure the longevity of the offsets ^[12]. Permanent compensation is gained from, e.g., permanent protection as opposed to a temporary conservation contract ^[12]. Furthermore, lasting offset outcomes, such as conservation, will ultimately depend upon the actions of future generations as well as present-day decision-makers. Thus, project proponents often cannot credibly promise that a biodiversity offset will be maintained “forever”, but it should be for at least the operating life of the original project and ideally longer ^[7]. In addition, it is not always clear how offsets should be managed in the present era of climate change, by whom, and for how long ^[8]. For the long-term survival of the target ecosystems and species, as well as for a successful conservation outcome, biodiversity offset designers should seek to ensure the formal legal protection of the land, water area, and species involved, on-the-ground protection and management, and financial sustainability ^[7].

1.9. Uncertainty

Restoration is one of the main mechanisms of ecological compensation and its outcomes are based on the succession of species and their interactions, which are notoriously unpredictable and range from success to failure. Particularly, species composition may be more challenging to forecast than other ecosystem attributes. As part of an offset action, restored or created habitats might fail to establish or provide sufficient ecological function, or negative impacts may be greater and compensation less than planned ^[8]. Furthermore, climate change is another factor that increases uncertainty, and it is expected to affect all ecosystems ^[13]. In general, the future expected gains from biodiversity offsets contain significant uncertainties ^[8] and they should be accounted for when calculating offsets.

2. Carbon Offsets

2.1. Carbon Reservoirs and Sequestration

Land degradation is a driver of climate change through the emission of greenhouse gases (GHGs) and reduced rates of carbon uptake ^[20]. An estimated 23% of total anthropogenic greenhouse gas emissions derive from agriculture, forestry, and other land uses, contributing to climate change ^[21].

In principle, any activity related to carbon flows between ecosystems and the atmosphere is simple in the sense that it is about two carbon pools (atmosphere and ecosystems) and flows of carbon between them. In terms of calculating or accounting for the changes in the two carbon pools, the location, type, or quality of the ecosystems in question does not matter. For instance, X tons of carbon emitted in burning of tropical rain forests in the Brazilian Amazon is equivalent to X tons of carbon sequestered by tree growth in the Russian boreal forest.

The role of terrestrial ecosystems as carbon reservoirs and sinks was recognized already in the 1992 United Nations Framework Convention on Climate Change, and carbon sequestration in afforestation and reforestation (A/R) became a part of the Clean Development Mechanism (CDM) of the Kyoto Protocol, signed in 1997. In the United Nations Framework Convention on Climate Change (UNFCCC) COP 13 of Bali in 2007, reduced emissions from deforestation were taken as a part of the negotiations, subsequently leading to the Reducing emissions from deforestation and forest degradation in developing countries (REDD+) mechanism, which was approved as a part of the Paris Agreement in 2015.

The REDD+ mechanism allows parties of the UNFCCC to carry out the following five actions as part of their Nationally Determined Commitments (NDCs): deforestation, forest degradation, conservation, sustainable management of forests, and enhancement of forest carbon stocks ^[22]. While tackling deforestation is related to land use change, the other four actions are related to forests and forest degradation directly or indirectly.

By 2018, 55 countries have included REDD+ in their NDCs ^[23]. During recent years, the value of annually approved REDD+ programs has been about 250–300 Million USD per year ^[24]. In voluntary carbon markets, the value of land use and forestry offsets was 270 million USD in 2020 ^[25].

2.2. Challenges in Carbon Monitoring and Reporting

To facilitate the accounting and reporting of the emissions and sinks of carbon from ecosystems, the Intergovernmental Panel on Climate Change (IPCC) defined five terrestrial carbon pools: above-ground biomass, below-ground biomass, deadwood, litter, and soil organic matter ^[26]. There are two fundamentally different approaches for measuring the changes in the carbon pools and fluxes: (a) flow-based approach and (b) stock-based approach. The IPCC Good Practice Guidance for Land Use and Land Use Change ^[26] uses the stock-based approach in inventories of the five above-mentioned carbon pools in land-based ecosystems and forests.

During the last decades, the accuracy of estimating ecosystem carbon has increased. However, uncertainties in estimating are still high depending on the location, scale, and methods used. For instance, for European biomass maps at the national level, the error ranged between 30% and 40% ^[27]. At the project level, when measurement is based on sampling in the field, the accuracy is a trade-off between sampling intensity and measurement cost ^[28]. According to ^[29], there are four potential sources of errors and biases associated with above-ground biomass (AGB) estimates of tropical forests:

Inaccurate measurements of variables, including instrument and calibration errors.
Wrong allometric models.
Sampling uncertainty (related to the size of the study sample area and the sampling design).
Poor representativeness of the sampling network.

The uncertainty in estimating soil organic carbon (SOC) remains high globally ^[30]^[31]^[32]. However, with the fast development of methods and tools for estimating and monitoring carbon stocks, the accuracy of the measurements is increasing ^[33].

2.3. Lag Time in Carbon Sequestration and Stocks

After rehabilitation of a deforested tropical site through afforestation/reforestation or natural regeneration, it may take between 40 and over 100 years to accumulate the biomass carbon stocks similar to the amount that existed before the degradation ^[34]. However, the carbon sequestration rate varies considerably between forest types, depending on climate, edaphic factors, species composition, occurrences of disturbances, etc. Similar to biomass carbon stocks, the recovery time of soil organic carbon stocks varies among different ecosystems and sites, ranging from 15 years to several centuries ^[35]^[36]. For instance, the time to reach the equilibrium of soil organic carbon (SOC) in grassland to forest conversion is 150 to 200 years, and in cropland to forest conversion it is 120 years ^[30]. Generally, total plant biomass carbon accumulates more rapidly in warmer and wetter biomes than in cooler and drier ones ^[37]. Thus, in practice, deforestation, i.e., conversion of forest to non-forest land (e.g., urban area), in place A and afforestation or restoration of degraded forest in place B cannot be fully compensated until the carbon stocks of the above-ground biomass and soil organic carbon (SOC) reach their equilibrium levels. In such cases, long commitment periods with periodical monitoring, reporting, and verifying of carbon stocks are needed. For instance, in the California Cap and Trade System, the commitment period is 100 years ^[38].

2.4. Leakage

Leakage occurs when the actions to reduce GHG emissions for a carbon offset project cause GHG emissions outside the project boundaries ^[39]. This shift in carbon emissions may be driven by a change in economic behavior, which adjusts to meet the market demand. For instance, if ecological compensation activities reduce the yields of the agricultural sector in a given area, that may force the agricultural production to shift to other lands in order to meet product demand. Because these other lands are generally located outside the ecological compensation areas, the corresponding emission will go unaccounted for ^[39].

2.5. Additionality

Additionality means that a carbon offset credit is granted only to the extent that the associated amount of emission reduced or sequestered within the project boundaries is additional to that which would occur without the project or under business as usual (BAU) conditions ^[39]. This definition implies that baselines are the key component of additionality, since carbon offset credits are only earned for project activities resulting in GHG emission reductions in excess of the business-as-usual scenario ^[40]. In practice, additionality has to be taken into account in project planning and design. For instance, using protected areas in a carbon compensation project is problematic, because the carbon stocks are in theory already protected—even without the planned project.

2.6. Longevity

Longevity means that GHG reductions or removals cannot be reversed, and that carbon, once sequestered, cannot be emitted back into the atmosphere ^[40]. Similar to biodiversity, carbon stocks stored in rehabilitated forest sites can be released to the atmosphere in a short period of time, e.g., in a forest fire or illegal logging. Unless properly implemented, local communities or private companies can easily convert restored forestland to a degraded site and release the CO₂ accumulated in the aboveground vegetation and soil back to the atmosphere. Hence, the original benefits of carbon offset (ecological compensation) projects can be rapidly and easily reversed ^[39]. In practice, the long commitment periods and periodical monitoring, reporting, and verifying of carbon stocks described above are relevant here as well.

2.7. Uncertainty

Carbon offset projects based on afforestation/reforestation face the risk of reversal because of the intentional or unintentional release of carbon back to the atmosphere. This is due to (1) the severity, duration, and frequency of natural disturbances, such as fire, insect damage, and severe weather; (2) the response of trees to increasing atmospheric CO₂ concentrations and changes in climatic conditions; and (3) land use conversions ^[41]. These aforementioned factors are sources of the uncertainty of carbon offsets projects meeting their objectives within the planned period.

3. Synergies and Trade-Offs between Biodiversity and Carbon Offsets

In comparison to carbon offsets, the implementation of biodiversity offsets are more challenging due to difficulties in biodiversity measurement, determining ecological equivalence, the relatively longer time taken (achieving similar species composition to pre-disturbance state), the higher level of uncertainty (species succession after restoration), the uniqueness of ecosystems, and the irreversibility of species loss (Table 1). Furthermore, there are factors that negatively affect both biodiversity and carbon offsets (leakage, lack of additionality, and longevity).

The biodiversity–carbon relationship is among others affected by taxonomic groups, biogeographic region, and spatial scale; hence, the nature of the relationship is context specific ^[42]. Although site specific, in general, there is a positive relationship between biodiversity and carbon stocks ^[43]^[44]^[45]^[46]. However, there are also cases where there are no clear or even negative relationships between biodiversity and carbon stocks (Figure 1). For instance, intensively managed afforestation or reforestation activities (for ecological compensation purposes) with few introduced tree species may result in an equivalent or higher carbon sequestration potential, but very low biodiversity compared to the reference ecosystem. Hence, ecological compensation projects which prioritize carbon sequestration potential, may not necessarily protect biodiversity ^[47]. On the other hand, although not in all cases, prioritizing biodiversity tends to enhance carbon sequestration potential and stocks ^[48]^[49].

Figure 1. Degradation of a forest ecosystem and the potential scenarios of a compensation site in terms of biodiversity and carbon. BD = biodiversity, C = carbon, NGL = no gain or loss.

Nonetheless, ecological compensation projects should aim at multiple benefits, which include, among others, biodiversity and carbon cf. ^[50]. However, there may be trade-offs when trying to optimize biodiversity and carbon within a landscape ^[51]. In spite of the possible trade-offs, ecological compensation should aim to have higher or at least no loss in biodiversity and carbon stocks compared to the original site.

Table 1. Comparison of biodiversity and carbon offsets in the implementation of ecological compensation.

Biodiversity Offset	Carbon Offset	References
Time lag	Few decades to hundreds of years	Few decades to hundreds of years	^[12]^[30]^[35]^[36]
Measurement difficulty	High	Low	^[8]
Monitoring difficulty	High	Low	^[30]^[52]
Restoration challenges	High	Low	^[53]
Predictability of restoration outcomes	Low	Moderate	^[9]
Uncertainty	High	Moderate	^[8]
Reversibility of degradation	Can be irreversible (species loss)	Reversible	^[9]
Major risks	High	Moderate	^[20]
Geographical scale and location	Location specific	Theoretically anywhere	^[13]
Ecological impacts	High	Moderate	^[20]
Socio-economic impacts	High-moderate	Moderate-high	^[20]
Longevity/Sustainability	Depends on community support, funding, policy, etc., conditions	Depends on community support, funding, policy, etc., conditions	^[7]

4. Ecological Compensation of Ecosystem Functions

Ecosystem functions provide societies with vital services, such as regulation of the hydrological cycle and climate, nutrient cycling, erosion prevention and maintenance of soil fertility, pollination, biological pest control, etc., and provide wood and non-wood forest products. These important ecosystem services and products are directly or indirectly affected by land degradation and ecological compensation. Most ecological compensation measures compensate for a few components of ecosystem functions at a given site and do not achieve full equivalence (in terms of ecosystem functions) between the offset area and the undisturbed/reference site. Furthermore, the recovery time, measurability, restoration challenges, predictability of offset outcomes, etc., vary between different ecosystem functions (Table 1). Hence, these variations in ecosystem functions should be taken into consideration in the implementation of ecological compensation.

In principle, for ascertaining a successful ecological compensation, comprehensive and extensive quantitative information is required from the various ecosystem functions on gains and losses. However, because of the high cost and labor that is required to collect such data, it is realistic and cost-effective to use a few environmental functions as proxies. By and large, biodiversity underpins ecosystem functions, and there are strong linkages between the two ^[54]. Since biodiversity is interconnected and directly or indirectly affects various ecosystem functions ^[55], it has the potential to be used solely or as one of the proxies. If biodiversity is to be used as a proxy for ecosystem function, it is crucial to use appropriate metrics which capture all the important biodiversity attributes ^[56].

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Eshetu Yirdaw

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