England brings in biodiversity net gain rules to force builders to compensate for loss of nature

England is launching a biodiversity credit scheme this week that attempts to force all new road and housebuilding projects to benefit nature, rather than damage it.

The “nature market”, called biodiversity net gain (BNG), means all new building projects must achieve a 10% net gain in biodiversity or habitat. If a woodland is destroyed by a road, for example, another needs to be recreated. This can happen either on site or elsewhere.

The requirement becomes law under the Town and Country Planning Act on 12 February for larger sites, and on 2 April 2024 for smaller sites.

What are biodiversity credits?
Biodiversity credits are about putting a financial value on plants, animals or habitats. This means their ecological value can be bought and sold for money. A credit represents a "unit" of positive action, such as creating a new habitat, or preventing the loss of an existing one.

This value must be scientifically agreed on so the credits can be traded and are traceable. The idea is to create financial incentives to preserve biodiversity.

What are biodiversity offsets?
If specific developments (such as mines or construction) are driving the loss of wildlife habitats, then conservation action can be funded to make habitats richer or larger elsewhere to compensate. That action could help “offset” the loss. In this sense, that development could be said to have “no net loss” of biodiversity. If biodiversity is increasing overall, this is called “biodiversity net gain”.

Scientists say biodiversity offsets should be applied as a last resort, meaning that they should only be used if avoidance, mitigation and restoration have all been tried first. The offset is seen as compensating for unavoidable harms.

What is a nature market?
It is when people buy and sell goods or services linked to ecosystems. This trade is made in credits. Many governments are keen on creating "nature markets" because they want private finance to help fund nature restoration (which is often strapped for cash).

Some people think these markets will help generate funds for nature restoration, while others feel uncomfortable about putting a price on nature and feel it is part of a concerning trend to commodify the natural world.

The scheme will make people think about how to minimise and mitigate the ecosystem impact of new developments, said Natalie Duffus, a biology and geographer researcher from the University of Oxford, who analysed the impact of BNG trials on conservation. “In theory, it could restore lots of habitats,” she added.

The government has a target of building 300,000 new homes a year by the mid-2020s. Land affected by those developments must be compensated for under the new rules.

Internationally, “it’s one of the most ambitious schemes we’ve seen”, said Duffus. “Other places are watching us and seeing how it unfolds. If done well I think it could inspire a lot of other markets to develop in different countries.”

Those already hoping to copy the idea or use it to develop their own include Sweden, Singapore, Scotland and Wales, she said.

Sophus zu Ermgassen, an ecological economist from the University of Oxford, said England’s scheme is “world-leading in its scope” in that it addresses all new construction, and covers all natural habitats. “Other offset policies around the world have either a wealth of exemptions or deal with one specific set of impacts,” he said.

One major shortfall for biodiversity markets around the world is a lack of demand. To date, only $8m (£6.5m) has been committed or pledged for biodiversity credits worldwide. Globally, funding for biodiversity is $169bn annually, most of which comes from domestic public funding. It needs to increase to $200bn from all sources (public, private, domestic and international) by 2030, according to the UN.

“Demand for biodiversity credits, or offsets, is really limited unless there is some sort of fundamental driver,” zu Ermgassen said, adding that having a mandatory market for all developers helps these things scale up and draw in more investment and activity than they would otherwise.

BNG is regulated by several bodies, including local authorities and government agencies. This is seen a strength of the scheme, as it avoids the problem of “marking your own homework” associated with voluntary markets.

However, regulators lack the staff to check the pledged habitat benefits actually materialise. Zu Ermgassen was part of a study that found that more than a quarter of BNG units are at risk of leading to no tangible increases in biodiversity because there is no monitoring system in place. There are also concerns that there are too few ecologists to oversee habitats or score them correctly. Some may lack independence if they are employed by the developer.

Tom Oliver, a professor of applied ecology at the University of Reading, said environmental regulations are typically let down by lax enforcement. “BNG’s success hinges on effective environmental regulation, monitoring and policing, and yet when you look at all our past case studies they clearly show a failure of environmental enforcement and policing,” he said. “You’re putting in a new approach that relies on mechanisms working when they don’t.”

Much of the off-site habitat restoration demanded by the scheme – including the creation and protection of wetlands, wildflower meadows or woodlands – is expected to happen on farmland. However, there may also be a lack of farmers signing up, as it is not clear how big the market will be.

Ben Taylor, the manager of Iford Estate farm near Lewes in East Sussex, said betting on this emerging market is “crystal ball stuff”, with many farmers hesitant to take the financial risk.

However, Amanda Williams, the head of environmental sustainability at the Chartered Institute of Building, said it is good the legislation has been launched after a number of delays.

Related: Flowers everywhere? England’s ambitious scheme to restore wildlife hangs in the balance

“Looking into the future, the current BNG legislation does not address construction’s full impact on nature as it excludes the production and processing of construction materials, such as timber and sand, and minerals including gravel, iron ore and rocks, and how they affect biodiversity,” she said. “This is something that in time will need to be addressed.”

In the past decade, more private players have been entering the nature-conservation space, and the international voluntary biodiversity credit markets is growing.

“The very first trades are starting to happen in these markets, it is super early days,” said zu Ermgassen. “There is no universally agreed standard, there are no universally agreed anything – it’s very much the piloting and innovating phase of that system.”

The private sector is increasingly becoming a source of finance for biodiversity credits, but governments must provide the resources to fund biodiversity, according to research by the Campaign for Nature.

“Fundamentally, it is critical that our governments start to recognise biodiversity as the public good that it is, like law enforcement or defence,” said the lobby group’s report. “Public goods must be funded by governments or incorporated into private investment decision-making through public policy, regulations and incentives.”