New Pilot Registry Helps Users Track Conservation Credits

If ecosystem markets are to deliver environmental benefits, users need more transparency and the assurance that credits aren’t being counted twice. That’s why carbon markets have developed registries, and it’s why speciesbanking.com has teamed up with other market leaders to build a new pilot conservation registry for mitigation banking.

4 May 2010 | Say you’re surfing on eBay, the popular online marketplace, looking for that favorite childhood toy your mom threw out years ago but is fast becoming a pricey collectible worth hundreds . You stumble upon this one listing, and the photo of the toy looks almost like you remembered it. Despite the sticker shock, you’re willing to pay the price.

But common sense holds you back. This seller has given no information about what year the toy was made, and it might not even be that valuable model you want. And for all you know, the item could be a fake copy sold by an unscrupulous dealer. How can you trust the transaction?

The world of conservation banking is facing a similar problem. On eBay, of course, there is some offering of transparency and market data. A quick scan through global listings tells you how many sellers reliably offer the item and what the market price is right this moment and a glance at the seller’s ratings hints at their reputation. But the conservation credits market has lacked this level of information access — until now.

A new partnership between Markit Environmental Registry (Markit) , US Fish and Wildlife Service, and Ecosystem Marketplace is bringing existing credit tracking technology from other markets to bear on the conservation banking industry.

This collaboration, called the SpeciesBanking.com Registry Pilot , draws heavily on the know-how and experience of Markit, a global financial information services provider that traditionally provides risk management and operational efficiency products and services for the financial markets industry. As in our eBay analogy, the new registry will provide a place for sellers to upload credit data, buyers to find information on verified credits and active banks, and regulators to assure proper credit accounting, and creating a real-time information flow for species credits.

Trading Promises, Saving Species

The Registry Pilot will focus on conservation banking credits sited near Sacramento, Calif., working with the US Fish and Wildlife Service (FWS) Sacramento field office, the California Department of Fish and Game (the regulator of banks with state-listed species) and local mitigation bankers.

“The registry will help bankers sell credits and give more exposure to smaller banks that are less visible,” says FWS Senior Biologist Valerie L. Layne, who is also leading FWS’s participation in the project.

“The registry also will help us track the credit sales efficiently,” she adds. “We want all the banks to be successful, because that results in good conservation for the species.”

Who’s Selling What, When, Where, and How?

In the U.S., the estimated volume of wetland and conservation bank credits sold annually is huge — $1.5 – $2.4 billion by Ecosystem Marketplace’s latest estimate . But figuring out the exact volume is not possible at the present time. The US has no centralized source of information on the number and location of all wetland and species banks, credits (issued or available), credit ownership, or the number of transactions. “Generally speaking, in U.S. mitigation industry, if you’re not part of the deal, it can be very difficult to know who is selling what, where, when or how, and certainly at any aggregate level,” says Nathaniel Carroll, Biodiversity Program Director at Ecosystem Marketplace.

That’s not to say the market is devoid of information. For example, in 2008 the U.S. Army Corps of Engineers started providing wetland mitigation banking information through their national RIBITS website (Regional Internet Bank Information Tracking System), registering credits in more and more regions of the U.S. as new regulatory units (‘Districts’) began to use the RIBITS system. Currently, 17 of the total 38 Districts in the U.S. have wetland mitigation bank information available publically on the national RIBITS website, and there are an additional 17 Districts that are going through final internal checking before making their information public. While RIBITS is currently not in use for conservation banking, there are plans in the works to use it in the future.

Even when information is available on RIBITS, a regulatory tool, it may not be friendly to investors, buyers, and academics interested in searching for banks by state or credit type. Transactions may be updated one day to weeks after the transaction has taken place, making it difficult to know the real-time balance of credits in a bank.

So despite these efforts, conservation markets overall still haven’t tackled key transparency challenges :

• Difficulty in analyzing, reporting, or simply accessing and providing information on credits;
• Potential of double-selling credits; and
• Market credibility and investments seen as high risk.

But in the rapidly developing world of carbon markets, registries were being created to track each ton of carbon with unique serial numbers, providing more transparency and information for reliable transactions. These registries were a critical infrastructure milestone in the development of carbon markets, and conservation market managers have taken note.

From Carbon Registries to Biodiversity Registries

At least sixteen registries exist to track credits in different aspects of carbon trading, but until recently, only one registry has been developed for biodiversity markets and ecosystem markets in general.

The first step taken to adapt the idea of carbon registries to biodiversity conservation was an extension of the registry infrastructure built by Markit (then operating as TZ1). Beginning in August of 2008, the tool tracked ‘biodiversity conservation certificates’ issued by the Malua BioBank, a project conserving rainforest habitat in Malaysia. The registry was implemented in part to assuage investors that their purchases were not just a donation disconnected to any environmental outcome, but in fact traceable to genuine environmental assets. In the case of Malua BioBank, each biodiversity conservation certificate represented the conservation of a 100-meter square plot of rainforest in the Malaysian state of Sabah, carried out according to the Malua Conservation Management Plan.

“The Malua project was the first really innovative voluntary initiative in paying for environmental services on such a large scale,” says Joanna Silver, head of Ecosystem Markets with Markit, who coordinated the registry effort. “We saw real benefits and value in nurturing a more transparent and efficient marketplace, both for this progressive approach to voluntary conservation banking, and also other existing and emerging regulatory market mechanisms. There are many different types of environmental markets in operation and no matter what the environmental asset is, it has to be properly tracked. The market saw the importance of this in the early stages of the carbon markets, and these other environmental market programs are quickly seeing the need here also.”

After Malua, Markit continued to work with regional coordinators and regulators on various biodiversity, water and multiple-market programs. Markit next set its sights on developing a more integrated streamlined registry for the U.S .mitigation banking market. Unlike the registry for Malua BioBank or for most voluntary carbon markets, a registry for the U.S. mitigation market would have to be integrated into a regulated setting, because unlike carbon, a legal infrastructure exists for wetlands and habitat in the U.S.

SpeciesBanking.com, Improved

For the new SpeciesBanking.com Pilot Registry, Markit worked with the FWS Sacramento field office because it oversees the majority of conservation banking activity in the U.S. This pilot will enable the conservation banking industry to test a tracking tool with the following aims:

1. Streamline the regulatory processes, provide more accurate market information
2. Encourage third party brokers into the market
3. Better facilitate transactions in both the regulatory market and the potential emerging voluntary markets.

Prior to this partnership, the existing SpeciesBanking.com initiative required manual uploads of conservation banking credit information as data was gathered. Using Markit’s data management frameworks, the new Sacramento conservation banking registry will automate the data gathering process, allowing SpeciesBanking.com to link to credit information on a greater number of credits and sellers in real time.

“This is the first-ever, centralized, third-party source of information on U.S. conservation banking and with support from the regulator, the volumes of banks is only going to grow,” says Mr. Carroll.

And more information may be coming. The U.S. Fish and Wildlife Service (FWS) — which oversees U.S. conservation banking — has an interagency agreement in the works with the Army Corps of Engineers to modify the RIBITS wetland mitigation bank tracking tool to meet conservation banking needs. The FWS hopes to have existing banks uploaded into the RIBITS system by the end of the year.

“We see our registry as complementary to regulatory portals, whereby live credit balances could feed into systems like RIBITS, regulator sites and of course, the hub of banking, Speciesbanking.com,” says Silver. “Access to real-time balances, the ability to transfer credits and an easy-to-use tool lowering search time and cost for buyers will really arm this industry to move to its next stage of growth.” She points to the importance of designing a system from the outside looking in, and integrating the experience and insights from other environmental markets.

Brian Monaghan, Project Developer at mitigation banking firm Wildlands Inc., says “I want everyone to know where our banks are and the resources we’ve offering.” He explains that the registry “[gives] some transparency that gets the regulatory community comfortable with banking” and also gives the regulator a tool to check on the status of banks instead of relying on electronic or paper records. Wildlands’ Julie Maddox also appreciates the registry’s ability to streamline credit issuance and sales, which normally requires a great deal of paperwork and back-and-forth with the regulator.

Projects registered on Markit’s biodiversity and water registry — including the conservation banking pilot banks — can be viewed here, and full details about each project can be accessed by clicking on the project name, with credit balances available (and searchable) by clicking on the holdings tab.

What’s Next?

So far, the registry has uploaded five conservation banks into the registry, and more will be added over the coming weeks and months. While this effort currently captures just a small percentage of the conservation banking market, the steps taken may have a ripple effect. Transparency for one, may improve trust in the market. Just as seller ratings on eBay help a buyer determine the trustworthiness of a seller, so might the pilot registry shine a light on conservation bankers. “

Most established bankers do a good job at representing what [credits] they have, but there are rogue bankers who claim to have something they don’t,” notes Craig Denisoff, vice president of Westervelt Ecological Services. “The main reason I’m interested in the registry,” he explains, “is that it brings more transparency and certainty to the credit sale process.”

That’s just the kind of issue that Markit hopes its registry will address – both in conservation banking and in other developing environmental markets. For example, Markit is investigating how its registry tools can support emerging water quality markets and resolve instances where multiple environmental credits could be sold from the same acreage of habitat (often called “stacking” or “integrating”).

While conservation credit markets have lagged behind carbon markets, the development of a registry represents a major step. Cutting edge tracking technology, tested and proven in the financial, commodities, and carbon markets, is now being applied to a 20+ year old market in dire need of accounting infrastructure.

Becca Madsen Becca Madsen is the Biodiversity Program Manager at Ecosystem Marketplace. She can be reached at [email protected].

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