Client: Department for Environment, Food, and Rural Affairs
Year: 2021
eftec Team: Ian Dickie, Rob Daniel, Guillermo Garcia
Full report: Accessible here
Context for the Project
This Biodiversity Net Gain (BNG) Market Analysis Study was commissioned by Defra to model the expected size and dynamics of the terrestrial market for biodiversity units (BUs) and their prices in England. The objective was to provide an understanding of how the market is likely to grow over time and to make recommendations to inform policy development, including in relation to the Government’s powers as a BU seller of last resort.
What we did
We began by conducting a thorough review of existing and potential biodiversity offset markets in the UK, biodiversity and other payments for ecosystem services markets globally. This review informed key issues relevant to future market design and identified the likely costs of actions to supply BUs.
Geographic Information System (GIS) analysis and modelling were then used to estimate the potential supply and expected demand of BUs across the Local Planning Authorities (LPAs) of England. This included identifying the annual terrestrial footprint of development, estimating the loss of priority habitats, and identifying land suitable for habitat management actions.
We also conducted two rounds of interviews with experts and stakeholders from across the range of expected market participants in England, including public, private, and third sectors, developers, and landowners/managers. Additionally, surveys were conducted with potential buyers and sellers of BUs.
The evidence gathered was used to model the likely shape of the market in its first 10 years of operation. This involved assessing where in England, the demand for BUs was likely to exceed supply, i.e. scarcity in BUs by LPAs across England and other assumptions about trade.
Our Results
Immediate scarcity of BU is considered unlikely, but 51 LPAs were identified as having a risk of scarcity. However, more on-site delivery of BUs by developers and allowing trading with adjacent LPAs would alleviate this scarcity in the majority of the LPAs identified. Strategic policy measures may be required in highly urban areas and for intertidal habitats.
The estimated national average price of £20,000 per BU was used to assess potential market size. Assuming 50% or 100% of BUs are delivered off-site, the total size of the BNG market was estimated at around £160m - £325m per year. Note that since this work was completed, BNG has been implemented with a minimum unit cost of £42,000, which would significantly increase this estimate.
Recommendations
Based on the findings, several recommendations were made:
Increase Understanding of the BNG Market: Clearly communicate that trading of BUs will be in a BNG compliance market.
Ensure Clear and Effective Regulation: Build trust in the policy process, regulate on-site and off-site delivery of BUs consistently, establish a national registry of BU transactions, and ensure sufficient capacity at the local scale.
Avoid Policy Failures: Have a single government strategy coordinating the actions of relevant ministries, require high standards of public activity, and minimize the Government’s role as the seller of last resort.
Demand-Side Interventions: Promote good mitigation hierarchy practice, extend the BNG requirement to Infrastructure Projects, and develop strategic partnerships for intertidal habitats.
Invest in Institutional Capacity, Training, and Transparency: Quantify the LPA staff time, training, and information needed for the BU market to function, provide training to market stakeholders, and ensure sufficient independent capacity for oversight of the market.
Research Strategic Policy Needs: Address restrictions on market activity in urban areas and coastal habitats and explore further spatial analysis to increase confidence in the expected market.
Developments Since this Work
Since we completed this work, BNG has become a statutory requirement for developers in the UK. The policy mandates that all new developments must deliver at least a 10% increase in biodiversity value relative to the pre-development biodiversity value of the onsite habitat. This increase can be achieved through onsite biodiversity gains, registered offsite biodiversity gains, or statutory biodiversity credits.
Several of our recommendations have been incorporated into the policy. For instance, the policy includes clear and effective regulation, with a national registry of BU transactions and consistent regulation of onsite and offsite delivery of BUs. Additionally, the policy promotes good mitigation hierarchy practice and extends the BNG requirement to infrastructure projects.
The market for offsite biodiversity unit sites has grown, with sites being made available on the Natural England register. This has facilitated trading and helped alleviate scarcity in certain areas. As mentioned above, the price for a BU is also increased to an average of £42,000 and in some locations multiples of this figure. Furthermore, the policy currently applies to small developments, however this may be relaxed following an upcoming consultation (as of May 2025).
Our work has been referenced by various organisations in their own efforts to model and advise on the potential of the BNG market and has been referenced in the House of Commons Environmental Audit Committee’s report on the role of natural capital in the green economy.