As the latest global biodiversity summit gets underway in Colombia, finance for the conservation and restoration of nature is one of the key themes of negotiations.

Global wildlife populations have shrunk by an average of 73% in the past 50 years, according to the 2024 Living Planet report. Consequently, momentum is growing worldwide to deliver new nature markets, such as biodiversity credits, to unlock new sources of funding.

Basically, nature markets are systems of exchange that match demand for nature regeneration with a supply of nature-positive projects.

But this creates risks, as well as opportunities, for Indigenous peoples. Without due care for data sovereignty, Indigenous communities may lose out yet again.

Nature markets could enable Indigenous peoples to fulfill their duties of guardianship. But such markets could also forge a new form of colonialism, including enclosure and appropriation of habitats and species that Indigenous peoples have traditional connections to.

This can occur overtly through formalisation of property rights over species, ecosystems and associated lands or waters. For example, efforts to reduce emissions from deforestation (REDD+) in developing countries have been troubled by instances where Indigenous communities were dispossessed from ancestral lands, alienated from place-based traditions or excluded from the commercial benefits of carbon trading.

The current surge for nature markets is attentive to these risks, with international commitments to avoid such mistakes. Yet the processes of colonialism can be less overt and more insidious.

Indigenous data

One neglected area is Indigenous data. This relates to traditional and cultural information, population data, oral histories and ancestral knowledge relating to the environment and natural resources.

If care is not taken with Indigenous data, there are serious risks of reproducing colonialist patterns of exploitation.

Data represents reality. Data helps decision makers to know whether their interventions are effective, even when they are far away from the ecosystems being protected or restored.

If data are accurate, authentic and timely, a funder does not need to set foot in a remote habitat to know whether its carbon stock or native species abundance are improving or declining.

Biodiversity credits represent one way to operationalise a nature market. They are basically a vehicle for data. The emerging methodologies are bundles of metrics and indicators that track biodiversity and ecological function.

The data enable credit holders to make credible claims of biodiversity uplift, or avoided biodiversity loss, as a consequence of credit sales.

As a representation of ecological reality, data are at least one step removed from the habitats and species they represent. This opens up the potential for nature markets to rely on the exchange of verifiable data, without the need to commodify nature itself, and therefore impinge on the ownership rights of Indigenous communities.

However, data are not free from such considerations. To divert data into a system of market exchange raises a different but related set of concerns about ownership, benefit and sovereignty.

The rise of Indigenous data sovereignty

Indigenous data sovereignty is the right of Indigenous peoples to govern the collection, ownership and application of data about Indigenous communities, peoples, lands and resources. It relates to data produced by and about Indigenous peoples and the environments they have relationships with.

Nature and people are precious, so data that represent nature and people are imbued with that preciousness. As Māori practitioner Ngapera Riley has written:

Data is a taonga (treasure). It’s something that people gift us, and that we gift to others as we go about our daily lives.

In te ao Māori, data come in many forms. This includes whakataukī (proverbs), moteatea (chants), whaikorero (oratory), maramataka (calendar), whakapapa (genealogies), pūrākau (stories) and increasingly digital forms.

Consequently, we must take great care in how data are accessed, shared, stored and used. This is especially critical in a system of market exchange. The dominant markets of today are profit-driven, creating incentives for appropriation and exploitation.

Sovereignty means power

Indigenous peoples are conscious that, while there are risks in data and knowledge sharing, there are also opportunities. Indigenous data and knowledge is a living and evolving system, which can contribute to effective responses to environmental challenges, including the protection and regeneration of biodiversity.

The principles of Indigenous data governance emerged from deliberations about how to protect Indigenous sovereignty when sharing knowledge and data for academic research. These CARE principles hold that Indigenous data should be governed for collective benefit, authority to control, responsibility and ethics.

This is critically important in ecological research, which too often neglects duties relating to data about natural ecosystems and the people who live within them.

It is troubling that the recognition of Indigenous data sovereignty is largely lacking from the discussion of nature markets so far. Unless Indigenous data sovereignty is upheld, the legitimacy of nature markets will likely be irreversibly tarnished.

This is why, in a recent Biodiversity Credits Alliance discussion paper, we included Indigenous data sovereignty as a risk to be identified, understood and managed.

But Indigenous data sovereignty is more than a risk: it is a source of power. It is a right to self-determination, to choose how data are used and their value is distributed. By ensuring this right, nature markets might deliver on their promise of inclusive, sustainable prosperity.

Further reading

Te Mana Rauranga: the Māori Data Sovereignty Network which advocates for Māori rights and interests in data to be protected in an increasingly open data environment.

Global Indigenous Data Alliance (GIDA): A network of Indigenous researchers, data practitioners, and policy activists advocating for Indigenous Data Sovereignty within their nation-states and at an international level.

Stephanie Carroll et al. (2020). The CARE principles for indigenous data governance. Data Science Journal.

Tahu Kukutai & John Taylor (2016). Indigenous Data Sovereignty: Toward an Agenda. ANU Press.

Collaboration is vital if we are to rise to the challenges of climate change and biodiversity loss. But – with trust as fragile as it is – we cannot take collaboration for granted, especially at the pace and scale required.

We need to build the infrastructure for greater collaboration – across public, private and community sectors. We need purpose-built systems to enable greater levels of coordination, orchestration and capability-sharing than would otherwise occur. 

The Toha system is digital public infrastructure for a new era of collaboration. It is part of the ‘missing market infrastructure’ which connects frontline communities with investors in climate action and nature regeneration. 

Toha’s digital infrastructure has three pillars (discussed in detail below):

• A measurement platform which uses impact data technologies to track actions and outcomes.

• A data sharing network for the secure and sovereign exchange of impact data.

• A payment system that enables participants to pay for, and be paid for, impact data.

This explainer describes how these pillars constitute an integrated, high-integrity system that bridges the gap between supply and demand for action on climate and nature. 

What is digital public infrastructure?

Digital public infrastructure (DPI) is, like any infrastructure, a shared means to many ends. As public infrastructure, it is available to everyone to pursue the kind of lives they value.

In August 2023, in a rare moment of consensus among G20 countries under India’s Presidency, DPI was defined as: ‘a set of shared digital systems that should be secure and interoperable, and can be built on open standards and specifications to deliver and provide equitable access to public and/or private services at societal scale and are governed by applicable legal frameworks and enabling rules to drive development, inclusion, innovation, trust, and competition and respect human rights and fundamental freedoms.’ 

In practice, this includes digital payment systems; data sharing systems, credentials, and models; verifiable identity and registries; digital signatures and consents; and discovery and fulfillment systems that enable access to goods and services via open protocols/APIs. So, this isn’t the hardware of fibre optic cables, servers and data centres – that’s infrastructure-for-data. This is data-as-infrastructure, an emerging layer of programming and standards that enable new functions and possibilities for improved human wellbeing.

This might sound complicated, but most of us already use digital infrastructure on a daily basis, whether it’s online payments, cloud storage, or Google and Apple IDs. But what we mostly use is private infrastructure, built by companies for proprietary use. 

What DPI promises – and this relates to the ‘P’ for public – is to harness this digital innovation for solving big public problems. The Toha Network – an ecosystem of ventures, impact investors, scientists and communities – is using these novel technological opportunities to create an infrastructure system with three interlocking pillars.

Pillar one: The measurement platform

Measurement makes data. The higher the quality of the measurement, the higher the quality of the data. This is important when we rely on data to make high-stake decisions about, say, a family business or ancestral whenua. We need to be able to place our trust in the data. 

Data can also help us to place our trust in others. We can use data for verification, for assessing claims that others want us to believe. In business, claims are assertions that describe, distinguish or promote a product, process, business, service or action with respect to its social, environmental or financial attributes or credentials. In respect to nature and climate change, an organisation might make:

• a reporting claim – that is, a claim of climate- or nature-aligned attributes which already exist within a company’s value chain.

• a contribution claim – that is, a claim of contribution to a local or global target by causing impact beyond the company’s own value chain.

• a compensation claim – that is, a claim that an unabated harm within a company’s value chain is compensated for by investing in an inversely equivalent impact.

To ensure high integrity, Toha claims are formalised as claim templates. These are reproducible, science-based, digital templates which guide the user through the measuring, monitoring, reporting and verification (MRV) of actions and outcomes. This produces a data asset that can be accessed by organisations for the purpose of making claims like those above. The proceeds of sales for data access can then be allocated to those who created the data – that is, the frontline communities who are taking action and reporting its impact. 

The Toha system also facilitates pledges. These are a type of ex ante commitment claim that a target or desired state will be achieved in time. In practice, a Toha pledge is a commitment to specific activities and milestones, as well as the collection and reporting of relevant data. Pledges are a digital contract which can facilitate the upfront financing of activities and data collection, and therefore enable investors to make robust claims on subsequent actions and outcomes.

To ensure that the measurement templates for Toha’s claims and pledges are high quality and usable, Toha mobilises the involvement of subject matter experts in a marketplace. Template developers receive royalties for the use of their templates over time, which creates the incentives for integrity, usability and needs alignment fit. This also leaves the door open to different forms of knowledge, whether conventional Western science, Indigenous knowledge, or innovative measurement approaches. 

Pillar two: The data sharing network

Data is valuable. Its value is realised through use and reuse – by being shared, analysed, converted, interpreted, and incorporated into decision making. The more open the data is, the easier it is to access and create use from. When we share data with each other, we can build more insights about the value we have generated both individually and collectively. This is especially critical when it comes to climate and nature.

However, there are risks associated with open data. This includes conventional concerns about privacy, but also more novel challenges such as the appropriation and exploitation of data by intermediaries or third parties. If such risks are realised, this can cause direct harms to people. Indirectly, it can also produce a backlash against openness, which undermines the capacity of data to generate public value.

This is why data sovereignty is central to Toha’s system, not only for states but also groups and individuals. To have sovereignty is, in part, to have influence over the data that one has special claims to, especially data that relates to oneself and one’s relations to other people, places and organisations. This is a general right, but one with special relevance for those, such as Indigenous landowners and communities, whose sovereignty is endangered by past and present processes of colonisation. It is also critical for those who carry outsized risks in the global food system such as farmers, landowners and rural communities. For this reason, the Toha system positions data sovereignty as the minimum operational requirement for any market-based economy aiming to recognise and reward stewardship of nature.  

The tokenisation of data – that is, the process of substituting data into digital assets with unique identifiers – can enhance sovereignty in a data economy. Digital tokens can be self-custodial and programmable. This enables control over how data is used and for what purpose, even as it circulates within a data economy. It also cryptographically protects against interference and censorship by third parties. Thus, digital tokens enable the operationalisation of data sovereignty by empowering data creators to give or withhold consent over its future use, and thereby to exercise influence in the data economy.

One aspect of data sovereignty is the power to benefit from one’s own data. That power cannot be taken for granted these days: data is frequently expected of upstream businesses without compensation, or appropriated by very large online platforms that track our engagement on the internet. However, data sovereignty creates the opportunity for data creators to demand that benefits are shared. When this data economy relates to climate action and nature-based work, this benefit-sharing can unlock much-needed funding for the frontline communities making real-world impact. This deepens the reciprocity of the data economy, which ensures that prosperity is widely shared.

Pillar three: The impact payment system

The final pillar is an impact payment system to facilitate the funding and financing of impact. This is an important practical component of the Toha system: firstly to facilitate grants, debt and equity for impact; and secondly to establish a data economy that enables the value of data to be realised and shared fairly among relevant parties. 

Digital token technology underpins Toha’s impact payment system to enable the integrated exchange of data and value. In its initial phase, Toha is using a dual-token system of MAHI and TOHA (see this post for detail). 

The MAHI token represents a unit of funded work in service to nature and climate. By purchasing units, the buyers of MAHI are securely releasing funds for verifiable frontline action – that is, the actual work of repairing and restoring nature, and responding to climate change. The TOHA token generates rights to data and governance in the Toha system. Holders use TOHA to pay the transaction fees to access, use and share the data that is necessary for the operation of the impact payment system. 

This dual-token system enables participants to pay for, and be paid for, impact data – which in turn unlocks new sources of funding for the impact that that data represents. Critically, it significantly reduces the transaction costs of funding frontline action, which makes it easier to convert will into action. 

In te reo Māori, the word mahi refers to work, labour, performance and accomplishment. The word toha refers to distribution, allocation, and spreading around. By bringing MAHI and TOHA together in a token economy, Toha is designing for a more balanced distributive model between the providers of capital and the providers of labour.

Next steps

The Toha system has emerged, and will continue to emerge, in an evolving process. 

The Toha Network spent its first phase in deep R&D and system design. This concluded with this open proposal for an interconnected system of measurement, data sharing and payments described above. 

We have already built several key components of the infrastructure necessary to demonstrate and test collaboration in the Toha system, end-to-end. However, a significant programme of future investment and work is necessary to ensure the infrastructure can scale globally to support the diversity of communities, regions and markets, including new trading markets. 

The next steps for the Toha Network are:

1. Assemble and announce the platform advisory group;

2. Publish an open platform roadmap for Toha’s digital public infrastructure;

3. Continued fundraising to rally diverse contributions of tech and teams to deliver key milestones on the roadmap.

In the near future, there will be many open calls for collaboration to deliver the platform. A team is assembling to explore the best structures for ongoing technology investment in the public interest. Be sure to follow Toha’s LinkedIn page and future newsletters to stay across further announcements.

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Further reading

India’s G20 Presidency and UNDP (2023). Accelerating the SDGs through digital public infrastructure: A compendium of the potential of digital public infrastructure. United Nations Development Programme (UNDP).

David Eaves, Mariana Mazzucato, and Beatriz Vasconcellos (2024). Digital public infrastructure and public value: What is ‘public’ about DPI? UCL Institute for Innovation and Public Purpose, Working Paper Series (IIPP WP 2024-05).

This is why Toha has developed a new economic design principle, the Time Value of Action (TVA), to redirect markets toward the present. TVA gives greater value to action today than the same action in the future. 

You can play with Toha’s TVA Calculator here, but first let’s explain the whys and whats of  TVA.

What’s the big hurry?

In the race to stem ecological crises, time is our most scarce resource. 

The longer we underreact to climate change and biodiversity loss, the more drastic our eventual response must be. 

As businesses are learning from their climate-related risk disclosures, a late and rapid transition is likely to be disorderly and costly, plagued by supply chain bottlenecks, heavy-handed regulation and societal disruption. Early action smooths out the transition process and minimises the investment required, in addition to mitigating the future costs of climate change and biodiversity loss.

In considering the case for urgency, New Zealand Inc. needs to consider the following data points:

• Current policies globally are projected to result in 3°C of global heating over the twenty-first century. Implementation of collective commitments under the Paris Agreement could restrict heating to 2.5°C–2.9°C, but still well beyond its goals of staying well under 2°C and ideally under 1.5°C. To avoid these dangerous levels of global heating, countries including New Zealand need to scale up both action and ambition. 

• Like many other countries, New Zealand assumes a significant volume of offshore mitigation to achieve its commitments under the Paris Agreement. A recent analysis by the New Zealand Government estimated the fiscal cost of offshore mitigation as $18.3–23.7 billion in a high-cost scenario, or $3.3–4.2 billion in a low-cost scenario. It is also highly uncertain that New Zealand will ever access units at that volume, because under the Paris Agreement all countries have targets to meet. Early action reduces these liabilities and risks, including the loss of market access for our primary products that may accompany non-compliance.

• There is strong evidence that existing economic analysis has severely underpriced the risks of climate change. Even now, at 1.2°C of heating, with extreme weather events occurring at greater intensity and frequency, the world is already experiencing hundreds of billions of dollars of losses to assets and economic productivity, disruption of supply chains, degradation of marine and terrestrial ecosystems, and associated stress and misery. One recent analysis estimates that the world economy is committed to an income reduction of 19% by 2050 irrespective of future emission choices.

• There is also strong evidence that conventional economics has underestimated the benefits of early action. The sooner we invest in new technologies and practices, the sooner we start the learning processes that drive down their costs, such as knowledge spillovers and network effects. Early action makes subsequent action cheaper and more effective. 

• Climate adaptation takes time to achieve. This is especially true for ecosystem-based adaptation, such as the restoration of vulnerable landscapes and waterways. Nature-based solutions like forests and wetlands become harder to establish if extreme weather is already more frequent and intense. Restoring landscapes preemptively offers the greatest chances of success.

An underreaction to crisis

If it is rational to act sooner rather than later, why haven’t we already done so? 

In part, because our economy is geared for short-termism. 

As observed in the Sustainable Finance Forum’s 2030 Roadmap to Action: ‘Traditional financial models and economic theories… tend to judge performance with a short-term horizon.’ Standard practices like discount rates in investment decisions ‘heavily favour short-term financial performance’. Consequently, the modern economy tends to overvalue inaction and delay by underpricing future risks and opportunities.

This reflects the principle of Time Value of Money (TVM), which holds that a sum of money is worth more now than the same sum at a future date. This is because today’s money has earnings potential in the interim and is exposed to fewer risks. Thus, TVM tilts the economy toward maximising profits in the present. When natural and social capital are managed under this logic, TVM foregrounds the benefits of extracting value from ecosystems and communities, and downplays the long-term risks of doing so.

Short-termism is baked into modern market design – but we can always design better markets.

Valuing action today over tomorrow

Toha’s Time Value of Action (TVA) encourages short-term action for long-term value. This reflects Toha’s roots in te ao Māori, which emphasises the importance of mokopuna decisions, of intergenerational thinking and doing. 

To reward this future-oriented action, we built TVA into the design of Toha’s dual-token payment system (see our earlier post). This happens through the interaction between our two digital tokens, MAHI and TOHA, which work together to support frontline action for nature:

• MAHI is a digital token that enables payments for work in service to nature and climate. By purchasing the token, the buyers of MAHI are releasing secure funds for frontline action, as well as funding the development of Toha’s platform infrastructure and impact data technology.

• TOHA is a network token which generates rights to data and governance in the Toha system. Holders use TOHA to pay the transaction fees to access, use and share data in the system. TOHA also grants governance rights to influence the future direction of the market cooperative.

• MAHI holders can acquire TOHA by way of a token swap. In short, MAHI can be converted into TOHA to take a stake in the collective impact market.

• To reward early movers, the rate of exchange in the currency swap is determined by TVA. A multiplier is applied to early action, but this multiplier is discounted over time as we approach 2030. So, the earlier MAHI is earned, the greater the value of TOHA it can be swapped for. You can explore this for yourself on Toha’s TVA Calculator.

TVA is kickstarting Toha’s marketplace by incentivising investment into early action. In our MAHI pilots on the East Coast, we are exploring the settings of TVA in the market, experimenting with what works in a spirit of open innovation. Subsequently, the market capitalisation of MAHI and TOHA will be managed by Toha to ensure that TVA can be paid for by the impact generated from these early actions. 

In this way, Toha is substantiating the value of regeneration and climate action, so that funders are exposed to immediate value, as well as the future value of intergenerational stewardship. This serves as a counterweight to the prevailing tendencies of the wider economy, which discounts future risks and opportunities.

By tilting the Toha system toward generosity for future generations, we hope to show how economies might be re-geared to deliver better outcomes for people and planet.

Further reading

Wellbeing budgets and the environment: A promised land? : A 2021 inquiry into economic analysis by the Parliamentary Commissioner for the Environment which includes discussions of time, discount rates and intergenerational value by John Reid, Jason Mika and the Commissioner himself.

Through the purchase of MAHI, money moves from funders to frontline communities to repair and regenerate local landscapes. In return, MAHI gives confidence to funders that work was done, and can be used to secure rights to impact data (see our post on Toha’s dual-token system).

In te reo Māori, the Indigenous language of Aotearoa New Zealand, mahi refers to work, labour, and accomplishment. As an investable token, MAHI enables the funding and recognition of nature-based work that, all too often, is neglected by today’s economy. This includes farmers regenerating their land, whānau exercising kaitiakitanga on whenua Māori, or conservation groups working on a community restoration project.

We cannot afford to neglect this work any longer. We need all hands on deck to address the urgent challenges of climate change and biodiversity loss. By mobilising and coordinating funding, Toha hopes to foster the regeneration economy to enhance the quality and resilience of Aotearoa’s landscapes.

How do MAHI buyers know that work was done?

Verification is core to the Toha system. 

This is because future generations won’t thank us for misallocated funding. We need to invest effectively and competently. We need to know that funds are well spent, work is completed, and outcomes achieved. Otherwise, the confidence of funders, recipients and other stakeholders will drift away. 

MAHI mobilises data to prove that work was done. As such, MAHI enables the verification of actions, rather than outcomes. This makes MAHI an instance of action-based funding (also known as output-based funding) which supports activities such as nature repair and restoration, land stewardship, and invasive species management. 

The allocation of MAHI for frontline work is guided by pledge templates, designed by experts and knowledge holders, which set out the activities that must be undertaken to fulfil the pledge. For example, a community group might make a pledge to ecosource native seeds using the template that Ron Taiapa, Te Whare Wānanga o Awanui ā Rangi, has already developed for the Toha system. The community group then undertakes the activities which are specified in this template, and collect data that enables the verification of work. As such, each pledge is not only a commitment to regenerative action, it is also a commitment to collect data that enables proof of work. MAHI funds both types of work – that is, both making impact and collecting data. 

All actions and measurement data in the Toha system are reported with evidence. This may be photos with geolocation and time/date metadata, receipts for costs incurred, or lab results. Before any MAHI payments are released, the action and incurred costs are verified using this data. Also, to ensure that data is trustworthy, the identity of Toha Network members is authenticated by collecting and triangulating data. Toha’s data verification and authentication processes were tested in the East Coast Exchange (ECX), a regional test-case of the Toha system which launched in February 2023 (learn more in the ECX’s Programme Rules and Privacy Policy). Over time, Toha will extend these processes to include automated fraud detection, trust scoring, and peer-to-peer verification to sustain trust at scale.

If MAHI is only about action, what about outcomes?

MAHI is an instrument of action-based funding. This is distinct from outcome-based funding where payments are conditional on achieving pre-specified outcomes that result from such activities.

There is a longstanding discussion over the relative merits of funding actions versus outcomes. It is well-known that, even when it is administered competently, action-based funding doesn’t necessarily result in positive outcomes or impact. This is why many funders prefer outcome-based contracting, or payment for results, because it ensures that funding is strongly linked to measurable impact. Also, in Aotearoa New Zealand, the lack of data on outcomes is identified as a funding barrier for community conservation. Robust data on outcomes and impact may strengthen the confidence of funders.

MAHI is not designed to fund or track outcomes, but the wider Toha system is. This is a topic for future posts, suffice to say here that MAHI indirectly supports the development of outcomes-based funding processes in two ways. 

Firstly, the use of pledge templates ensures that the activities funded by MAHI sales are consistent with best-practice, as formalised by our template developers. This is no guarantee of successful outcomes, but each pledge template will prescribe activities that experts identify as strongly correlated with success. 

Secondly, MAHI will serve as a stepping stone to outcome-based funding in the Toha system by generating revenue, some of which will go toward R&D for impact data technologies. Currently, global and local markets lack sufficient infrastructure to implement outcomes-based funding at scale. For instance, standard metrics for biodiversity assessment are still emerging, and there is a shortage of market-ready measurement tools to cost-effectively track indigenous flora and fauna. However, a percentage of the revenue from MAHI sales will be earmarked for template developers to create that infrastructure, including the measurement tools which enable the verification of claimable impacts. We discuss this further below.

All that said, it is important to note that outcome-based funding has pros and cons, just like action-based funding does. For instance, it is characteristic of outcome-based funding to reallocate risks downstream onto project managers and workers. This can be useful for realigning incentives, but can also impose unfair burdens and demands on frontline communities. At the very least, careful design is critical. However, these risks have also prompted calls for greater use of action-based funding, such as direct funding of stewardship activities for Indigenous communities, as a just alternative to outcomes-based mechanisms like carbon credits and biodiversity credits. This is what MAHI enables.

How are the proceeds of MAHI sales used?

In the long run, we want as much of the proceeds of MAHI sales to go to frontline action and trust work as possible. Our aim is to minimise the level of intermediation and institutional layering to the greatest extent possible.

In the pilot phase, however, Toha needs to direct a portion of the proceeds to the development of the digital public infrastructure (DPI) that underpins the system, including our impact data technologies. This is critical for building the capabilities to implement outcome-based funding in the future. Ideally, the Toha system will collect a combination of data on action and outcomes, because this will initiate feedback loops that make nature-based work more effective and efficient over time, enabling Toha members to learn from what’s worked and what hasn’t. 

The stacked area chart below is indicative of what we believe to be a self-sustaining business model for the pilot phase of the Toha system. Over time, as impact data technologies are developed and platform infrastructure is built, we can dial down those system-level allocations.

In effect, we need to keep building the ship while we’re sailing it. Early investments in MAHI not only fund nature-based work, they also fund the system’s capabilities to measure and verify the outcomes that result from that work. Consequently, MAHI plays a critical role in the evolution of the Toha system toward better measurement of outcomes. We will publish an open platform roadmap soon that identifies what elements of digital public infrastructure are already built, and what additional capability needs to be agreed by the Toha Network.

What is the bigger picture for MAHI?

The aim of MAHI is to foster the regeneration economy. 

The regeneration economy is not something new, rather it is something that already exists. It includes every farmer who is trying to leave the land better than they found it. Every kaitiaki who is fulfilling their duties to improve the wellbeing of the land and its people. Every forester who is trialing forestry systems that build biodiversity as well as carbon. Everyone working on nature-based solutions for flood risk management, erosion stabilisation, coastal enhancement, and urban green infrastructure.

In short, it encompasses every commercial and social enterprise that directly depends upon the flourishing of nature for its own economic flourishing. In other countries, efforts have been made to articulate and quantify this economy, albeit under different names: 

• A pioneering US analysis of the ‘restoration economy’ defined it as ‘the economic output and jobs that are… created through environmental restoration, restoration-related conservation, and mitigation actions’. It concluded that, in 2014, the US ecological restoration sector directly employed ~126,000 workers and generated ~US$9.5 billion in economic output annually. It also found that the restoration economy supported as many as 33 jobs per $1 million invested, much more than the oil and gas industry at 5.2 jobs per $1 million invested.

• NatureScot, the public body responsible for natural heritage for the Scottish Government, undertook an assessment of nature-based jobs and skills in 2021. NatureScot found that jobs in the nature-based sector contributed about 195,000 jobs or 7.5% of Scotland’s workforce in 2019 (likely a conservative estimate). Furthermore, nature-based jobs also grew at more than five times the rate of all jobs in Scotland between 2015–19, accounting for one-third of all job growth in Scotland in this period.

In Aotearoa New Zealand, it is past time to recognise the regenerative economy as a distinct economic sector. It has similarities to the care economy, which encompasses healthcare, education and childcare, both paid and unpaid. It also overlaps with the infrastructure sector, insofar as natural infrastructure is often the most effective and cost-efficient way to manage public challenges like flood or erosion management. Like these sectors, the regenerative economy can, and should, develop vocational pathways that enable career progression through roles like project management, environmental research and data analysis, policy and planning. 

Above all, nature-based work should be supported by fair compensation. This enables more work to be done, and therefore the growth of a skilled workforce to repair and care for landscapes and seascapes. MAHI cannot guarantee funding for jobs for nature, but it can be an enabler, giving funders the confidence that their funds will make a measurable difference. 

Further reading

Marie Brown (2018). Transforming community conservation funding in New Zealand. The Catalyst Group. 

Jobs for Nature: a New Zealand Government programme to create jobs while ensuring environmental benefits.

Green Jobs for Nature: a regenerative economy website managed by the UK’s Chartered Institute of Ecology and Environmental Management.

But what are the mechanics behind this system? This post dives into the tokenomics behind the Toha system. 

What are digital tokens?

Tokens are digital bearer assets which can be transacted online – from platform to platform.

One of the better known use-cases of digital tokens is cryptocurrencies, like bitcoin, ether, and solana. However, it would be a mistake to treat digital tokens as equivalent to cryptocurrencies. Tokens are tools that can be used for multiple purposes. Currency is one use-case, but there are many others including data sharing, authentication of identity, intellectual property (IP), transaction fee payments, collectibles, securities, and governance.

Even cryptocurrencies can be put to a variety of purposes. The jury is still out on whether bitcoin can succeed as a store of value, but other cryptocurrencies are already playing more humdrum roles as mediums of exchange. For example, Visa is using Circle's USDC stablecoin to improve the speed of cross-border payments, as an alternative to slow and costly international wire transfers. As a stablecoin, the value of USDC is pegged to the value of USD, so it is not vulnerable to the speculative volatility of untethered cryptocurrencies like bitcoin. In this way, digital tokens can serve a function as a secure mode of transaction.

How is Toha using tokens?

Toha is piloting a dual-token system. Dual-token systems are not uncommon in the emerging world of Web3, because this enables systems with better incentive structures, features, and functionalities. In turn, this creates more value for token holders and end users.

The two tokens in Toha’s system are MAHI and TOHA. 

The MAHI token represents a unit of work in service to nature and climate (see our MAHI explainer for further detail). By purchasing the credit, the buyers of MAHI are releasing secure funds for frontline action, as well as funding the development of Toha’s platform infrastructure and impact data technology. As an algorithmic stablecoin in the future, its price will be tethered to the rate of the living wage in Aotearoa New Zealand, which is currently NZD$26.

TOHA is a network token which generates rights to data and governance in the Toha system. Holders use TOHA to pay the transaction fees to access, use and share data in the system. TOHA also grants governance rights to influence the future direction of the market cooperative. This enables the future transition of the Toha system into a decentralised autonomous organisation (or DAO).

Thus, these different tokens – MAHI and TOHA – serve different functions in the Toha system. MAHI enables the transfer of funds to repairing and regenerating our landscapes, while TOHA grants rights to the benefits of the Toha system. 

As noted earlier, this dual-token system also creates opportunities to adjust incentives through how these tokens interact. A key interaction is the capacity to exchange MAHI units for TOHA network tokens. In the initial phase of the Toha system, in order to acquire TOHA, one must convert MAHI that they already hold. This is akin to a currency swap where MAHI, which represents proof of work, is exchanged for TOHA, which represents rights to data and governance.

Through the design of this swap, the Toha system has in-built incentives for early action which reflect the urgency of the challenge on climate change and biodiversity loss. The swap occurs using a fixed exchange rate which accords greater value to early action than the same action in the future. We call this the Time Value of Action (or TVA). Essentially, a multiplier is applied to MAHI, but this multiplier is discounted over time in the lead-up to 2030. (This is the subject of a later post.) So, the earlier MAHI is earned, the greater the value of TOHA it can be swapped for.

The dual-token structure enables the Toha system to reward the risks taken by early movers, and to increase their exposure to value uplift in the system. For example, acquisitions of MAHI and TOHA, as well as associated data, can be disclosed by companies to demonstrate to shareholders and customers that they are actively managing climate and nature-related risks in their value chain. This incentivises companies to prioritise intergenerational stewardship over short-termism. 

Token economics gives us unprecedented opportunities to trial new economic models, to scale up its impact, and rewire the economy for regenerative outcomes.

Digital tokens: the building blocks of Web3 

Digital tokens are one of the defining technologies of Web3, the next emerging phase of the internet. 

Web 1 was the internet of email and web pages, where users were passive receivers of information. Web2 is the internet that emerged at the start of the millennium, a proliferation of tools for creating, sharing, discussing and remixing digital content. It also became the era of very large online platforms, like Facebook and Google, which generate extraordinary profits by appropriating the data that people produce on their platforms. The defining feature of the platform economy is that power accrues to the point of aggregation – i.e. the platform.

Web3 is the internet of decentralised ownership and, therefore, distributed power. It is, presently, an emerging rather than a prevailing paradigm, but it is already manifest in many applications – in finance, philanthropy, gaming, governance and more.

Digital tokens are central to Web3 because tokens enable ownership. Critically, tokens enable the ownership of data that could otherwise be appropriated by others, such as large centralised platforms, without their full consent or fair share of the benefits. Consequently, tokens could unlock the longstanding vision of a ‘dignified information economy’ where ‘data creators directly trade on the value of their data... Direct buying and selling of information-based value between primary parties could replace the selling of surveillance and persuasion to third parties.’ 

The critical features of digital tokens are:

• programmable to serve a multitude of purposes that require scarcity and verifiable ownership.

• composable to connect seamlessly across multiple platforms with integrated functionality.

• self-custodial insofar as we can hold tokens in a digital wallet, or transfer them securely to a third party.

• permissionless and censorship resistant by being cryptographically protected from interference by third parties.

• transferable peer-to-peer so that the exchange of tokens can occur directly between buyers and sellers.

The Toha system is applying this functionality to work in service to nature. In this sense, Toha belongs to a wider global movement of regenerative finance (ReFi) which applies Web3 technologies to accelerating sustainability. 

MAHI tokenises the data produced by the verification of nature-positive work, so that frontline communities can capture the value it generates for the wider economy. 

TOHA tokenises network rights, so that holders can capture the value uplift in Toha’s digital infrastructure as transactions increase. TOHA network tokens give rights to access, share and use verifiable data, as well as governance rights going forward.

These functions are enabled by the unique technological affordances of Web3. Of course, not every token use-case will be meaningful, nor even positive. The initial phase of cryptocurrency – as even its champions admit – was too often characterised by greed and recklessness. But this is hardly unique among new technologies. And it would be remarkable if there were not ways to harness Web3’s novel capabilities to address complex contemporary challenges. 

Tokens are a tool and, like any tool, they can be used for good or bad. The real question is what purpose tokens are being put to, and what values govern their use. 

In Toha’s case, token economy design is governed by principles of generosity to future generations, trust through relationships, community decision-making, data sovereignty, and transparency. Guided by these principles, we are building a token economy to serve nature and its caretakers.

Further reading

Alex Tapscott (2023). Web3: Charting the Internet's Next Economic and Cultural Frontier. New York: HarperCollins Publishers. 

Callaghan Innovation (2023). Digital Assets and Decentralised Finance: The opportunities and the challenges for New Zealand. Auckland: Callaghan Innovation.

Web3NZ: an open source initiative built to surface and publish insights that address challenges faced by New Zealand founders, creators and businesses innovating in Web3.

– Chellie Spiller, Rachel Maunganui Wolfgramm, Ella Henry, and Robert Pouwhare (2019).

This is an invitation. An invitation to be a leader, to create something valuable, and to share in that value. 

After more than five years in R&D, the Toha Network is initiating an open consultation. This is to support the co-development of public digital infrastructure that better enables Aotearoa New Zealand to address grand challenges like climate change and biodiversity loss.  

Our starting point for this consultation is that the Toha system can meet those infrastructure needs and thereby create significant public impact. However, with public impact comes public responsibility. Therefore, the Toha system must itself go public. 

We need to hand over the Toha system to everyone whose interests are, or could be, affected. We need to open up the decisions on system design and strategy, as well as the responsibilities that come with them. We need to walk the talk on public value.

So we are initiating an open consultation to transition the system out of R&D and into the public domain. 

Why everyone is invited

There are three reasons for an open consultation.

Firstly, we need to harness the wisdom of the crowd. 

We need everyone’s input because – from the paddock to the boardroom, from the marae to the ministry – there are unique insights and experiences that cannot be anticipated by others. This is especially relevant to the local expertise that underpins regenerative action. Although the ecological crisis has global drivers, the risks and opportunities are inescapably local. They are specific to a particular gully, stream, forest, wetland, duneland, reef or seabed. Top-down decision-making cannot duplicate local nuance and detail. Effective action also involves real people with unique sets of skills, experiences and values, which again aren’t easy to anticipate from the outside. To implement durable transitions to more resilient landscapes, we need to unleash the know-how of frontline communities.

Second, we need to unleash radical collaboration in the face of complexity. 

The Toha system has many moving parts. Too many for a handful of Tohaitians to engineer and build. The only feasible way for the system to achieve its greatest potential – especially at the pace required – is to act in coordination with others. We need others to take responsibility for the parts of the system that they have the skills and capacity for. Further, for collaboration to be self-sustaining, these contributions should be recognised and rewarded. Realising the value of action, especially for frontline communities, is at the heart of the Toha system.

Third, we need to redistribute decision power. 

We live in a world of increasing interconnection and wickedly complex challenges. Yet our institutions are typically hierarchical, which can result in siloed, disconnected and maladaptive decision-making. It also cultivates an ideal of heroic leadership where a single individual – a CEO, a political leader – is expected to fully carry the burdens of judgment. But this leadership model results in unrealistic expectations and burnout, as well as the exclusion of diverse perspectives and the erosion of trust. To face today’s challenges, we need distributed and decentralised models of leadership and sovereignty, which enable and empower others to apply their talents.

In many ways, this chimes with te ao Māori and other Indigenous perspectives, which treat leadership as a collective enterprise. As Māori scholars have observed, leadership is ‘the role of actively being stewards and caretakers of communities and ecologies in service of the wellbeing of others, including the environment…. Each person has rangatira qualities, and in a weaving process people come forward as needed to provide expertise and move back at other times. In many ways it is the process of weaving that forges and forms leadership qualities in the individual and in the collective... Strength lies in weaving people together into a state of belonging.’

In this spirit, sustainability leadership has been defined as mobilising others to make progress on sustainability challenges and thrive. The Toha system is designed to facilitate such leadership, but this collective approach needs to be embedded all the way down, even to the development of the system’s foundations.

Towards open consultation

So Toha is initiating an open consultation to weave together the wisdom of the collective. To that end, we want open consultation to mean something more than ‘open to everyone’. This doesn’t count for much in a digital era where information is cheap and online surveys are plentiful.

We want open consultation to be ongoing and iterative, to allow people to jump in and out (and in again!) at different stages of the journey. It isn’t enough for consultation to be a single window in time, especially if critical decisions are made – before and after – without public input. We want our consultation to be an open door that people use when it suits them. 

We also want open consultation to be intelligible to a wide range of people, with multiple entry points into the conversation. The Toha system is complex and novel, so communicating its structure and functions is inherently challenging – we are under no illusions about that. But we can use different voices and modes of communication to speak to different audiences – from bite-sized social media posts, to highly detailed technical documents, to more readable explainers like this one. This way, people can see the Toha system from multiple vantage points, building up a picture that’s as detailed as they need it to be.

Finally, we want open consultation to be reciprocal, insofar as people’s contributions are recognised and rewarded. One of the core functions of the Toha system is to support work in service to nature, specifically by the issuance of MAHI tokens which each represent a unit of action at the frontline. But it is critical to recognise the surrounding work too – from data collection, to network maintenance, to system design. These activities should, and will, earn MAHI units too. Regenerative action will not be scalable and durable if it is not self-sustaining. 

Unleashing people power

In sum, we believe in the power of the people – in the wisdom of the many and the strength of shared commitment. To be authentic, we need to practice what we preach by opening up the Toha system to co-design and co-development. Because the system needs your input to be successful: your local insights, your institutional knowledge, your experience of what works and what doesn’t. Through collaboration and cooperation, we need to unleash the people-power which is vital to meeting the scale and urgency of the complex challenges we face today. 

If you want to be part of our open consultation, then sign up to our Substack here, follow us on LinkedIn here, or learn more about the Toha Network here. We’ll be keeping track of the engagement with the content here in Substack 

Further reading

vTaiwan: A decentralized open consultation process that combines online and offline interactions, bringing together Taiwan's citizens and government to deliberate on national issues.

Report of Matike Mai Aotearoa: A report by the Independent Working Group on Constitutional Transformation which emerged from 252 hui between 2012 and 2015, complemented by 70 wānanga by rōpū rangatahi, as well as targeted interviews and focus groups. Hui were held at marae, kura, hauora and social service clinics, wānanga and universities, disability centres, law offices, Trust Board offices, gang pads, and private homes.

We see the following outcomes as critical:

• To enable the efforts of New Zealanders who already have an intrinsic motivation to protect and restore nature, but lack the financial resources to do so. 

  • This is especially relevant for rural decision makers. As Manaaki Whenua’s survey of rural decision makers has long shown, there are strong motivations among farmers to improve biodiversity and ecosystem health, and a strong preference for native plantings. However, nearly 60% identify the opportunity cost from other land uses as a reason not to plant trees, and nearly 30% identify financial barriers and expense. Therefore, to create a revenue stream from the public value of biodiversity enhancement enables farmers to treat biodiversity as another productive yield, alongside food and fibre. 

• To create an incentive for New Zealanders who are not motivated for biodiversity improvement, but would do so if it was adequately compensated.

• To reset the balance in New Zealand’s climate policy, especially in the agricultural sector, from its current focus on climate mitigation, to a more balanced approach which also addresses climate adaptation and biodiversity improvement.

• To recognise, enable and empower the efforts of Māori to exercise their duties of tiakitanga and rangatiratanga.

• To create rules and market structures that do not alienate Māori from taonga or whenua, and do not enable benefits to be derived that do not also benefit Māori.

11. What are the main activities or outcomes that a biodiversity credit system for New Zealand should support?

Ultimately, this will be driven by the market itself, with some influence by market design. This is not something that needs to be defined in advance. Nevertheless, Toha sees opportunities for:

• Protection, restoration, management and creation of natural ecosystems.

• Pest and predator control to enable improved biodiversity outcomes.

• Creating incentives for transitional forestry – i.e. credits that reward changes to species composition as exotic trees are thinned or removed and replaced with native tree species.

• Enabling tiakitanga activities – i.e. credits that reward activities which are defined by whānau and hapū as beneficial for local ecosystems.

12. Of the following principles [see footnote], which do you consider should be the top four to underpin a New Zealand biodiversity credit system?

Toha generally endorses the principles identified. However, the final selection of principles, as well as their ordering, ought to be achieved through a process with appropriate governance in place. The proposed principles are:

13. Have we missed any other important principles? Please list and provide your reasons.

Do no significant harm: Through a process with appropriate governance, a do-no-significant-harm principle should be considered to precede all other principles. It is critical to recognise that novel market structures carry risks, especially if poorly designed, which may affect the interests of participants as well as non-participants. A robust commitment to monitor and mitigate risks is essential to legitimate the benefits of biodiversity markets, which may or may not eventuate. From a regulator perspective, there is a critical duty to protect the interests of citizens from harms and negative side-effects that may eventuate from new systems. Also, from the perspective of te Tiriti o Waitangi, the Crown has a duty to protect Māori interests from the negative effects of systems such as biodiversity credits that emerge from the kawanatanga sphere. 

14. What assurance would you need to participate in a market, either as a landholder looking after biodiversity or as a potential purchaser of a biodiversity credit?

Drawing on Toha’s combined experience in this space, we identify a number of stakeholder concerns that must be addressed in system design to create assurance. We also include mana whenua as a group that needs assurance, because their participation in any such market is inevitable, given ancestral links to land which biodiversity credits will be issued from, even when that land is not in Māori title.

For landholders, we note the following:  

• Data sovereignty: Measurement, monitoring, reporting and verification (MRV) for biodiversity credits involves creating significant volumes of data. This raises questions about how this data is used, re-used and stored, especially to protect the rights and interests of those whom the data relates to. Data sovereignty involves ensuring that data is not used for purposes that the creators of the data do not consent to. This has relevance for individual rights and privacy, as well as group rights through frameworks such as Indigenous data sovereignty.

• Financial risk: As a type of outcome-based funding, biodiversity credits involve a significant allocation of risk onto the suppliers of credits – i.e. landowners, community groups, or workers in the restoration economy. One prominent risk is that the prospective supplier undertakes a significant amount of work to protect or improve biodiversity, but biodiversity indicators decline for reasons outside of their control (e.g. climate-related shocks, novel pathogens, land management decisions in adjacent areas). Consequently, prospective suppliers will need to be assured that appropriate force majeure provisions are in place, or that outcome metrics are well-selected to avoid such risk, or that activities are the basis of payments when outcomes are too uncertain.

• Security and integrity of demand: Suppliers need security of demand to ensure stable cashflow, especially to cover the costs of supplies and labour. Otherwise, nature regeneration and conservation will carry too great an opportunity cost relative to other land uses and activities. Experience from carbon markets, including the NZ ETS, shows that suppliers (in this case, foresters) put a high value on risk relative to returns. In biodiversity markets, given the strong intrinsic values of biodiversity, it is likely that suppliers will accept some level of opportunity cost, as long as cashflow is relatively stable and predictable. Also, given the intrinsic values, many suppliers will likely prefer high-integrity purchasers who are not using biodiversity credits to compensate for biodiversity loss elsewhere (i.e. offsets), or to ‘greenwash’ an otherwise unsustainable business.  

For potential purchasers, we note the following: 

• High methodological integrity: A key enabler for trust in the system is to ensure that the methodologies for measurement, monitoring, reporting and verification (MRV) are of high scientific integrity. Consequently, the data earns the trust of those who purchase it, because purchasers have confidence that the data is representing real-world impacts. For its own system, Toha has developed a template development process which aligns with academic standards of knowledge application and peer review; and we note that the UK-based Biodiversity Futures Initiative is establishing a similar process of peer review for scientific auditing of methodologies.

• Greenwashing risk: Businesses are concerned about purchasing biodiversity credits that expose the purchaser to accusations (justified or not) of false or inaccurate claims. Such concerns are heightened by the known shortcomings of voluntary carbon markets. Methodological integrity can help to reassure purchasers. So too can a greater appreciation of the differences between compensation and contribution claims, which matter significantly to the stringency of each (i.e. any failure in the impact of a compensation claim entails a net-loss of environmental value because the harm is not fully compensated, which is not the case for a contribution claim).

• Alignment with international standards: Businesses are under growing expectations to provide data to meet various mandatory and voluntary reporting requirements, including climate and nature-related risks (e.g. TCFD and TNFD) and sustainability standards for international trade (EU’s ESRS). Due to the high potential transaction costs, it is important that reporting requirements are as harmonised and interoperable as possible. This creates an opportunity for, if not an expectation that, biodiversity credits are aligned with international standards, so that biodiversity credits can be used by holders to demonstrate alignment with relevant nature-related standards. 

For mana whenua, we note the following:

• Māori rights and interests: There are significant unresolved issues from the WAI 262 Claim on indigenous flora and fauna, and cultural and intellectual property. The report by the Waitangi Tribunal claim makes recommendations on how to protect mātauranga Māori, taonga, and natural resource management. However, the findings and recommendations are still under consideration by the Crown. This indeterminacy raises challenges for the implementation of biodiversity credits which, depending on how they are implemented, might declare novel property rights on habitats or species.  

• Indigenous data sovereignty: This ensures that Indigenous peoples have a say in what happens to data collected for and about them. In Aotearoa New Zealand, Te Mana Raraunga, the Māori Data Sovereignty Network, define Māori data as ‘data produced by Māori or that is about Māori and the environments [they] have relationships with’ (Te Mana Raraunga Charter, 2016). Consequently, insofar as biodiversity credits do create data that relate to whenua and taonga species, Māori must be involved in the governance of data. 

15. What do you see as the benefits and risks for a biodiversity credit market not being regulated at all?

This is not a tractable question because all markets are subject to rules and regulation, to a lesser or greater extent (see Section 4 of this submission, especially Figure 1). This might be indirect, such as when market activities fall under the purview of legislation like the Fair Trading Act 1986 or the Resource Management Act 1991. However, direct rules are needed to ensure fair and just outcomes, and to mitigate cheating and exploitation. Thus, the proper question relates to the relative risks and benefits of under-regulation or over-regulation, and to what extent government regulation should be balanced against self-regulation. 

The risks of under-regulation are as follows:

• Māori interests: Without rules in place, there are significant risks to Māori from an unregulated market, particularly in relation to the commercialisation of taonga and whenua. Through biodiversity markets, there are opportunities to benefit from digital sequence information on genetic resources, or spatially-located nature-positive claims. As per international guidance, it is critical that this occurs with the free, prior and informed constent of Indigenous peoples and local communities, and that Indigenous peoples benefit from any proceeds that eventuate. Te Tiriti o Waitangi granted the Crown the right to establish the kawanatanga to protect Māori interests from exploitative behaviours, and it follows that that responsibility remains today, including to protect Māori interests from new schemes like biodiversity credits which create novel property rights that might have implications for taonga.

• Additionality: Additionality is a fundamental principle in carbon and biodiversity markets; however its demands differ in relation to contribution claims vis-a-vis compensation claims. When a credit purchaser is making a compensation claim (i.e. offsetting), the claimant must ensure that the credit is genuinely additional to business-as-usual in order to credibly claim that it ‘neutralises’ an emission or unit of biodiversity loss. If it is not genuinely additional, the offset will permit a net gain in emissions or a net loss to environmental value. By contrast, contribution claims do not purport to neutralise an actual harm, rather to make contributions to climate mitigation or biodiversity enhancement that go beyond business-as-usual. Consequently, the principle of additionality is not as demanding (see also our answer to Question 8). However, additionality is still important, especially for purchasers or investors, to ensure that the payment provided for the credit has resulted in the outcomes or activities associated with it. Some of the risks associated with additionality, which ought to be the concern of regulators, are:

  • Misleading claims about the use of proceeds from a credit sale, where the proceeds are not primarily being used to fund the outcome or activities that were advertised. Government already must ensure that environmental claims by businesses and individuals are substantiated, truthful, and not misleading, as per the Fair Trading Act 1986.

  • Double-counting is a related issue which ought to be a concern for regulators. That is, a landowner might knowingly or unknowingly sell the same biodiversity improvement to two different accreditation schemes, which undermines the additionality of one of those claims. The creation of a single register would enable this risk to be managed. 

  • Undermining the additionality of high-integrity carbon and biodiversity credits by the issuance of low-integrity biodiversity credits to fund conservation activities, and therefore impeding the future revenue opportunities that a high-integrity issuance might attract for land owners. This is especially risky for conservation, because conservation groups often work on other people’s land, so any biodiversity credits that result from outcomes or activities could interfere with the additionality of subsequent claims. Given the complexities of environmental credit markets, this could easily occur without the landowner’s consent, because the landowner or even the issuer does not fully understand the implications for future revenue opportunities.

 The risks of over-regulation are as follows:

• Inadequate governance: The experience of the NZ ETS should give pause to a highly managed scheme where the Government is heavily involved in market administration. It is not clear that the Government has sufficient capabilities and proper institutional arrangements to govern the NZ ETS effectively. This scheme has proven to be unexpectedly vulnerable to speculative behaviour, which has undermined its capacity to deliver on its environmental objectives. The stringency of the NZ ETS is vulnerable to politicised decisions that favour vested interests and electoral considerations. The NZ ETS also lacks adaptive management capability to respond swiftly to shortcomings and surprises, not least because the process of adjusting settings is very slow. Biodiversity markets are potentially another order of complexity again, particularly in regard to MRV processes. Unless the Government has a clear and frank diagnosis of NZ ETS governance issues, then there are significant execution risks for taking a strong role in market administration on another market mechanism of equal or greater complexity.    

• Crowding out rangatiratanga and community interests: Over-regulation from Government invariably means that governance will not be devolved to other sources of authority, especially Māori who must play a role in the governance of any internationally credible system. Because biodiversity is inherently locally specific, however, it is vital that whānau and hapū, as well as local ecologists and conservation groups, can participate in the co-development of the scheme (e.g. through the creation of MRV methodologies) to share their locally specific knowledge.

• Undermining voluntarism: As discussed in Section 4 on the roles of government, if the proposed scheme is voluntary market, it is critical that the Government not play a strong administrative role, or else it may undermine the preconditions for voluntary participation. This includes the stakeholder buy-in and legitimacy that comes from co-design and co-development, and the capacity of market development processes to facilitate market fit.   

16. A biodiversity credit system has six necessary components (see figure 5). These are: project provision, quantification of activities or outcomes, monitoring measurement and reporting, verification of claims, operation of the market and registry, investing in credits.

To have the most impact in attracting people to the market, which component(s) should the Government be involved in? Please give your reasons.

We address these issues in Section 4 of this submission on the roles of government. If this is a voluntary market, then the majority of the market components should be led by market participants, with Government involvement largely relegated to its regulatory role. The more the Government is involved in market administration, the more it bears the burdens of compelling participation, which shifts this from a voluntary to a compliance market. 

Government regulation should largely be upstream. So, rather than engage in market building activities directly, it should monitor and regulate those entities that engage in project provision, quantification of activities or outcomes, monitoring measurement and reporting, verification of claims, and operation of the market and registry. In particular, the Government has an important role in ensuring that the claims underpinning the issuance of credits are credible and of sufficient integrity. Specifically, this relates to its obligations under the Fair Trading Act 1986, where the Government must ensure that environmental claims by businesses and individuals are substantiated, truthful, and not misleading.

Investing in credits: The Government has an important role in market enablement, and the purchase of credits could be critical for accelerating market development, and stimulating and stabilising innovation, especially in the early phases of market development. Economists have long recognised that direct support from Government is critical to support research and development, and to enable new technologies to mature along the value chain. This is especially important for technologies that support Government to achieve its policy objectives, and that create knowledge spillovers which benefit other policy objectives, and therefore create a public benefit. Over the longer run, Government could use procurement to achieve policy objectives, especially to address shortfalls where natural market demand is lagging.

17. In which areas of a biodiversity credit system would government involvement be most likely to stifle a market?

• Developing monitoring, reporting and verification (MRV) methodologies: This should be achieved by sector experts using tested approaches to quality assurance and control, such as peer review. Government has an important role in enabling this process, especially through support for public research, but it is critical for legitimacy that the development is achieved by research experts. Toha is already achieving this through the use of researchers and local experts for development of its claims templates, along with scientific auditing for quality control.

• Administration of data: It is not clear that the Government has the capacity to administer the data that a biodiversity credit system would produce, nor that the Government could achieve this in a manner consistent with ideals of Indigenous data sovereignty and self-sovereignty. We recommend that an open public data infrastructure is developed collectively, with decentralised governance that enables ownership and governance rights from all data creators. We discuss governance further in Section 3 of this submission. 

• Project provision: As discussed in Question 4, there is a risk that biodiversity credits on public land could crowd out market demand that might otherwise go to individual landowners and whenua Māori collectives who urgently need new forms of funding and financing. 

18. Should the Government play a role in focusing market investment towards particular activities and outcomes and if so why? For example, highlighting geographic areas, ecosystems, species most at threat and in need of protection, significant natural areas, certain categories of land.

A market scheme like biodiversity credits is likely to be strongly influenced by the preferences of credit buyers, which may reflect subjective biases rather than scientifically-informed objectives. For example, it is conceivable that the buyers of biodiversity credits will favour charismatic species, such as birds and lizards, rather than less charismatic species like invertebrates or molluscs which may nevertheless need urgent assistance. This risks creating outcomes that lack ecological integrity and that neglect important ecological functions that ‘uncharismatic’ species also provide.

However, as long as the biodiversity credit scheme is voluntary, then the Government should not play a heavy-handed role in determining where market investment goes, because this may interfere with the intrinsic motivations of credit purchasers. Rather, Government should monitor biodiversity outcomes, identify target areas, then use its own policy levers (e.g. regulation, subsidies, information) to improve biodiversity outcomes in those areas where private finance is falling short. It is for this reason that the biodiversity credit system should not be treated as an alternative or a substitute for public finance and public policy, but rather as a complement.

There are less direct ways that Government can enhance alignment with the Government’s policy objectives and processes. For instance, if the market is neglecting certain species or habitat types, the Government could direct research and innovation funding toward the creation of MRV methodologies, establishing baselines for evaluating impact, and/or quantifying the benefits of environmental protection. 

If the Government does wish to direct private finance, however, then it should intently shift from a voluntary scheme to a more compliance-based scheme which compels participation and allocates proceeds to target areas. For instance, the Government could set quotas that must be met through the purchase of credits or tradeable certificates that represent verifiable biodiversity improvement. Alternatively, the Government might require participants to invest into a funding pool which is allocated according to conservation need, with a priority on habitats and/or species that are underfunded or acutely at risk. It is critical, however, that any such shift is recognised as a move toward a compliance market and away from a voluntary market, which is the focus of this consultation. See Section 4 for further discussion of these trade-offs and market shaping roles.

19. On a scale of 1, not relevant, to 5, being critical, should a New Zealand biodiversity credit system seek to align with international systems and frameworks? Please give your reasons.

(4) because local flexibility is needed to be sensitive to unique biophysical and cultural elements. However, for credibility and to ensure investor interest, there needs to be alignment with international reporting standards especially, so that companies can use biodiversity credits to satisfy international market expectations (e.g. EU’s ESRS), or climate and nature-related risk disclosures (i.e. TCFD and TNFD). Currently, there is a diversity of methodologies internationally and no strong consensus around particular standards, so an adaptive approach is prudent in case any such consensus does emerge. 

20. Should the Government work with private sector providers to pilot biodiversity credit system(s) in different regions, to test the concept?

If you support this work, which regions and providers do you suggest?

Yes, the Government should support regional pilots. Specifically, the Government should urgently implement recommendation (R.35) in the Ministerial Inquiry into Land Use (the Inquiry) for a world-leading regional pilot for biodiversity credits in Tairāwhiti and Wairoa. 

Learning from the lessons of the ETS, there is significant value in taking an incremental, adaptive approach to biodiversity markets, because the effects of biodiversity credits cannot be properly predicted or anticipated. A regional pilot in Tairāwhiti and Wairoa will produce insights and lessons that will benefit other regions, while also providing material improvements to landscape resilience. As the Inquiry noted: ‘Right now, the Tairawhiti environment is on the verge of collapse, yet can become a living laboratory, providing evidence and lessons for adapting to a climate-changing world.’

21. What is your preference for how a biodiversity credit system should work alongside the New Zealand Emissions Trading Scheme or voluntary carbon markets?

(a) Little/no interaction: biodiversity credit system focuses purely on biodiversity, and carbon storage benefits are a bonus.

(b) Some interaction: biodiversity credits should be recognised alongside carbon benefits on the same land, via both systems, where appropriate.

(c) High interaction: rigid biodiversity ‘standards’ are set for nature-generated carbon credits and built into carbon markets, so that investors can have confidence in ‘biodiversity positive’ carbon credits.

Please answer (a) or (b) or (c) and give your reasons.

This question is addressed to a significant extent by Toha’s submission to the ETS Review and Permanent Forest Category (see Appendix 1). Here we reiterate this position in the light of this consultation.

Generally speaking, the optimal policy design will involve at least one policy instrument for each policy target – that is, ≥1 instrument for carbon and ≥1 instrument for biodiversity. These instruments can and often should overlap, but also should retain their distinctiveness. Empirical analysis reinforces the theoretical expectation that pursuing two or more policy objectives with one instrument is likely to result in suboptimal outcomes.

This speaks to the importance of the current consultation. In New Zealand, we have an established compliance carbon market, the NZ ETS, which is designed to serve the policy objective of least-cost emissions reductions. However, there is no comparable economic instrument for biodiversity (or indeed for other key objectives like climate adaptation). These deficits in the instrument mix are best addressed by the addition of new policy instrument, because reforming the NZ ETS to serve two objectives (i.e. carbon and biodiversity) is likely to produce suboptimal outcomes for both.

Consequently, an ideal instrument mix for the intertwined objectives of climate mitigation and biodiversity will involve at least two instruments that are designed to be interoperable; for instance, a biodiversity payment can be stacked on a carbon payment. The NZ ETS currently provides a payment for carbon (although, if the Government chooses to decouple forestry from the NZ ETS, this may need to be replaced with another economic instrument to pay for carbon removals). A voluntary biodiversity credit system is one instrument which could derive a payment for biodiversity. If the biodiversity credit system is designed to overlap with the NZ ETS, then it will help to reduce the opportunity cost between fast-growing exotics and slower-growing natives, because only the native forest could access the biodiversity payment in addition to the carbon payment, thus improving its economics. 

This issue of biodiversity-carbon stacking raises questions about additionality – i.e. does the biodiversity payment undermine the claim of additionality for carbon? As a member of the Biodiversity Credits Alliance, we are aware that this issue is being debated internationally and remains unresolved. For New Zealand, we recommend the creation of a regulatory sandbox where regulators and biodiversity credit issuers can work through such issues together.

22. Should a biodiversity credit system complement the resource management system? (Yes/No)

For example, it could prioritise:

• Significant Natural Areas and their connectivity identified through resource management processes

• endangered and at-risk taonga species identified through resource management processes.

Similarly to Question 4, this prioritisation is ultimately a matter for the market, because a voluntary market depends upon credit purchasers being able to invest in what they value. What is more important is ensuring that relevant indicators, such as its linkage to an SNA, is included in the metadata for each credit, so that the market can differentiate accordingly. The real question for Government is how to use its market shaping powers to prevent misalignment with the resource management system, and ideally to maximise positive synergies. This might involve R&D funding to support the development of credit methodologies that align with SNAs, or public purchases of credits from SNAs to support their public value.

23. Should a biodiversity credit system support land-use reform? (Yes/No)

(For example, supporting the return of erosion-prone land to permanent native forest, or nature-based solutions for resilient land use.)

Yes: land-use reform is a legitimate and feasible goal for a biodiversity credit system. In particular, the retiring of vulnerable pastoral land from agricultural production (i.e. erosion-prone land, riparian margins) in a revenue-neutral way is one of New Zealand’s greatest opportunities for environmental remediation and improvement – and one which would deliver significant integrated benefits for biodiversity, climate adaptation, long-lived carbon storage, and historical reparations. However, directing a biodiversity credit system toward a strategic goal will require a market-shaping or market-steering approach from the Government to ensure that the system incentivises land use decisions that align with land use strategy. 

Land use change will be a natural outcome of any successful biodiversity credit system that operates at scale. However, trends in land use change will reflect whatever incentives are actually created by its payment system. These may not necessarily align with evidence-based policy objectives. A market scheme like biodiversity credits is likely to be strongly influenced by the subjective preferences of credit buyers, which may reflect personal biases rather than scientifically-informed policy objectives. For example, it is conceivable that the buyers of biodiversity credits will favour habitats that support charismatic species like forest-dwelling birds, rather than habitats like native grasslands. This could result in underfunding of the latter, or even the ecologically inappropriate establishment of native forest on grasslands or peatlands that were not historically forested. 

To avoid these perverse outcomes, Government is likely to need to play a proactive role, for instance, by:

• using the public procurement lever to redress underfunding for certain habitats or species through the purchase of corresponding biodiversity credits; 

• creating regulation to restrict perverse outcomes, such as the creation of ecologically inappropriate ecosystems; for instance, the issuance of biodiversity credits for native forest could be prohibited from areas that were historically a non-forest land type;

• a requirement that buyers purchase biodiversity credits on the basis of conservation need, rather than subjective preference; for instance, participants could invest into a funding pool which is allocated according to conservation need, with a priority on habitats and/or species that are underfunded or acutely at risk.

With these caveats in mind, it is worth highlighting the benefits of using a market mechanism, such as biodiversity credits, to achieve objectives in land-use reform. Markets exert change through the influence of economic enablers and incentives, rather than by compulsion or mandate. In land use, this can help to preserve human agency and decision-making power, because it does not dictate how landowners should manage their land, only reshapes their choice set by creating new economic enablers and incentives. Therefore, a well-designed market mechanism not only creates space for human agency, it also creates space for people to make place-based decisions that employ localised knowledge. This includes site-specific knowledge, such as which slopes are erosion-prone, or availability of sunlight in a certain area. It also includes mātauranga Māori such as maramataka or knowledge about eco-sourcing. Nuanced decisions at this level cannot easily be made by mandates from centralised authorities, thus market instruments can be an effective distributional mechanism for enabling place-based choices. 

That said, a poorly designed market can be coercive when it favours the economics of one option to such an extent that people cannot reasonably choose otherwise, even when this choice cuts against the decision maker’s values. Arguably, this has occurred through the NZ ETS which, in the absence of other instruments, has created a strong incentive for exotic afforestation, even when rural decision makers show a widely-held preference for native tree species. These trade-offs between individual choice and public benefit will need to be carefully considered for a biodiversity credit system too, in order to retain the consent and legitimacy of the public. 

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Toha supports the need for a biodiversity payment system – whether by biodiversity credits or some other mechanism – for the following reasons:

• To create a fair payment for the work involved in nature repair and regeneration.

• To enable on-farm biodiversity to be recognised by markets as an important agricultural yield, alongside food and fibre.

• To create an alternative payment system for nature-based carbon removals which enables the gradual phase-down of carbon offsetting, so that an increased proportion of future removals can count purely as negative emissions in the national accounts. 

• To substitute for the loss of revenue through the ETS in the event that the New Zealand Government chooses to decouple forestry removals from the ETS (as a consequence of the 2023 ETS Review).

• To compensate Māori forest owners for any transition of forestry removals out of the ETS, in recognition of the unjust treatment of Māori interests through the implementation of the ETS.  

• To create the right incentives for afforestation within the Permanent Forest Category by enabling stacked payments for carbon removals and biodiversity uplift, thereby improving the financial returns for native forests and therefore the opportunity cost for faster growing exotics.

• To create the right incentives for transitional forestry by enabling payments for changing the species composition in a forest – i.e. from exotic-dominated to native-dominated forest.

• To create revenue opportunities for types of ecosystem restoration that are currently ineligible for inclusion in the ETS (e.g. small forests, riparian plantings, wetland restoration, soil restoration, coastal habitat, freshwater ecosystems, marine ecosystems).

• To create revenue opportunities for the protection and restoration of ecosystems such as pre-1990 native forest and wetlands, which are not eligible in the ETS and lack other economic supporting mechanisms. 

Toha is agnostic on whether a biodiversity credit system will achieve these goals, because success will depend on the design of any such system. A poorly designed system could cut against some or all of the goals implied above, and also create other problems. Consequently, in addition to an analysis of opportunities (as per above), the Government needs to undertake a far more rigorous and comprehensive risk analysis than the bullet-points provided on p.30 of the discussion document. Some risks that need to be better articulated are:

• The biodiversity credit system becomes a means of inadequate compensation of environmental harms, either directly by being co-opted for biodiversity offsetting that results in net biodiversity loss, or indirectly by enabling companies to make nature-positive claims without addressing biodiversity loss in their own value chains.

• The dilution of existing property rights by the creation of tradeable claims of biodiversity uplift and/or avoided biodiversity loss, which may carry liabilities if the improvement is reversed.

• The commercialisation of taonga species or habitat for economic gain, without the consent of whānau and hapū, or a fair distribution of benefits.

• The risks of mismanagement or misuse of data that is created by MRV for biodiversity credits, which violates self-sovereign or Indigenous rights over data, exposes landowners to loss of privacy or consent, or results in an unjust distribution of the benefits of data commercialisation.

• The prospect of misallocating Government effort toward a policy option which could have been better directed toward other options, such as increasing budget allocations, green fiscal policy reform or stronger environmental regulation. This is especially relevant if there is limited voluntary demand for a biodiversity credit market.

• The imposition of regional or global standards which do not work well in the local context of Aotearoa New Zealand, or result in perverse outcomes. 

• The creation of unbalanced or biased environmental outcomes, due to market preferences or market structure - e.g. a bias toward funding the creation of new habitat rather than protecting existing habitat, or a charismatic species bias that favours some species over others.

2. Below are two options for using biodiversity credits. Which do you agree with?

(a) Credits should only be used to recognise positive actions to support biodiversity.

(b) Credits should be used to recognise positive action to support biodiversity, and actions that avoid decreases in biodiversity.

Please answer (a) or (b) and give your reasons.

For a voluntary market, design issues such as Question 2 should ultimately be resolved by the processes of market development which are responsive to supply- and demand-side needs, rather than ex ante decisions by the Government. 

Specifically, if potential purchasers of biodiversity credits are willing to pay for credits that represent avoided biodiversity loss (2b) as well as biodiversity uplift (2a), then there is no reason to prohibit this, least of all by an ex ante design choice by the Government. What matters is whether a sufficiently robust MRV methodology can be developed to assure that avoided biodiversity loss was enabled by the proceeds of the credit. 

We note that credits for avoided biodiversity loss, or protection, are a part of emerging biodiversity credit systems globally.^, The inclusion of such credits also present an opportunity to fund the protection of pre-1990 indigenous forest, and other ecosystem types, which are not eligible for the NZ ETS and therefore lack an income stream. When the ETS was being designed, the exclusion of pre-1990 indigenous forest was perceived as unfair by many hapū and whānau who had chosen to protect such habitat, and therefore avoiding emissions and biodiversity loss. By supporting active protection through the issuance of biodiversity credits, the lack of revenue for existing habitat could be addressed without the issuance of additional emissions allowances (which is what inclusion in the ETS would involve). 

Verifying avoided loss can be challenging. Lessons need to be learned from voluntary carbon markets, especially the issuance of carbon credits for avoided deforestation which has recently been subject to high-profile criticism. However, as long as biodiversity credits are intended as contribution claims rather than compensation claims, the stakes are lower (because the credit is not being used to compensate, or neutralise, the impact of a harm elsewhere). These differences must be carefully considered before generalising the flaws of carbon markets.

Additionally, the opportunities for avoided biodiversity loss differ in New Zealand. Internationally, the issuance of carbon credits for avoided loss tend to relate to land use change – i.e. whether forest clearance was certain to occur (or not). This has proven difficult to establish, because it is based on hypotheticals about what communities were planning to do (or not). However, a major source of biodiversity loss in Aotearoa New Zealand comes from invasive pests and predators. Accordingly, biodiversity credits could be issued to fund pest and predator control by modelling the likely biodiversity losses under a business-as-usual scenario, then issuing biodiversity credits to fund ecosystem management that forestalls these expected declines. This involves predictions about the stable behaviour patterns of pest and predator species, which can be achieved with greater certainty than predictions about the ever-changing intentions of humans. Thus, the proceeds of biodiversity credit sales can be transferred to verifiable activities which arrest and reverse biodiversity decline. 

With these issues in mind, even though the Government should avoid imposing ex ante design choices upon a voluntary market, this does not mean that the Government should be indifferent to how it evolves. If credits for avoided biodiversity loss do emerge, the Government should ensure that the MRV methodologies and additionality claims are robust. Also, the Government should contemplate what role it plays (if at all) if the voluntary market does not develop credits for avoided loss, only for biodiversity uplift. If it is likely that private finance is better suited to restoration rather than conservation, then the Government should make clear that it will address avoided biodiversity loss through alternative policy tools, or the use of public finance to support credits for avoided loss, or imposing purchase obligations on private parties. 

3. Which scope do you prefer for a biodiversity credit system?

(a) Focus on terrestrial (land) environments.

(b) Extend from (a) to freshwater and estuaries (eg, wetland, estuarine restoration).

(c) Extend from (a) and (b) to coastal marine environments (eg, seagrass restoration).

Please answer (a) or (b) or (c) and give your reasons.

Again, the Government should not make ex ante design choices about the scope of voluntary market. Consequently, Toha favours the openness of Option (c), because it is not the ecosystem type which ought to determine eligibility, it is the integrity of impact verification. 

In principle, it should not matter if the biodiversity credit is being issued for terrestrial, freshwater or marine-based improvements. As long as the measurement, monitoring, reporting and verification (MRV) protocol is robust and competently administered and audited, then the ecosystem type should not matter. 

In reality, it is likely that the development and implementation of MRV protocol for marine-based ecosystems will be more constrained, because of the highly dynamic nature and inherent complexities of marine environments. Nevertheless, even though many terrestrial indicators will likely be easier to operationalise, it is also likely that the most challenging terrestrial indicators will more difficult to verify than the least challenging marine indicators. In such instances, there is no reason why the development and implementation of marine MRV should not proceed.

In particular, these boundaries of inclusion should not be pre-determined by regulators. Rather the validity of MRV protocol should be determined by rigorous scientific processes, such as peer review by relevant experts and the evaluation of pilots. This should be undertaken by assessors with relevant expertise to decide, not by regulators who may lack such expertise in-house. However, regulators may play a role in determining whether such a quality control and quality assurance process was undertaken competently.

4. Which scope do you prefer for land-based biodiversity credits?

(a) Cover all land types, including both public and private land including whenua Māori.

(b) Be limited to certain categories of land, for example, private land (including whenua Māori).

Please answer (a) or (b) and give your reasons.

Again, this is not a question to be addressed ex ante, rather by supply and demand. What is more important is ensuring that accurate classifications of land type are included in the metadata for each credit, so that the market can differentiate between credits from different land types and price these credits accordingly. 

However, one critical question is whether public land should be included. Given the size of the national conservation estate, the potential supply of credits is substantial. If these credits were permitted to exhaust market demand, this deprives private land owners and whenua Māori collectives of new sources of funding. 

Consequently, we recommend that the Government does not act as a supplier of biodiversity credits, especially in the early stages of the scheme. This is comparable to how the NZ ETS already operates where Crown land is excluded from eligibility – although exceptions could and should be made for mana whenua or community groups who are operating on Crown land to improve biodiversity outcomes. Rather, Government should limit its market participation to the demand side as a potential purchaser of biodiversity credits to support market development, to use biodiversity credits to achieve biodiversity policy objectives, and to bridge funding shortfalls where market demand is lacking.

5. Which approach do you prefer for a biodiversity credit system?

(a) Based primarily on outcome.

(b) Based primarily on activities.

(c) Based primarily on projects.

Please answer approach (a) or (b) or (c) and give your reasons.

Option (a) and (b) only, for the following reasons:

• Option (c) has the risk of diluting the intended purpose of a biodiversity credit as a standardised unit of exchange that reflects the value of genuine biodiversity improvements. This is evident in the response to Australia’s Nature Repair Market, which proposed units on a per-project basis with no clear connection to actual biodiversity gains. A submission by a consortium that included NatureFinance and Pollination argued that: ‘Projects should instead generate credits as a result of measured and verified per-unit enhancement and/or protection of biodiversity… using a holistic, robust, standardised, and continuously updated metric’. The submission notes that a per-project approach means that each biodiversity certificate (or credit) will be priced very differently, given the enormous variability in size and value of the underlying project. This would also bias the market toward large purchasers (corporate or government) of  large-scale projects which could signify marginal biodiversity improvements over large areas, rather than more impactful improvements in smaller ecological niches. 

• Toha supports Option (a) with its emphasis on outcomes. The ideal biodiversity credit system will have a clear connection to real-world improvements to native biodiversity for the following reasons: 

  • Technological developments in bioacoustic monitoring, remote imagery, eDNA metabarcoding and machine learning are creating new opportunities to drive down the cost, effort and capability required to undertake scientifically robust monitoring, reporting and verification.

  • A focus on outcomes is increasingly important for private and philanthropic funders of conservation and nature repair, who need to be able to demonstrate value for money to shareholders, customers, and other stakeholders.

  • Policy-relevant targets such as the Kunming-Montreal Global Biodiversity Framework are ultimately connected to outcomes, not effort. 

  • Monitoring of outcomes improves our collective knowledge of environmental trends by generating new biodiversity data. If this data is open and accessible, it could have spillover benefits for environmental management beyond credit markets, including improving adaptive management to respond to climate-related stressors. 

• Toha also supports Option (b) by recognising that verification of activities will play an important role, especially in the early phases of system development. This is for the following reasons:

  • Labour is itself valuable and deserves to be fairly remunerated, irrespective of outcomes. The professionalisation of nature-based jobs would help to lift the sector’s impact and efficiency, which biodiversity credits could enable as a form of outcomes-based funding. 

  • Outcomes will sometimes be too technically difficult to measure and verify with sufficient certainty, so it will sometimes be justifiable to issue credits on the basis of activities that strongly correlate with the desired outcomes as a proxy.

  • Measurement and monitoring of outcomes will sometimes be too expensive, which increases the transaction costs of the biodiversity credit and therefore reduces the quantum of the payment. Consequently, the verification of activities can serve as a more cost-effective proxy.

  • Biodiversity is inherently complex, which makes it hard to attribute cause and effect, and therefore to attribute outcomes to activities. Confounding variables can influence outcomes irrespective of activities, such as the occurrence of a mast year, a climate-related extreme weather event, the presence of a novel disease or pathogen, or land management decisions in a neighbouring property. Again, accreditation of activities might be justifiable to mitigate such risks.

6. Should there also be a requirement for the project or activity to apply for a specified period to generate credits?

Please answer Yes/No and give your reasons.

Ultimately, this is a question for voluntary market developers to navigate by devising a workable solution that meets supply and demand-side needs. 

International precedents are likely to inform this process. A recent Pollination review notes that nature-based solutions carbon credit projects typically end after 25–30 years, although carbon stocks can be further protected by the extension of legal protections over the land after the crediting period has ended. These ‘permanence periods’ are typically between 25 and 100 years. But it is also recognised that an indefinite crediting period might be required, because legal protections are challenging to administer. 

7. Should biodiversity credits be awarded for increasing legal protection of areas of indigenous biodiversity (eg, QEII National Trust Act 1977 covenants, Conservation Act 1987 covenants or Ngā Whenua Rāhui kawenata?

Please answer Yes/No and give your reasons.

No, as per Question 5, Toha takes the view that biodiversity credits should be awarded on the basis of outcomes and activities, not merely the certification of a project which falls under a covenant. However, the application of a covenant is itself a type of activity which correlates with positive biodiversity outcomes, because it manages the risk of future land-use change. Consequently, the establishment of selected covenants (e.g. QEII National Trust Act 1977 covenants, Conservation Act 1987 covenants, or Ngā Whenua Rāhui kawenata) should be treated as an activity that could contribute to the issuance of the biodiversity credit. 

Potentially, where a site is eligible for a covenant, its establishment might be a mandatory requirement for the issuance of the biodiversity credit, as a mechanism for increasing the likelihood that biodiversity improvements will persist. 

8. Should biodiversity credits be able to be used to offset development impacts as part of resource management processes, provided they meet the requirements of both the BCS

system and regulatory requirements?

No, a clear separation should be made between a voluntary biodiversity credit market and a mandatory biodiversity offsetting scheme. As discussed in Section 4, voluntary and mandatory markets have very different administrative needs, which need to be taken into consideration. Moreover, the association with offsetting is a major source of reputational risk for the biodiversity credit system. The wrong approach could seriously undermine the perceived value of biodiversity credits among key stakeholders and the wider public.

Internationally, a strong distinction is being drawn between biodiversity credits and biodiversity offsets. To use the emerging language of Paris-era carbon markets, biodiversity offsets are a compensation claim whereas biodiversity credits are a contribution claim. As the Biodiversity Consultancy explains: ‘While biodiversity offsets and biodiversity credits share some design features, credits are distinct from offsets in terms of their role and function in delivering nature-positive outcomes… Biodiversity offsets are designed to compensate for residual negative biodiversity impacts as the last resort in a mitigation hierarchy of actions to address known site-based impacts, which should first prioritise prevention… [By contrast], biodiversity credits could be used for positive contributions to nature, for example going beyond the mitigation hierarchy to make a proportional contribution towards addressing historical impacts on biodiversity… Voluntary biodiversity credits are most likely to deliver verifiable positive biodiversity outcomes if they are not used as biodiversity offsets.’ 

Therefore, it would be inconsistent with emerging international guidance to use ‘biodiversity credits’ for offsetting purposes (i.e. as compensation claims), even where there are commonalities in MRV standards. To avoid confusion, maintaining the distinction between contribution and compensation claims will be important, as a matter of product differentiation. This will also help biodiversity credits (i.e. contribution claims) to maintain distance from biodiversity offsetting schemes, which are contentious historically and likely to remain contentious because of their inherent incoherences and inconsistencies.^, 

(It is worth noting parenthetically that the definition of biodiversity credits as contribution claims, and contribution claims only, may be difficult to sustain. This is because of the public’s familiarity with ‘carbon credits’ which are commonly used for offsetting purposes (i.e. compensation claims). This association may prove difficult to overcome, which would mean that biodiversity credits would be exposed to the loss of legitimacy of offsetting schemes. Notably, some other schemes are already using alternatives to the language of credits: Plan Vivo’s Biodiversity Standard and Australia’s Nature Repair Market Bill 2023 refer to ‘biodiversity certificates’. In a country where the public is familiar with carbon credits as offsets through the NZ ETS, the New Zealand Government should think carefully about the reputational risks of the language of ‘credits’ and whether an alternative like ‘certificates’ or ‘units’ might help to enforce the distinction with offsetting.)

Another reason for maintaining a clear distinction with biodiversity offsetting is that offsets must achieve specific standards of additionality, or else the compensation might result in a net-negative outcome for nature. To elaborate, a biodiversity offset needs to be strictly additional – that is, the proceeds of the offset sale need to result in outcomes that go beyond business-as-usual. If they do not, then the offset will fail to neutralise the loss being compensated, because it creates a permit to cause biodiversity loss on the basis of outcomes that would have occurred anyway. Furthermore, if the compensation claim is based on outcomes that are inferior in quality or quantity than those being claimed, it undermines the ‘like for like’ logic that underpins the compensation claim. By contrast, the stakes are lower for a biodiversity credit (i.e. a contribution claim), because it does not purport to compensate for an existing loss. Even if the actual outcomes are less than claimed, a biodiversity credit may still result in a net biodiversity gain, because it still constitutes an impact that goes beyond business-as-usual, even if that impact is less than what was claimed. Accordingly, a biodiversity credit market to serve contribution claims can be held to a lower regulatory standard, which reduces its overall transaction costs. If, however, the market were open to offsetting transactions for compensation claims, then all units may need to reach the minimum standard for offsets, which increases the transactions costs for contribution claims as well as compensation claims. Moreover, this necessitates greater involvement from the Government as a market administrator because of the mandatory nature of the offsetting requirements and the Government’s duty to ensure that policy objectives (i.e. no net-loss) are met.    

To sum up, we recommend a clear separation between the biodiversity credit scheme and biodiversity offsetting, such as regulatory requirements in the National Policy Statement for Indigenous Biodiversity (NPS IB). In order to achieve the NPS IB’s objective of net biodiversity gain, the administration of offsetting requires a high standard of integrity and stringency, which would impose excessive transaction costs on contribution claims if issued through the same system. Moreover, a separation of systems is sensible to avoid confusion between contribution claims and compensation claims, and especially to protect the former from controversies that relate only to the latter.

9. Do you think a biodiversity credit system will attract investment to support indigenous biodiversity in New Zealand?

Please give your reasons.

Internationally, there is significant interest in biodiversity credits. However, there is significant uncertainty about the nature of market demand. Who are the buyers of such credits? What are their motivations? 

We see a roadmap to investment as follows:

• In the near term, the stacking of a carbon credit and a biodiversity credit can enable a high-quality, high-integrity compensation claim for hard-to-abate emissions in voluntary markets. There is already existing demand for nature-based carbon, and evidence of a market premium. 

• In the mid-term (mid- to late-2020s), we see a growing market for biodiversity credits that are associated with risk reduction through ecosystem-based adaptation, or nature-based solutions for climate adaptation. This might include native forests on erosion-prone steep slopes, lowland wetlands for flood mitigation, restoration of river catchments, coastal habitat to address sea level rise and inundation, etc. A supply of biodiversity credits associated with verifiable risk reduction would help businesses to satisfy expectations under climate- and nature-related risk disclosures (i.e. TCFD and TNFD). The relevant market motive is ‘enlightened self-interest’ where businesses are investing in risk reductions to mitigate material risks across their value chain.

• In the long-term (late-2020s and beyond), there is a need to transition to biodiversity credit markets that extend beyond nature-based carbon and risk reduction, and to support contributions toward societal goals such as climate mitigation and reversing biodiversity loss. Developing a market for contribution claims will take significant market education, and it is unlikely that many businesses will never be persuaded to invest in ‘biodiversity for biodiversity’s sake’. Consequently, in the longer term, the Government will need to consider public finance and/or compliance mechanisms to broaden funding for nature repair and regeneration. This could be achieved by a compliance biodiversity market (e.g. mandated purchase obligations, or quotas that businesses need to achieve by acquiring tradable certificates), or by using new or existing tax revenue to fund public procurement of credits. 

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The Toha Network

Biodiversity Consultation Questions Part 2

10. What do you consider the most important outcomes a New Zealand biodiversity credit system should aim for? We see the following outcomes as critical: To enable the efforts of New Zealanders who already have an intrinsic motivation to protect and restore nature, but lack the financial resources to do so…

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2 years ago · Toha Network

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CONTENTS:

1. Key recommendations

2. Toha’s position on biodiversity credits

3. Governance

4. The roles of Government

5. Biodiversity and carbon markets

   • New Zealand Emissions Trading Scheme

   • Nature-based removals outside of the ETS

6. Click to view consultation questions Part 1 and Part 2

1. Key recommendations

• Toha strongly endorses the need for a payment that is linked to biodiversity uplift and/or avoided loss of biodiversity. A biodiversity payment is sorely needed to support farmers, landowners and frontline communities to address biodiversity loss, and also to bring coherence to the Government’s policy mix for climate mitigation, climate adaptation and regional economic development.
  

• Toha recognises biodiversity credit markets as a potential instrument to deliver a biodiversity payment, but also Toha recognises that biodiversity credits alone are unlikely to meet all the needs of biodiversity protection and enhancement. Other policy instruments, and other types of public and private investment, will be required. Toha recommends that policy makers remain attentive to the spillover benefits of developing biodiversity credits, because innovation in nature markets (e.g. monitoring technology and MRV protocol) can be redeployed for other purposes.
  

• The development of a biodiversity credit system will be a significantly challenging undertaking. No single entity, including the New Zealand Government, is likely to possess the knowledge, capabilities and legitimacy to successfully develop and implement such a scheme. Thus, we caution the Government against taking a heavy-handed approach to administration of a biodiversity credits system. On the contrary, the central implementation challenge for a voluntary biodiversity market is coordination among multiple agents whose consent in the final system must be secured and sustained. 

• A general source of tension in the Government’s thinking, as manifest in the discussion document for this below summarises our recommendations in regard to market design. However, further to our discussion in Section 4 on the roles of Government, we believe that many of the questions which relate to system design are premature. Ultimately, the design of a voluntary market should be determined by market participants, not ex ante design choices by the Government. Also, while the Government should play a regulatory role for voluntary markets, this role should be articulated through a process with appropriate governance., is that while the consultation is for a voluntary biodiversity credit market, the Government is seeking advice on design choices and standards as if it were preparing a compliance market. In a compliance market, especially a biodiversity offsetting system, it is vital that the Government sets standards to ensure additionality and integrity. However, in a voluntary market, the Government should largely leave market participants to lead the design of biodiversity credits, with an acceptance that diverse standards and methodologies are likely to emerge. Otherwise, the Government risks undermining market fit and stakeholder buy-in, which a voluntary market relies upon to sustain demand. 

• A clear delineation should be made between systems that quantify biodiversity improvement for the purposes of contribution claims (i.e. biodiversity ‘credits’) and compensation claims (i.e. biodiversity offsetting). Offsetting schemes, such as regulatory requirements in the National Policy Statement for Indigenous Biodiversity (NPS IB), are a compliance market, which entails higher transaction costs, mandatory standards, and strong government administration. Also, a coupling with biodiversity offsetting would expose biodiversity contribution claims to the public scepticism and reputational risks that are associated with compensation claims (i.e. offsets). Therefore, a linkage to biodiversity offsetting would work against the economics, voluntarism and acceptability that a voluntary market requires. 

• The discussion document’s risk-opportunity analysis is strong on opportunities but weak on risks. A robust risk analysis should precede any further policy design. This should cover risks to non-Māori and Māori alike, but be attentive to the unique circumstances and needs of each group. To articulate the unique risks to Māori, the Crown should commission a rigorous risk analysis of biodiversity credit markets for Māori interests, which is adequately resourced and draws on expertise in mātauranga Māori, the recommendations of the Wai 262 report, and other relevant matters.
  

• Any biodiversity credit system that attracts open and unambiguous opposition from Indigenous communities is unlikely to succeed, because of the high international expectations for positive outcomes for Indigenous people. Consequently, the New Zealand Government must sustain the support of Māori by enabling equal participation in the design and implementation of any such system, supported by appropriate governance mechanisms.

2. Toha’s position on biodiversity credits

Toha is building an impact payment system to support climate action and regenerative economics, with a specific focus on biodiversity, land use and our food system. This involves the development of digital infrastructure to bridge the existing gap between demand and supply for nature-positive impact. This is being carefully designed as a high-trust system that builds and sustains confidence in the creation, validation and exchange of impact data. On the demand side, impact investors and other funders will have confidence that their investments are delivering the intended impact by receiving high-integrity impact data. On the supply-side, the producers of impact – landowners, mana whenua, farmers, community groups, etc. – will have confidence that associated data will not be misused, and that benefits derived from that data will be recycled back to them. Consequently, Toha’s impact payment system serves as critical infrastructure for new nature markets that deliver funding directly to frontline communities who create change on the ground. 

Biodiversity credits are a potential use-case for Toha’s impact payment system. However, biodiversity credit markets are only one kind of nature market and therefore only one of many possible uses of Toha’s digital infrastructure. Toha is already piloting a range of projects that operate across a spectrum of potential nature markets:

• Toha is already establishing Climate Innovation Markets for verified impact, which includes our first end-to-end pilot transaction for verified avoided nitrous oxide emissions from reduced fertiliser usage and changes to feed management.
  

• Toha has deployed its impact payment system to create the East Coast Exchange (ECX), which enabled a community-led emergency response after Cyclone Gabrielle by recognising recovery-related activities and redistributing grant funding to the frontline.
  

• Toha has launched a Biodiversity Mission through the ECX which enables open collaboration across a portfolio of nature market trials, where innovation and funding partners are invited to make strategic, technical and commercial contributions to challenges faced by frontline communities.
  

• Presently, Toha is developing building-block digital credits that enable environmental work to be properly valued and paid for, and data rights and access to verification to be transferable, traded and priced. These credits enable participants and partners to share the costs of market development, and to spread the costs of verification over the lifetime value of the biodiversity data.

Consequently, Toha is agnostic about which specific products, including biodiversity credits, should be issued via its infrastructure. Ultimately, product-level choices will emerge as a consequence of market development, which shall depend on whether biodiversity credits meet the needs of investors, suppliers and other stakeholders. This will depend not only on the market fit of biodiversity credits, but also the credibility of market architecture, such as whether market design and regulation is likely to deliver intended outcomes and appropriately manage risks. 

If, however, biodiversity credits are validated by the market with the potential to scale, then Toha is ready to utilise its digital infrastructure for high-integrity issuances. By building on this infrastructure, these biodiversity credits would benefit from Toha’s deep R&D into indigenous data sovereignty, network governance, incentive design, token economics, measurement and data innovation, cybersecurity, digital identity, and measurement fraud detection through relationship-based network trust models. This infrastructure is being developed in anticipation that a range of New Zealand-based schemes and issuers are likely to emerge, similar to the evolution of voluntary carbon markets (VCM). The greatest challenge is ensuring that nature markets do not reproduce the well-known vulnerabilities and integrity challenges of carbon markets. 

Toha is closely tracking domestic and international developments in biodiversity credits as a potential instrument for delivering nature-positive outcomes in Aotearoa New Zealand and elsewhere. Toha acknowledges that there is growing international momentum for biodiversity credits. Biodiversity credit markets are identified as a way to rapidly advance on supporting the targets and goals of the Kunming–Montreal Global Biodiversity Framework (GBF) and the Sustainable Development Goals. Biodiversity credits are also potentially a transparent, robust mechanism for businesses to respond to and report upon commitments under the Taskforce on Nature-related Financial Disclosures, which released its final guidance in September 2023. For example, businesses could disclose their acquisition of biodiversity credits to demonstrate their performance against targets and goals to manage nature-related dependencies, impacts, risks and opportunities (as per TNFD’s Recommendation 4C).

There are also important connections to trade and finance which are underanalysed in the discussion document. This includes the inclusion of provisions on biological diversity, climate change and Indigenous rights in the EU-NZ FTA. Additionally, the EU Parliament recently voted to adopt the European Sustainability Reporting Standards (ESRS) which are an integrated set of standards covering areas such as climate change, worker rights, and business conduct, and will apply to over 50,000 companies both in Europe and internationally. The ESRS are designed for interoperability with the International Sustainability Standards Board (ISSB), Global Reporting Initiative (GRI), and other standards. This has implications for exporters who want to trade in the EU market. Biodiversity credits that align with international standards are one way that New Zealand companies can demonstrate compliance with nature-positive expectations and retain market access. 

To contribute to the development of robust international standards for biodiversity credits, Toha is a member of the Biodiversity Credit Alliance (BCA), a partnership facilitated by UNDP and UNEP FI which is working to bring clarity and guidance for the formulation of a credible and scalable biodiversity credit market under global biodiversity credit principles. As a Māori-led organisation, Toha is also a member of the BCA’s Communities Advisory Panel (CAP) which aims to fully and effectively engage Indigenous peoples and local communities (IPs & LCs) in the design and development of BCA principles and products, and to secure full respect of their rights in future markets.

Toha sees opportunities for biodiversity credits to improve the policy landscape, especially for agriculture’s response to the challenges of climate mitigation and climate adaptation. Biodiversity credits could create new revenue streams for the protection and creation of natural habitats and small-scale sequestration on New Zealand farms. A biodiversity credit system could serve as a prerequisite market mechanism that precedes the implementation of agricultural emissions pricing, which enables recognition of small-scale sequestration without creating incoherencies in target accounting (see Section 5.2 for further discussion). Internationally, there are several nature payment schemes for farmers and landowners.

Toha also has interests in biodiversity credits in regard to the recovery from Cyclone Gabrielle and other extreme weather events. The Ministerial Inquiry into Land Use recommended that Government work with Toha’s East Coast Exchange as a delivery mechanism for a regional pilot for a biodiversity market trial (R35) and, relatedly, a co-investment pilot for whenua Māori (R31-33). Toha is working with the Government to implement these recommendations.

However, Toha also recognises that the emergence of biodiversity credit markets at scale is neither necessary nor inevitable. For example, commitments under the TNFD framework can be achieved by the use of individual metrics and indicators, rather than a standardised tradeable unit such as a biodiversity credit. Biodiversity credits are also not likely to be sufficient to achieve nature-related policy objectives, because market-based schemes involve trade-offs with investability which are likely to result in funding gaps and distributional impacts. Consequently, a comprehensive biodiversity strategy will involve funding and financing from public as well as private sources, and therefore a variety of economic instruments which might include sustainability-linked debt (e.g. loans, GSS+ bonds), payment for ecosystem services, ecological fiscal transfers, and subsidies.^,, Toha’s digital infrastructure could serve the impact verification needs of these economic instruments too. 

Also, as the international experience of VCM has shown, there are risks associated with market instruments that must be taken into consideration. Internationally, carbon markets have sometimes resulted in land alienation, exploitation of local knowledge and resources, and unfulfilled promises of economic opportunity for local communities.^, Advocates of biodiversity credits have rightly called for lessons to be learned from the VCM experience, and not to be repeated in the design of biodiversity markets. However, the process of policy implementation is unavoidably political and uncertain; thus, there are no guarantees that schemes will be implemented in practice the way they are conceived in theory, nor that unexpected challenges will emerge. 

Consequently, Toha’s support for a biodiversity credit system in Aotearoa New Zealand is conditional on its final design and implementation – which cannot be ascertained at this stage of the consultation. The recommendations in this submission are intended to support the design of a system that corresponds with Toha’s own commitments to trust, transparency and nature-positive outcomes. 

We have a vision of a biodiversity credit system which is integrated with a national biodiversity data system that: 

• Separates property rights of land from environmental data rights;

• Separates data ownership rights from data access with transferable rights to verify;

• Separates data acquisition through climate action and work in service to nature, from data reuse to measure and verify outcomes;

• Accounts for and values all verifiable climate action and work in service to nature;

• Ensures attribution of work and impact through best-in-class digital identity technology;

• Operationalises rights of nature by activating digital payments for verifiable work in service to nature;

• Protects against commodification and pricing of nature itself;

• Enables full data sovereignty for all New Zealanders and New Zealand registered organisations;

• Protects and upholds all IP rights associated with mātauranga Māori, measurement of the state of the environment, and frontline solution methodologies;

• Encourages capital cooperation amongst public and private capital providers;

• Facilitates blended finance through grants, debt and equity;

• Trusts market participants to collectively govern their shared interests;

• Supports cooperative ownership of technology platform;

• Separates technology ownership from data governance;

• Facilitates market oversight by independent science;

• Encourages frontline cooperation through climate and environmental data sharing; and

• Protects the privacy of citizens and landowners.

This reflects Toha’s core assumption that data cooperation is the central implementation challenge for credible climate and environmental policy, now and into the future. New Zealand’s domestic economy is too small for multiple regulatory data management systems – for freshwater improvement, farm management, agricultural emissions and/or biological sequestration – that track measurement, reporting and verification of land use and associated outcomes. With new technology now readily available, it is possible to design and implement an open and unified public digital infrastructure that incentivises and rewards data sharing across our economy, without undermining our competitive norms. An open, distributed biodiversity data system can support regionalised community markets for nature-based work and measurable outcomes. It can also support diverse, place-based, product-level innovation which ensures that biodiversity credits are responsive to bioregion, land type and historical, present and target land-use.

3. Governance

The fundamental issue for the Government to resolve is governance. 

The current consultation raises many technical issues in its discussion paper, which Toha has partially addressed in its answers to the consultation questions (see Section 6 below). However, these technical issues are secondary to the fundamental question of governance. Indeed, final decisions on technical issues should only be undertaken with the right governance in place. Unilateral decisions on fundamental design issues will likely undermine the legitimacy of any resulting system at its very foundations, which may be difficult to resolve.

The first question of governance relates to how the Crown can act in accordance to te Tiriti o Waitangi in its enablement and/or administration of a biodiversity credit system. In this regard, the Crown must navigate between two types of risk: 

• On the one hand, if the Crown takes a hands-off approach to voluntary biodiversity markets, there is a risk that private markets will evolve in such a way that they exploit Māori assets and resources. Consequently, the Crown may fail to actively protect Māori interests.
  

• On the other hand, if the Crown takes a hands-on approach to market administration where the majority of decisions are undertaken centrally, then it will exclude the exercise of rangatiratanga in developing a system that is intimately related to Māori interests. Consequently, the Crown will fail to exercise a partnership approach in good faith.  

To fulfil its kawanatanga duties, there is no avoiding that the emergence of voluntary biodiversity markets will create new regulatory responsibilities. Even if it takes a hands-off approach, the Crown must protect the interests of Māori and non-Māori alike from the risks of otherwise unregulated markets (see Question 15 in Section 6 for a discussion of risks). However, the Crown has special duties that relate to Article Two of te Tiriti o Waitangi to ensure tino rangatiratanga over whenua, kainga and taonga. Insofar as biodiversity credit markets pose risks to Māori in this regard, these must be anticipated and articulated, with appropriate safeguards put in place to prevent further breaches of te Tiriti o Waitangi. 

The lack of robust analysis of risks to Māori interests is a major shortcoming of the current consultation. Given the lack of capacity among some whānau, hapū and iwi to engage in the many overlapping consultations that relate to environmental management over the last few years, it is unreasonable for the Government to use this consultation alone to fill that knowledge gap. To fulfil its duties as a Treaty partner, the Crown should commission a risk analysis of biodiversity credit markets for Māori interests, which is adequately resourced and draws on expertise in mātauranga Māori, the recommendations of the Wai 262 report, and other relevant matters. This risk analysis should precede any further policy design.

More fundamentally, however, the Crown needs to implement a partnership approach to the governance of the policy process. Māori participation in the policy process will help to avoid omissions such as the lack of an adequate risk analysis. The responsibility to enable and empower Māori decision-making will increase in proportion to the Crown’s intention to take a hands-on approach to market design, market shaping and market administration. The more authority the Crown chooses to assume over market development and implementation, the more it needs to enable and enhance rangatiratanga to fulfil its duties as a Treaty partner.

The meaningful involvement of Māori in the governance of a biodiversity credits system is essential for international credibility and legitimacy. All goals and targets within the Kunming-Montreal Global Biodiversity Framework (GBF) have links to Indigenous Peoples and Local Communities (IP & LCs). These are underpinned by human rights-based approaches, including effective participation and Free, Prior, and Informed Consent (FPIC). Furthermore, the GBF was born amidst a shift in narratives in global conservation policy – from IP & LCs as ‘vulnerable’ and ‘dependent’, to strength-based narratives that instead highlight the opportunities for Indigenous institutions and local knowledge to guide more effective conservation. As an example, the Integrity Council on Voluntary Carbon Markets is committed to including representatives of Indigenous Peoples in all of its deliberations. Consequently, any biodiversity credits scheme that is obviously operating without the consent of Indigenous peoples, or that violates Indigenous rights and interests, is likely to face major reputational and investment risks. 

Critically, these risks are likely to manifest through market demand, which is vital for the success of a voluntary market. The companies most likely to proactively engage in a biodiversity credit market for the right reasons (i.e. to improve biodiversity outcomes) are also the least likely to tolerate negative impacts on Indigenous communities. As noted recently by the Biodiversity Credits Alliance: ‘[I]nvestors should be prepared to work more closely with IPs and LCs to ensure that their traditional knowledge and practices, and objectives are incorporated into conservation and restoration projects, and consider how they can lend, invest (e.g. through purchase of biodiversity credits) or insure in new ways to support the creation and management of Indigenous and Community Conserved Areas (ICCAs).’ Investors will not want to engage in any biodiversity credit market that, by design, brings them into extractive or exploitative relationships with Indigenous communities. However, any system that succeeds in enabling and empowering Indigenous peoples to participate and succeed in conservation and restoration, without undermining their self-sovereignty or control of resources, is likely to attract investment.

Another governance issue is data sovereignty. Biodiversity credit markets will generate and rely upon a diverse range of data for measurement, reporting and verification (MRV). Because biodiversity data will relate to taonga species, this is directly relevant to Māori interests, as affirmed by the Wai 262 report. Consequently, there are important issues of Indigenous data sovereignty to ensure that data for and about Māori is safeguarded and protected, and that Māori data should be subject to Māori governance. This issue also extends more broadly to data sovereignty issues for all New Zealanders, because biodiversity data is likely to derive from private as well as public sources. For instance, Trust Alliance New Zealand (TANZ) is developing a trusted digital framework to share data in a secure way, which enables farmers and growers to capture, manage and share their data while also controlling and protecting it. Self-sovereignty will be a critical principle for sustaining trust in a biodiversity credit system which benefits those on the ground who create data by measuring and reporting nature-positive actions and outcomes. To ensure that data is used in ways that are open and empowering, rather than manipulative and extractive, good governance is vital.

Toha’s strategy for the governance of its own emerging nature markets is to create decentralised autonomous organisations (DAO). These are self-governing, peer-to-peer networks whose members are working toward a shared mission, independent of third-party intermediaries. Governance structures are typically operated as token-based incentive systems, where members earn ownership shares by earning credits from participation. Toha’s token system is under development, which will enable new ways to exercise rangatiratanga through a DAO structure. This is a plausible way forward for voluntary biodiversity markets, which will enable and empower market participants to assume most of the costs and responsibilities of market administration.

4. The roles of Government

Based on Toha’s combined experience, research and market testing, we strongly believe that the New Zealand Government could not, and should not try to, unilaterally design and implement a voluntary biodiversity credit system. This is likely beyond the capabilities and internal capacity of any single entity, including the New Zealand Government. Moreover, unilateral decision making on foundational design issues is likely to create problems of system legitimacy that are potentially irresolvable. 

The fundamental challenge of developing any voluntary nature market is one of coordination among multiple agents whose consent in the final system must be secured and sustained. 

This is not primarily a challenge of ex ante design – and to mistake it as such will set the policy development process off on the wrong foot. To be sure, elements of a voluntary system will need to be intentionally designed ex ante by regulators and relevant experts, but this must occur within the context of appropriate governance which ensures that design choices have legitimacy (see Section 3 on governance). Meanwhile, other essential elements of the system must be designed with the active involvement of various agents, such as whānau, hapū and iwi, relevant ecological experts, credit issuers, and standard setters. 

A co-design and co-development approach is essential for voluntary markets for at least two reasons, one epistemic, the other practical. Firstly, co-design and co-development ensures that the eventual system is shaped by, and continually responsive to, knowledge and mātauranga that cannot be realistically held, or authentically given, by the New Zealand Government. Secondly, co-design and co-development ensures that the eventual system has legitimacy among the people who directly participate in it, and whose interests are indirectly affected by it. Without ongoing engagement, the system will lack social licence, which means that participation can only be assured by shifting toward a compliance market rather than a voluntary market. 

This informs Toha’s perspective on what roles that Government should play to support a voluntary biodiversity credit system. The consultation focuses on two roles:

• Market enablement: where Government provides policies and guidance for the development and uptake of voluntary schemes in New Zealand, and potentially funding for system development as the market is established

• Market administration: where Government establishes and manages a voluntary biodiversity scheme and is active in the ongoing management and administration.

When a nature market is voluntary, the Government should play only a limited role in market administration. In essence, this should be limited to regulatory responsibilities to protect participants from bad behaviour such as fraud, misrepresentation, corruption and market abuse, and to prevent negative social and environmental outcomes from market-related activity. Although this regulatory role is limited, it is nevertheless vital – i.e. the objective must be a well-regulated market rather than an unregulated market. 

Beyond this, however, if the Government takes on more of the burdens of market administration, it will increasingly foreclose opportunities for co-development and therefore may undermine the preconditions for voluntary participation. Consequently, the biodiversity credit system will depend increasingly upon compulsion to ensure market demand. This is analogous to the NZ ETS, a compliance carbon market, which involves high levels of government administration, but also a high level of compulsion by imposing surrender obligations on participants and the threat of punishment for non-compliance. In such a system, the Government claims the right to impose its own design choices on the system, but to impose such choices on a voluntary system is likely to deter voluntary participation. Furthermore, for mandatory offsetting schemes, there are minimum design standards (e.g. fungibility, additionality) which must be adhered to, in order to ensure that offsetting transactions result in net-neutral or net-positive outcomes (e.g. the carbon removal is equivalent to the emission it permits, or the biodiversity enhancement is equivalent to the biodiversity loss it permits). 

This trade-off is represented in Figure 1 below. Toward the voluntary end of the spectrum, a limited administrative role for the Government is required to regulate bad behaviour and negative outcomes. However, as the level of compulsion increases, so too does the level of government administration. 

Figure 1: The trade-off between market administration and voluntary participation.

Consequently, there is a fundamental tension throughout the discussion document: although the consultation is ostensibly for a voluntary biodiversity credits system, the Government is seeking advice on design choices and standards as if it were preparing a mandatory system. Yet if the Government takes a strongly administrative approach to a voluntary system, it is likely to undermine the factors that will determine its success, such as innovation, market responsiveness and stakeholder buy-in. Furthermore, it is likely that the complexity and costs of market administration will rapidly outpace the Government’s capacity to fulfil this role. Consequently, it is prudent for the Government to resist centralising more functions than it is capable of effectively exercising, and instead taking a partnership approach that delegates relevant design choices to appropriate agents – e.g.  credit design to issuers, mātauranga Māori to Māori organisations, MRV to research institutions and specialist experts. Indeed, by enabling a decentralised development process, the Government can expect to benefit from various knowledge spillovers (e.g. the creation of MRV systems, environmental monitoring technologies, data infrastructure) that will help the Government to implement nature-related policy in the future, including future compliance schemes which would require a strong administrative role from the Government.    

Consequently, if the purpose of this consultation is a voluntary market, then the Government should err away from strong market administration. Furthermore, where the Government does play an administrative role, Toha recommends that this tends toward upstream administration. To be specific on a few key issues identified in Table 3 of the discussion document: 

• The Government should not perform verification and certification, but it could regulate those entities that provide those services to ensure that verification is robust and competently administered, and to ensure that verifiers are incentivised to only approve impact claims that are true and justified.
  

• The Government should not regulate disclosure and reporting of claims, but (like it already does for voluntary carbon markets) it should publish clear and unambiguous guidance on how disclosure and reporting relates to existing regulations, such as the Fair Trading Act 1986.
  

• The Government should not approve methodologies directly, but it could play a role in ensuring that robust scientific procedures are used in their development, enabling publicly-funded researchers to contribute to such processes, and ensuring that domestic and international standard setting bodies are adequately governed.

Because Toha sees the fundamental implementation challenge as the coordination of multiple agents, then also Toha sees a proactive role for the Government on market enablement. Government can play a vital role in accelerating and shaping the development of a biodiversity credit system to ensure alignment with its own policy objectives (e.g. Aotearoa New Zealand Biodiversity Strategy) and long-term creation of public value. Market enablement is especially important for a novel market structure which focuses on maximising value that is largely externalised by the prevailing economy. Such a market will face a variety of barriers and incumbency biases that will hinder its capacity to scale. Thus, the Government can play a critical role in strategically accelerating its development.

A crucial aspect is to enable the creation of a biodiversity-related data system. This is an important foundation for a well-functioning biodiversity credit system, but could also serve other purposes such as environmental monitoring and reporting, climate adaptation strategy, environmental taxation, targeting of subsidies, and so on. This data system ought to be designed and delivered as critical public infrastructure, so as to support a diversity of locally governed projects and/or project ecosystems. It also needs to be trusted by a wide set of stakeholders, so that the market has confidence in the fundamental integrity of underlying data claims and instead can focus on the differentiated advantage of product offerings. 

To be specific on a few key issues identified in Table 3 of the discussion document: 

• The Government should, as suggested, provide funding to collectively develop and adapt open-source methodologies for data collection, which should include support for farmers to advance MRV protocol for small-scale sequestration on-farm and associated biodiversity and resilience benefits, as well as targeted funding to support Māori to investigate and advance the use of mātauranga. It could also support peer-review of such methodologies to ensure their scientific rigour.

• The Government should not regulate credit projects to provide data for national data sets, but it should invest in data that has public value. The creation of such data is an important spillover benefit from the emergence of nature markets (i.e. a positive externality). The purchase of biodiversity data helps to correct the existing market failure whereby such data is unpriced and undervalued, and therefore helps to build a self-sustaining momentum for nature markets.

• The Government should work in partnership with market developers to create a registry that enables market coordination, especially to avoid regulatory issues like double-counting of biodiversity claims. The Government could enable this critical infrastructure to enable self-regulation and appropriate governance.

Market enablement should also involve an explicit market shaping role which directs the biodiversity credit market toward the creation of long-term public value. Market shaping refers to ‘the public sector setting a direction and public purpose for private and public actors to collaborate and innovate to solve societal problems.’ In other words, it produces a sense of directionality to innovation and market processes in order to enhance their contribution to long-term value creation. In the context of biodiversity credit markets, this could include targeted R&D investments to accelerate activity in areas of urgent policy need, such as to address knowledge gaps for critically endangered species or habitats. It might also involve the public procurement of outcomes, such as the purchase of biodiversity credits that signify biodiversity uplift or avoided loss for species or habitat types that the market is not serving well.  

Finally, it is worth noting that, over time, especially if biodiversity decline accelerates, then the Government might need to increase the level of compulsion of biodiversity credit systems to increase the scale of impact (see our answer to Question 9 in Section 6). Thus, voluntary schemes could be substituted by, or modified to become, mandatory schemes. This might take a number of forms:

• Compliance biodiversity markets: a system of tradeable certificates that represent biodiversity uplift and/or avoided biodiversity loss, where participating business or sectors must surrender enough obligations to fulfil an annual quota.

• Environmental footprint tax: a tax levied per unit area of land or privately owned coastal area, where the rate of the tax is set to reflect the ecological impact of activities occurring on that land or coastal zone. The revenue raised would be hypothecated toward the protection, restoration and creation of native biodiverse ecosystems.

• Ecological fiscal transfers: essentially a tax-and-transfer mechanism which uses government fiscal transfers and revenue sharing schemes to improve ecological indicators in target areas, such as protected areas or catchment management areas.

At the current point in time, however, these policies may be difficult to implement, because the metrics and indicators for biodiversity measurement, monitoring, reporting and verification are unavailable or uncertain. This is one reason to support innovation in nature markets, especially the development of methodologies for biodiversity credits, because these MRV frameworks can stimulate policy innovation. New methods and new technologies can help governments to monitor the impacts of policy and to convey the benefits to the public. If voluntary biodiversity markets fail to scale up, the same infrastructure can nevertheless be redeployed by the Government to serve alternative policy instruments. 

5. Biodiversity and carbon markets

One important justification for the creation of a biodiversity payment, such as a biodiversity credit system, is to address the incoherency of the current policy mix. This is skewed by the presence of the NZ ETS, a compliance carbon market, which creates a strong bias towards carbon sequestration in the absence of equivalent economic instruments for biodiversity and climate adaptation. The implementation of such instruments could ‘reset the balance’ toward biological carbon sinks with high biodiversity value and ecological resilience.

Climate mitigation, climate adaptation and reversing biodiversity loss are profoundly interconnected issues. This means that any single policy instrument, such as the NZ ETS, is likely to have implications for numerous policy objectives. Similarly, a biodiversity credit system cannot be evaluated solely in relation to, say, Te Mana o te Taiao – the Aotearoa New Zealand Biodiversity Strategy. Rather an integrated approach to policy evaluation is needed which is attentive to implications for various policy objectives, such as net emissions reductions, landscape resilience, regional economic development, freshwater quality and so on.

Here we discuss the policy intersections with climate mitigation, specifically how the biodiversity credit system might relate to existing efforts to encourage carbon dioxide removals through the protection, restoration and creation of biological sinks.

5.1. New Zealand Emissions Trading Scheme

Toha takes the view that biodiversity credits, or some other payment system for the non-carbon benefits of forests and other nature-based sinks, would support a more coherent long-term strategy for the NZ ETS. This is explained in our submission to the ETS Review (see Appendix 1), which we summarise here.

Toha supports a sequential pathway where New Zealand (1) reduces its current reliance on forestry removals to deliver net emissions reductions by (2) transitioning to a more discerning use of removals for hard-to-abate emissions only, and (3) a successive decoupling of forestry sequestration from offsetting so that an increased share of forestry removals contribute to the drawdown of excess carbon dioxide from the atmosphere (i.e. negative emissions). This is consistent with the IPCC AR6 WG3 position on the role of carbon dioxide removals, and it sets New Zealand on track to eventually achieve a net-negative position where sinks outweigh sources. 

However, Toha recognises that the phasing down of carbon offsetting in New Zealand’s mitigation strategy will have serious implications for some forest owners. This will also disproportionately impact Māori and therefore exacerbate the mistreatment of Māori interests throughout the development and implementation of the NZ ETS. 

Consequently, a payment for the non-carbon value(s) of forests, such as biodiversity and/or adaptation value, is critical for enabling the structural separation of forestry removals from gross emissions in the ETS. Biodiversity credits are a plausible mechanism for delivering such a payment, especially if demand is secured by Government procurement of credits, or mandatory purchase obligations by businesses. Critically, by creating a financial incentive that is not linked to the issuance of a carbon credit that signifies a right to emit, a biodiversity credit (or other non-carbon payment) will enable the carbon dioxide removal to contribute to emissions reduction targets as a pure negative emission. In other words, a removal which is sold through an offsetting transaction will be neutralised by the emission it permits, but a removal which is sold for its biodiversity value will not.

Additionally, by linking the payment to non-carbon values such as biodiversity and long-term resilience, this addresses the shortcomings of current policy design by enabling better integrated policy outcomes for forestry removals. The NZ ETS was designed to serve the policy objective of least-cost emissions reductions; however, the inclusion of forestry has had significant implications for other important policy objectives, including biodiversity, climate adaptation and regional economic development. These effects were not well-anticipated or well-signalled in advance, which has resulted in significant public debate and resistance once the trade-offs became apparent through land use trends, actual and expected. By creating incentives for biodiversity and forest resilience, however, there is an opportunity to improve land management outcomes, without resorting to regulatory restrictions on what people can do on their land. 

Specifically, biodiversity credits could create the right economic enablers for the Permanent Forest Category to deliver well-integrated outcomes, rather than exclusions that might otherwise stifle innovation in silviculture, interfere with landowners’ agency, and reduce economic potential. Biodiversity credits would further reduce the need to adopt novel and inherently risky models like transition forestry, because biodiversity credits could provide the upfront cashflow that fast-growing exotic nurse species provide for transition forests. 

For further discussion, see Appendix One which includes Toha’s submission to the ETS Review and Permanent Forest Category.

5.2. Nature-based removals outside of the ETS 

The Government has signalled an interest in expanding ETS eligibility to include types of nature-based removals that currently are ineligible. This includes small forests that do not meet the current forestry definition. For example, in its response to recommendations of He Waka Eke Noa, the Government declared that it ‘agrees the NZ ETS is the most appropriate mechanism to reward all forms of eligible sequestration from vegetation in the long term… Recognition for on-farm sequestration would instead be funded by fossil fuel–emitting sectors participating in the NZ ETS, via the purchase of NZUs. Farmers and growers would receive the full NZU price as a reward for qualifying sequestration.’

However, this is inconsistent with the Government’s wider climate mitigation strategy. Small-scale sequestration is not eligible for target accounting, so the Government cannot count these removals toward achieving international targets, such as NDC1, our first Nationally Determined Contribution under the Paris Agreement. If emitters are permitted to offset target-consistent emissions with target-inconsistent removals, this creates a liability that the Government will need to bridge by securing equivalent emissions reductions from elsewhere. Essentially, this shifts the cost of emissions from the agricultural sector onto taxpayers, which is unacceptable. It is also inconsistent with the Government’s need to decouple removals from the ETS, so that the ETS can better manage gross emissions (this is discussed further in Appendix 1). 

A biodiversity payment, however, provides an elegant solution to the role of small-scale sequestration in agricultural emissions strategy, which has proven a significant hurdle for the He Waka Eke Noa process. A biodiversity credit system would reward farmers for values that small-scale forest is especially good at providing, such as ecological connectivity in pastoral landscapes and greater landscape resilience. One of the fundamental flaws of He Waka Eke Noa was that its terms-of-reference restricted it to emissions (i.e. climate mitigation) in isolation of other issues, especially climate adaptation and biodiversity. The prospect of biodiversity credits, or some other non-carbon payment, presents an opportunity to take a more holistic approach. Biodiversity and/or adaptation value would serve as the basis for payment, which would offset the impact of agricultural pricing (the payment could be funded by general funds, or by hypothecating revenue from an agricultural pricing mechanism). The carbon value from small-scale sequestration, although not eligible for target accounting, would serve as a co-benefit of the biodiversity payment. Although it is unlikely to constitute a significant volume of carbon, it will nevertheless serve as a contribution to the global public good of removing carbon dioxide from the atmosphere, and a partial compensation for the historical deforestation that agriculture has benefited from.

The Government is also exploring the potential to extend the scope of the ETS to include other forms of removals, such as carbon sequestration in soil or wetlands. However, Toha endorses the tone of caution that the Government has expressed elsewhere: ‘The main problem relates to the allocation of removals for removal activities. If the removals do not count towards our NDC, but emitters can use them as part of their surrender obligations, Aotearoa would effectively be paying for removals that do not help us meet our NDC. This is a significant obstacle to expanding the scope of the NZ ETS to recognise a broader range of removal activities.’ Again, a far better option is to incentivise these removals by a non-carbon payment, such as a biodiversity and/or resilience-related payment, so that subsequent removals are a contribution to the global public good of reducing atmospheric carbon, rather than a source of carbon credits whose negative emissions will be neutralised by offsetting.

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The Toha Network

Biodiversity Consultation Questions Part 1

1. Do you support the need for a biodiversity credit system (BCS) for New Zealand? Please give your reasons. Toha supports the need for a biodiversity payment system – whether by biodiversity credits or some other mechanism – for the following reasons…

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2 years ago · Toha Network