A method for calculating minimum biodiversity offset multipliers accounting for time discounting, additionality and permanence

Abstract

Biodiversity offsetting, which means compensation for ecological and environmental damage caused by development activity, has recently been gaining strong political support around the world. One common criticism levelled at offsets is that they exchange certain and almost immediate losses for uncertain future gains. In the case of restoration offsets, gains may be realized after a time delay of decades, and with considerable uncertainty. Here we focus on offset multipliers, which are ratios between damaged and compensated amounts (areas) of biodiversity. Multipliers have the attraction of being an easily understandable way of deciding the amount of offsetting needed. On the other hand, exact values of multipliers are very difficult to compute in practice if at all possible. We introduce a mathematical method for deriving minimum levels for offset multipliers under the assumption that offsetting gains must compensate for the losses (no net loss offsetting). We calculate absolute minimum multipliers that arise from time discounting and delayed emergence of offsetting gains for a one-dimensional measure of biodiversity. Despite the highly simplified model, we show that even the absolute minimum multipliers may easily be quite large, in the order of dozens, and theoretically arbitrarily large, contradicting the relatively low multipliers found in literature and in practice. While our results inform policy makers about realistic minimal offsetting requirements, they also challenge many current policies and show the importance of rigorous models for computing (minimum) offset multipliers. The strength of the presented method is that it requires minimal underlying information. We include a supplementary spreadsheet tool for calculating multipliers to facilitate application.