Why Web3 may Make Market Creation for Biodiversity.

Addressing climate change is one of the most urgent and complex challenges of our generation and the unstoppable force of climate change has led to the loss of biodiversity, such as affecting species, changing species distribution, and increasing species habitat fragmentation. According to the Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services (IPBES), an increase in global temperatures of 2°C puts 5% of species at risk of extinction, and an increase of 4.3°C would increase such a percentage to 16%.

There is no doubt that biodiversity is a vital support system for all ecosystems on Earth, and as such it is critical to the livelihood and well-being of our planet and humans. First, biodiversity-supported ecosystems are a source of increased economic value for our societies, whose survival is directly dependent on the food, fiber, medicine, and many industrial raw materials provided by them. Second, biodiversity plays an important role in maintaining soil fertility, ensuring water quality, and so forth. Thirdly, biodiversity helps to mitigate greenhouse gas emissions. It is Nature, from oceans to forests, that absorbs nearly 50% of human emissions of carbon dioxide from the atmosphere, through protecting and restoring the habitats.

Currently, climate change and human activities have been causing aftermaths in biodiversity on a global scale, and IPBES says in a report that the current global rate of species extinction is at least tens to hundreds of times faster than the average rate of the past 10 million years. The average abundance of native species in most major terrestrial habitats has declined by at least 20% since 1900. More than 40% of amphibian species, nearly 33% of reef-building corals, and more than 1/3 of marine mammals are at risk of extinction. The huge economic loss of biodiversity is rather hard to measure, but internalizing the value created by ecosystem services may help change that.

As with climate change, biodiversity is a public good, and a public good is a form of market failure. Biodiversity is non-competitive and non-exclusive. Being non-competitive means that someone's consumption of a public good does not affect others’ consumption. Non-exclusivity means that when someone consumes a public good, others cannot be excluded from consuming that good. Therefore, like the tragedy of the commons, the uncontrolled exploitation of resources and land use by people, in turn, severely damages the biodiversity of the ecosystem.

Some are considering biodiversity compensation as scalable commoditized assets, arguing that their conservation and sustainable use would be better secured if biodiversity resources were privatized than open accessed. This means that addressing the biodiversity crisis needs the internalizing the protection costs through regulatory or market-based instruments to incentivize behavior. In reality, many companies have taken action by investing in biodiversity conservation and restoration and entering into agreements with stakeholders, local communities and NGOs to form a voluntary compensation market based on biodiversity compensation.

However, such a market is extremely challenging. Creating or implementing biodiversity compensation mechanisms requires the collaboration of stakeholders, with complex and cross-knowledge processes. Especially requiring the establishment of accurate measurements, reporting and verification (MRV).
Web3 is well suited to address this issue. The core of Web3 lies in a decentralized distributed ledger database that helps verify and track multi-step transactions. In the case of the voluntary carbon reduction market, reimagined finance (ReFi) and decentralized finance (DeFi) have accelerated financial innovation and transaction activation in the carbon market. 

Envision a scenario where the owners of forests are able to access the biodiversity compensation market to obtain a reliable share of income, thus significantly increasing the value of land regeneration, then these farmers will focus their attention onto investing in forestry conservation with being less short-sighted. For a wide range of investors, biodiversity can become a fundable commodity, and participators can secure finance by trading biodiversity tokens, or sell future compensation rights to emerging biodiversity projects.

With the development and maturity of Web3 technology, there is hope for an on-chain ecosystem. By pushing up the price or value of biodiversity, it will increase people’s awareness of biodiversity conservation and generate the emergence of enterprises and projects benefiting for the ecosystem.

Author: WU Qingyang, GAUC Global Youth Ambassador and student at Tsinghua University
Editor: Jeffrey Tykot
Photo:Jacob Colvin

The article reflects the opinions of the author and not necessarily that of GAUC