In California, compensation credits are sold by conservation banks according to units and conditions specific to each bank. California has a pre-existing program of conservation and compensation banks designed to mobilize private capital where public budgets remain fragmented. But the architecture of these markets determines who gets paid: landowners and certifiers capture a significant share of the value generated, and protection obligations for California’s banking sites do not automatically end after twenty years.
The Essentials
- Biodiversity credit markets mobilize private capital where public spending is fragmented, but their design significantly influences how value is distributed.
- The Great Lakes Restoration Initiative, launched in 2010, had funded more than 6,000 projects totaling nearly 3 billion dollars by 2022; the EPA reported more than 7,000 projects and a total exceeding 3.5 billion dollars in May 2023, across several Great Lakes restoration priorities.
- Protection and long-term management obligations apply to conservation banking sites.
- Corrective mechanisms exist—reverse auctions, open registries, long-term permanence contracts—and several states are already experimenting with alternative designs.
Biodiversity Credit Markets Fill a Gap the State Does Not
Public budgets dedicated to ecological restoration in the United States remain fragmented. Federal programs, notably through the Farm Bill and water quality law funds, cover part of the need, but The Nature Conservancy estimates that necessary annual spending reaches 722 to 967 billion dollars, representing a funding gap of 598 to 824 billion per year.
Biodiversity credits respond to this gap through a straightforward mechanism: a project proponent (a company, municipality, or developer) that degrades a natural habitat under regulatory authorization must compensate for authorized residual impacts through restoration, creation, improvement, or, in some cases, preservation of habitats, according to the rules and assessment of the competent authority. Compensation generates credits that are tradable on a market. Private capital enters the chain because it finds a return there.
California has a conservation and compensation banking program for wetlands and waterways that predates SB 124. The Great Lakes program, financed partly by federal funds and partly by private commitments, illustrates the potential scale of capital mobilization for ecological restoration.
This model attracts institutional investors who would never have financed ecological restoration through philanthropy. That is its main advantage. It is also what raises the question of architecture: when a market is created, the question of design is never neutral.
Who Captures Value, and Through What Mechanism
The lifecycle of a biodiversity credit involves several actors: the landowner who makes the land available, the restoration project proponent, the certifier who validates compliance, the registry that records credits, and the final buyer. The distribution of value among these actors varies depending on the market design.
The mechanism is consistent with what is observed in other environmental asset markets. Enzymatic recycling of PET faces an analogous structure: the biology is established, but the economics of the chain determine who captures the created value. In voluntary carbon credit markets, comparable analyses have shown that intermediaries and certifiers capture a disproportionate share of the value, leaving ground-level project proponents with thin margins.
Certification is the central node. It is necessary: without independent verification, the market loses its credibility and buyers cannot distinguish a solid credit from a fictional one. Certification is the central node of a credible market, but its concentration among a few organizations raises questions about cost efficiency.
The Twenty-Year Horizon: A Bet on Permanence
The second structural problem is harder to correct through market design alone: the question of permanence.
California’s conservation banking policy imposes permanent protection of the site through title or conservation easement, with long-term management and obligations that prevent uses incompatible with compensation objectives.
Twenty years is enough to observe measurable ecological effects on riparian vegetation, water quality, and certain species populations. This duration does not guarantee the reconstitution of a functionally complete ecosystem in its biological depth. Long-lived species—amphibians, migratory birds, and certain fish—need stable decades to durably recolonize a habitat. A wetland restored for twenty years and then drained contributes nothing to long-term biodiversity accounting.
The OECD emphasizes in its work on biodiversity credits that permanence, with robust baselines, monitoring, and independent verification, is essential to integrity. The absence of permanence adapted to ecological impacts compromises credit integrity.
California provides for permanent protection of conservation banking sites. This choice is deliberate: a longer permanence obligation could affect market attractiveness to landowners and credit supply conditions. It is a trade-off between market depth and ecological integrity.
Australia’s Approaches and Other States
California’s trade-off is not universal. Other jurisdictions have made different choices, with instructive results.
Australia implemented the BushBids program, a reverse auction mechanism for restoring native vegetation. The principle: landowners submit bids indicating the minimum amount for which they accept a commitment to restore a plot. The state selects the most competitive bids. Competition can exert downward pressure on prices, but its effect depends notably on supply, demand, rules, and project quality. The gains from this selection go to restoration efficiency rather than land rent.
The open registry model is another avenue. Several U.S. states are experimenting with public platforms where credit transactions are fully published: prices, volumes, certifiers, site locations. Transparency reduces information asymmetries that feed intermediary margins. It also allows buyers to compare credits and regulators to detect overvaluations.
On permanence, certain U.S. federal programs, notably the Conservation Reserve Program administered by the Agriculture Department, impose ten- to fifteen-year renewable commitments with strict monitoring mechanisms. Successive renewals create de facto continuity without absolute permanence. It remains to be seen whether this model can be articulated with private credit markets, which need contractual predictability to attract institutional investors.
The tension between attractiveness to private capital and ecological robustness is real. It illustrates the broader question of designing regulated markets: a solid institutional framework is the condition for market credibility.
The Lessons of SB 124 for Future Markets
California is ahead of the rest of the United States and has an established framework for conservation and ecological compensation banking. What happens there in the coming years—actual prices, market depth, ecological quality of restored sites—will serve as a reference for states considering legislation.
Several elements warrant close attention. First, concentration in the certification market: domination by a few organizations would raise cost-efficiency issues. The entry of new certifiers, facilitated by an open accreditation framework, is a key indicator. Next, price evolution: according to a Bocconi comparative study, Savimbo credits are in the range of 60 to 90 dollars per hectare per year. Price gaps between biodiversity credit schemes are associated with habitat type, location, and scheme design; the precise cause of the Savimbo range is not established.
As the market matures, this range should narrow, and how it narrows will say much about who benefits from standardization.
The third element is post-restoration ecological monitoring. California frameworks impose monitoring obligations, but biodiversity measurement methods remain less standardized than those for carbon. Developing robust metrics—indicator species, habitat connectivity, water quality—is a condition for biodiversity credits to be comparable to each other and auditable by third parties.
On this last point, real progress has been made. Satellite remote sensing tools and environmental DNA methods now make it possible to measure biodiversity at a resolution and cost inaccessible ten years ago. These approaches are not yet integrated into California certification protocols, but several organizations, including The Nature Conservancy, are piloting methods that could change practices by 2030.
Architecture Decides More Than Principle
The principle of biodiversity credits is defensible: mobilizing private capital to finance restoration that public budgets alone cannot ensure. But principle is not enough. Architecture—who certifies, at what price, for what duration, with what transparency—determines whether money goes to restoration or to rent.
Value distribution is not determined by the market alone. Australian reverse auctions show that different design produces different distribution. Open registries reduce asymmetries. Well-structured permanence contracts can secure ecological integrity while maintaining investor attractiveness. The question of traceability and transparency in environmental value chains arises in similar terms for other sectors.
The central question remains the capacity to adjust design based on observed data and ecological objectives. This will be the first real test: does the state adjust the design based on data, or do interests constituted around the market freeze the current architecture?
The answer will tell whether biodiversity credits are a tool for private-funded ecological restoration, or a land rent mechanism dressed up as an environmental instrument.
Sources
- Nature Conservancy, Nature Credits for Freshwater Restoration (2026)
- Environmental Policy Innovation Center (EPIC), Restoration in Action: SB 124 California Analysis (2025), URL not verified
- ScienceDirect, Biodiversity Credits Schemes: A Comparative Analysis (2025), URL not verified
- OECD, Scaling Up Biodiversity-Positive Incentives (2024), URL not verified
