Habitat Bank – Finland
Smart innovation governance. A novel payment scheme for biodiversity conservation.
Biodiversity, Timber, CO2 Sequestration
Initial Pioneer Innovations
What is the innovation about?
Actors degrading biodiversity compensate the loss they generate by buying offsets from landowners who restore and/or protect sites.
What makes this innovation a good example?
Biodiversity is a public good and has thus far been conserved with public funds and regulation. Yet biodiversity loss is generated by economic activities and actors. This innovation shifts the payment responsibility to the actors who generate loss. Ideally, this instrument generates new business opportunities for offset providers and develops into a market.
Where is the case study innovation located?
The case study idea and its early development are national. Finland is located in the north-eastern corner of Europe, with 2/3 of its land-surface covered with forests. These forests host a great share of Finland’s biodiversity, and also a majority of the country’ endangered species dwell in forests.
Apart from Lapland up North, most of Finland’s forests are commercially managed. All managed forests serve multiple functions. The same forests produce timber, berries, mushrooms and game, while serving as the sites for recreation for Finns and regulating climate, water and nutrient cycles.
When was the innovation established, and by whom?
The idea of the Habitat Bank of Finland originates in an innovation Helsinki University launched science application competition in 2015, Helsinki Challenge, in which the idea was awarded second prize. The idea was led by Markku Ollikainen from the University of Helsinki with a strong team from the Finnish Environment Institute (SYKE), with Olli Ojala, Eeva Primmer and Minna Pekkonen. Since then, several companies and ministries, as well as many other intermediaries in Finland have taken on the idea and have commissioned small studies and pilots, mostly collaborating with the Habitat Bank team. The idea of the case is to generate offset supply for the Habitat Bank of Finland and piloting companies.
Why was the innovation established?
Biodiversity degradation must be halted. As government steering has not managed to stop degrading activities and public funds have not generated enough conservation activities, a novel solution is needed.
The innovation benefitted from a comprehensive assessment report on habitat status and restoration needs published in 2015 (Kotiaho et al., 2015, In Finnish; A shorter report in English), as a response the EU Biodiversity Strategy restoration targets. The assessment illustrated the potential for restoration in Finland, which could work as offsets.
Who is benefiting from the innovation?
The innovation offers opportunities for companies degrading biodiversity, as they can compensate the degradation and reap responsible reputation benefits. Land-owners who can offer sites for restoration (and possibly do the restoration work themselves) have a new income opportunity, without having to undertake logging. Intermediaries supporting site assessment can gain business opportunities. Local people who might lose recreation areas because of e.g. building, can get new areas for recreation. Eventually, the innovation benefits forest biodiversity by increasing the amount of suitable habitat for species, and supports the provision of other jointly produced ecosystem services. Through these public good type ecosystem services, the entire society benefits.
Does the innovation need particular natural conditions to work? If so, what kind?
As regards compensating degradation, this works only for activities that generate measurable degradation, e.g. through construction on a site with nature values (or road construction, mining, peat mining or drainage). Offering offsets works on sites where nature values can be improved with restoration.
A site with nature values can function as an offset also if it is protected and removed from economic use (but this kind of a situation might overlap with establishing private protected areas). To maximise conservation benefits and connectivity, the sites used as offsets should be located close to existing reserves or source populations of forest species.
Does the innovation need particular forest management strategies to work? If so, what kind?
Commercial forest management in Finland relies largely on a silvicultural practice that includes clear-cuts and thinnings, regeneration (with drainage), using native tree-species and additional natural seeding. Pressure on biodiversity is generated by the even-age management practices, which result in uniform forest structure (lacking structural heterogeneity, older forest stands, large deciduous trees, burnt wood, traditional open habitats and near-natural amounts of dead wood).
The long rotation times, legally protected valuable habitats and certification-driven retention trees mitigate the impacts of commercial management.
The compensating/ offsetting restoration activities would change those forest characteristics that have been generated by commercial forestry. In other words, the management strategies aim to restore naturalness. For example, closing ditches to return a natural water balance, generating coarse woody debris by felling trees and leaving them to decay, prescribed burning, grazing or mowing open habitats or removing spruce from fertile herb-rich sites enhance nature values in forests. Forest restoration practices have been thoroughly studied and developed in Finland (Similä & Junninen 2012).
Does the innovation need particular policies, stakeholder, or market conditions to work? If so, which one?
The idea of the Habitat Bank is so new that its fit with the Finnish legislation is only being processed at the moment. A recent study (Similä et al., 2017, In Finnish) showed that the current legislation allows the use of compensation in permit processes but there is no regulatory support for establishing offset markets.
For the habitat Bank to work, we need:
- Compensation buyers (actors degrading biodiversity (sites with nature values)
- Offset sellers/providers (land-owners offering sites for restoration and protection).
- A legitimate and transparent system for measuring biodiversity losses and improvements and allows comparison
- Regulation that allows restoration and compensation contracts (and a coordinating authority if the compensation is mandatory)
- An intermediary/intermediaries that match sites and compensation buyers (could emerge from the existing advisory organizations, or be a new actor)
What are the main difficulties for the innovation to work?
An analytical challenge is calculating and matching the biodiversity losses and benefits across time, space and habitat types. A practical challenge is to find the matching sites.
Other challenges are related to a moral risk of increasing degradation (a licence to operate on weak conditions). A risk of decreasing public funding to compensation (a substitution risk, a risk of lacking additionality). A recent report on the operational questions on ecological compensation (Moilanen and Kotiaho, 2017, in Finnish) lists more risks, e.g. crowding out, leakage and moral hazard.
Where would you like to see the innovation in five years?
Functioning habitat markets that support biodiversity conservation and restoration targets and steer private sector activities to avoid, mitigate and compensate their degrading activities, and shift the costs of conservation to their value chains.
How might InnoForESt help you in this endeavor?
InnoForESt is the first platform that allows systematic engagement of offset supply development. The case study joins an understanding of the Finnish forestry, forest nature management and forest biodiversity as well as the development of public-private collaboration in new policy instruments.
The InnoForESt project filters innovation governance and management ideas from other cases and supports evaluating the factors that contribute to innovations.