In this summary article, Professor Mark Everard explores the private investment Bristol Avon Catchment Market programme, along with its challenges and successes in ecosystem restoration. The full report on this programme can be found on the IES website.
Introduction
Interest in nature-based solutions (NBS) has grown, offering potential benefits for climate resilience, water security, flood management, and more. The UK’s Environment Act 2021 targets ecosystem recovery, yet a funding gap of £56 billion remains. To bridge this, the UK government encourages private investment in nature, supporting multi-service, catchment-based markets. Recent programmes include the Bristol Avon Catchment Market (BACM) and other UK initiatives designed to deliver comprehensive ecosystem benefits like biodiversity gains, carbon reduction, and flood management. Moving beyond narrow, traditional markets, these projects adopt a systemic approach, aiming for verified, high-impact restoration efforts. This study evaluates BACM’s effectiveness, challenges, and innovations in delivering diverse environmental outcomes, finding its principles applicable globally for advancing sustainable and multi-functional nature markets.
Methods
The Bristol Avon catchment in southwest England spans about 280,000 hectares and faces environmental challenges, including high phosphate levels, sedimentation, flood risk, and habitat loss, all worsened by climate change. To meet UK government targets — achieving net-zero emissions by 2050 and halting species decline by 2030 — private investment in nature recovery is crucial. In 2023-2024, demand for offsite biodiversity compensation in the catchment, driven by development, is expected to reach 237 Biodiversity Units, with annual growth anticipated. This demand offers a strong opportunity to support regional nature recovery efforts, including restoring water bodies and increasing biodiversity by 2042. Market design, execution, and governance were documented via literature reviews and anonymised interviews with key staff from EnTrade, Wildlife Trust, and others.
Results
The BACM aims to deliver high-impact, verified ecosystem restoration projects within the Bristol Avon area. Key BACM partners include Avon and Wiltshire Wildlife Trusts, acting as conservation stakeholders, the regional water services utility Wessex Water, and EnTrade that serves as Market Operator supported by an independent Board to ensure market integrity. Local Planning Authorities (LPAs) oversee biodiversity compliance, while suppliers — such as landowners and Wildlife Trusts — create and trade ecosystem services. Demand is driven by the mandatory 10% biodiversity uplift requirement for developments from 2024, alongside voluntary carbon unit purchases. Prospective buyers include developers and water companies like Wessex Water, seeking sustainable management and supply chain resilience to mitigate corporate risks. BACM’s initial development and pilot phases were largely grant-funded, totalling £1,997,600, highlighting the substantial investment needed to set up high-integrity markets. Longer-term plans aim for independent nature-based project (NBP) suppliers to self-fund biodiversity evaluations using the Biodiversity Metric, ensuring sustainable market operations.
BACM’s framework, led by Market Operator EnTrade, created a structured two-sided market under which nature-based project (NBP) suppliers and environmental service buyers each contract with the Market Operator rather than each other. Initial setup, supported by significant grant funding, included feasibility studies, supplier engagement, and launching a Buyer Engagement Strategy in 2021. Suppliers submit NBP proposals with cost estimates, while buyers outline environmental unit requirements aligned with BACM’s Ethical Buyer Framework (EBF, see Table 1) to ensure commitment to nature recovery. A Spatial Risk Multiplier (SRM) affecting Biodiversity Unit costs is based on distance from registered NBPs. The SRM incentivises local mitigation while potentially decreasing broader area demand. The Wildlife Trusts assess Biodiversity Unit potential using Defra’s Biodiversity Metric. Legal templates for landowners were developed with the National Farmers’ Union.
The BACM progressed through formal registration of participants, with Wildlife Trusts providing Landholder Information Packs and the Market Operator issuing a transparent Catchment Opportunities Statement (COS) for all market participants. Suppliers, or landowners, proposed nature-based projects (NBPs) for habitat enhancement or creation, with maintenance and monitoring costs pre-set by the Market Operator. Prospective buyers of environmental units signed Environmental Credit Supply Agreements (ECSA), defining unit needs, deadlines, and payment terms. BACM’s market settlement employed an automated algorithm from EnTrade and Exeter University, based on the Lindsay Mechanism, which applies Shapley Values through a balanced-winner-contribution rule to fairly distribute trade surpluses. This mechanism incentivises suppliers to avoid overpricing and encourages buyers to bid fully, ensuring that surpluses benefit both parties. This automated settlement method marks BACM as the first project globally to use a two-sided market platform with a single, unbiased settlement mechanism, detailed in Table 2.
After market settlement, Nature Based Project Agreements (NBPAs) are established between suppliers and the Market Operator, which oversees the implementation, monitoring, and maintenance of nature-based projects (NBPs). These agreements are integrated with Local Planning Authority (LPA) legal frameworks, such as Section 106 agreements and future Conservation Covenants under the Environment Act 2021. The Market Operator initially pays for project establishment and covers 30-year management costs, protecting suppliers from risks associated with underperformance due to external factors like climate change. Buyers of environmental units enter Environmental Credit Supply Agreements (ECSAs) detailing unit specifications, delivery dates, and payment schedules. Units are recorded on the EnTrade registry and will later be uploaded to national registers. A Credit Reserve is maintained by the Market Operator to mitigate risks of NBP failures over a 30-year horizon for biodiversity and 80 years for nutrient markets.
When buyers submit proposals to LPAs, the allocated Biodiversity Units are redeemed and become ‘Issued Biodiversity Units.’ An independent Environmental Markets Board, established following recommendations from the Broadway Initiative and Wessex Water, provides oversight to ensure compliance with market rules and processes (Environmental Markets Board, 2023).
BACM Implementation
Early rounds of the BACM resolved only Biodiversity Net Gain (BNG) environmental credits due to structural difficulties with the legislation at the time. Development of the BACM involved significant innovation and continuous improvement, particularly during Market Round One (MR1). Extensive market development was conducted, including drafting standard agreements, producing management guidance for habitats, and engaging potential buyers and landholders. The Expression of Interest (EOI) process for MR1 attracted multiple submissions focused on Biodiversity Gain, Carbon, Nutrient Neutrality, and Natural Flood Management from September 2022 to February 2023. However, only Biodiversity Units were included, and many potential buyers did not proceed due to market limitations, including the inadequacy of the Biodiversity Metric tool.
Five projects were formally registered under MR1, yielding a total of 7.137 Biodiversity Units across 1.426 hectares, with an average payment of £87,400 per hectare. The settlement on June 15, 2023, faced challenges such as ambitious timelines, uncertainties around stacking Biodiversity Units, and concerns from landholders about long-term commitments. Wildlife Trusts acted as investors, prioritising external buyer bids, while also ensuring continued market development by reselling Biodiversity Units.
For Market Round Two (MR2), EOIs opened in Autumn 2023, but the government deferred mandatory BNG implementation beyond this timeline, creating uncertainty. Changes between MR1 and MR2 included modified maintenance payments, and the BACM aims to support landscape-scale nature recovery through identified Areas of Strategic Significance by 2024.
Lessons emerging from BACM development and implementation
It is important to evaluate the BACM’s effectiveness in terms of its primary objective of creating impactful nature recovery projects, also examining successes, innovations, limitations, and offering recommendations for its further development and the roll-out of approaches and lessons learned to other nature-based markets.
The BACM was developed under ambitious timelines with GCRF funding extending to June 2023. Despite challenges like limitations of the Biodiversity Metric tool and delayed guidance on stacking multiple ecosystem services, Market Round One (MR1) successfully became the UK’s first online biodiversity market to settle multiple trades. It utilised a two-sided market approach, primarily focusing on Biodiversity Units. GCRF funding facilitated the establishment of 26 hectares of agroforestry and 25 hectares of various habitats, while supporting six ecology trainees who secured jobs afterward.
Positive outcomes for nature were ensured through buyer commitments to improve ecological footprints and avoid environmentally harmful activities. Non-binding requirements for Nature-Based Project (NBP) suppliers included ensuring sites were not pending planning permission and aligning plans with local nature recovery strategies. The BACM also aimed to connect people with nature, creating jobs and opportunities through initiatives like the government’s Kickstart Scheme, although only five out of 12 planned placements were filled.
The BACM’s success relied on strong operating principles, which included a market mechanism that reduced risks for buyers and transaction costs by aggregating Biodiversity Units from various NBPs. Investment in an automated market settlement process increased trust between buyers and suppliers and overall value to both parties by fairly sharing surpluses. Despite successes, early rounds faced challenges, including political delays introducing mandatory Biodiversity Net Gain (BNG) and limitations in the types of habitats recognised by the Biodiversity Metric tool. Restriction of the market solely to Biodiversity Units missed opportunities for broader ecosystem service benefits.
The study highlights the importance of a supportive policy environment for market success, emphasising the need for stability in regulations and guidelines to boost buyer confidence. Further development should consider comprehensive systemic screening to address wider ecological impacts to identify co-beneficial outcomes and avoid unintended conflicts, also ensuring the sustainability of catchment-based markets.
Key learnings from BACM development highlight the operability and transparency as well as current inhibitors of catchment markets, demonstrated through successful trades focused on Biodiversity Units. This foundational success can facilitate further market diversification and attract private finance for nature recovery. A robust Market Operator and independent oversight have been pivotal to BACM’s success. The BACM emphasises genuine nature recovery, integrating social benefits for landowners and trained personnel, albeit hindered by the unstable policy environment including shortfalls in the then-current iteration of the Biodiversity Metric tool that failed to capture diverse ecological benefits. There is also a need for systemic screening to determine broader ecosystem impacts, as also addressing leakage (displacement of damaging activities outside of restored sites) and additionality (that genuine benefit is achieved beyond mandatory requirements). The implications of intergenerational land agreements need also to be addressed. Clear language and principles free from political bias are vital for future market development.
Finally, the BACM model holds promise for creating sustainable, catchment-based, nature-focused markets nationally and internationally, offering valuable insights for future initiatives.
The full report on the BACM programme can be found on the IES website.
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