USA vs NSW - Comparing two biodiversity market trailblazers

Biodiversity markets have received increasing attention in recent years, but they are not new. Bloomberg NEF estimates global turnover in biodiversity markets will reach USD160B by 2030, and today, there are more than 40 compliance-based biodiversity markets newly operational or announced around the world. 

Here we explore two of the world’s earliest and most mature biodiversity markets - the USA’s Mitigation Banking and NSW Biodiversity Offset Scheme - and compare key market characteristics with a particular focus on their implications for private investment opportunities and returns.

Foundational similarities

At a high level, both the USA and NSW biodiversity markets rely on a similar process. Both are compliance markets, which means that demand for credits is mandated through legislation. Biodiversity markets in both the USA and NSW, are part of the formal development approvals process. In the USA, biodiversity markets are governed by both federal and state legislation, so implementation varies from one state to another - but there are core market features and processes that are implemented relatively consistently.

The key enabling mechanism in both the USA and NSW (and any) biodiversity markets is the creation of an environmental instrument (in the USA a ‘mitigation credit’ and in NSW a ‘biodiversity offset credit’). Both markets follow the same basic process: landholders undertake conservation works and agree to in-perpetuity conservation easement being placed on the relevant land parcel. They are then issued with credits that can be sold to a developer to mitigate the environmental impacts of a development. 

Both the USA and NSW markets have important environmental safeguards. For example: 

• Both are situated within broader policies that seek first to avoid or reduce the environmental impacts of a proposed development, and then to mitigate residual impacts by participating in the mitigation (or ‘offset’) market. 

• In both jurisdictions, the credits are only issued for ‘additional’ biodiversity outcomes, that is the amount of ecological uplift that is delivered by the landholder’s conservation works. This ‘additionality’ criterion is designed to ensure broader environmental objectives of ‘no net loss’ (for the USA) or ‘nature positive’ (for NSW) are achieved. 

• Both markets require that the landholder deposit enough money to fully fund all proposed future works and long-term conservation management of the site into a dedicated bank account (USA) or fund (NSW).  

• Both markets require that the environmental gains that are the subject of credit issuance are protected in perpetuity by a caveat on the land title.

Functional differences

There are three key differences between the USA and NSW bBiodiversity markets that have important implications for investment.

1. Credit issuance timelines

Credit issuance timelines are an important aspect of environmental markets. Credits may be issued ex-ante or ex-post (further explained below) – with important implications for both project supply and for the investor.

The USA market may issue up to 30% of credits ex-ante, that is, at the start of a project, once the desired ecological works and outcomes have been agreed and a conservation covenant has been placed on the land, but before the agreed site restoration and management actions have been implemented. The remaining credits are issued ‘ex-post’, that is, once the agreed conservation works have been delivered by the site (bank) owner. This means that credits may be issued over a very long time period, spanning 10 years or more.

Under the NSW scheme all credits are issued to the landholder ex-ante. this approach can have both positive and negative implications. It means that credits sold can help to fund conservation works at a site, opening up new opportunities for valuable restoration projects to proceed. But ex-ante credit issuance must be accompanied by a strong regulatory framework that include caveats on the land title (as is the case in NSW) - to ensure that the agreed conservation works are undertaken and achieve their ecological objective.

2. Parties to the transaction

Differences in rules relating to the parties who can purchase credits is one of the biggest distinctions between the USA and NSW markets with major implications for investment models and opportunities. 

The US system only allows for credit to be sold once. Credits are sold by the producer of the credits to either a developer who wishes to offset their impacts, or a voluntary buyer who wishes to purchase credits for philanthropic or environmental reasons like delivering biodiversity gain without an equivalent loss from a development that requires offsetting (although this is rare). This means that investors cannot buy and re-sell credits; participation by investors is typically limited to direct investment into land assets that are subsequently put to work as a wetland or species mitigation banking site.

The NSW scheme however allows landholders to sell their biodiversity credits to any third party. This means that credits can be sold to developers for the purposes of offsetting a specific development; they can be sold to individuals, NGOs or others wishing to ‘retire’ credits for philanthropic purposes; or they may be sold to funds – which presents an opportunity for investors to invest directly into credits, rather than the underlying land asset. 

3. Delineation of sub-markets

In the USA, trade must be for the same type of credit (across very broad categories like ‘wetland’, ‘stream’ or ‘species’ credits) and within the same drainage basin. This means that the market operates as a series of sub-markets with spatially restricted trade. For example, in Florida, there are 86 drainage basins, each operating a separate market for wetland and other mitigation credits.

In NSW, there is a very complex and restrictive set of rules relating to ‘like-for-like’ trading. There are over 1000 different types of credits that relate to specific ecosystem types or species. For example, ‘ecosystem credits’ can be traded with other credits in the same, or a higher (more threatened) ‘Offset Trading Group’. They are also subject to spatial restrictions whereby they must be in the same or an adjacent biogeographic sub-region (137 across NSW).

Although the biodiversity credit trading rules are different in the USA compared with the NSW scheme the implications are the same: some credits may be in high demand, while others, even in neighbouring drainage basins or biogeographic regions, may have limited or even zero demand. This means that the development of new conservation sites and/or investment into existing credits requires deep knowledge of the market, including an understanding of future development pressures and forecast supply of the relevant credit types.  

Implications for private investment

Small differences in the rules that govern a biodiversity market can have big implications for investment models and expected returns. 

The USA has a larger, more established biodiversity market, with total turnover in excess of USD 5B per annum. But restrictions on third party purchase of credits and long credit issuance timeframes means that investors can typically only invest into land-based assets, and that patient capital is required; even where 30% of credits is issued ex-ante, this requires that a mitigation banking site has met all the regulatory and planning approvals, which may take 5-7 years or more, with the bulk of credits being issued (and then sold) a long time after that.

Although NSW has a smaller biodiversity market, turning over of AUD 200M per annum, it is a faster moving, more liquid market. In the NSW market, 100% of credits are issued ex-ante and project development timelines tend to be shorter than in the USA, typically around 2-3 years. Perhaps more importantly, there is no restriction on third party trading in the NSW Biodiversity Offset Scheme, which means investors can invest into credits directly. This has the advantage of diversifying holdings across multiple sub-markets, rather than being tied to a specific conservation site and the associated supply and demand dynamics of a single sub-market. 

Detailed comparison

	USA Mitigation Banking	NSW Biodiversity Offset Scheme
Commenced	Commenced as a wetland mitigation banking market in 1993. Expanded (in some states) to include stream and species mitigation banks from 2000.	From 2008 under the guise of ‘Biobanking’ and in its current form from 2016
Type of market	Compliance	Compliance
Legal basis	Clean Water Act (1972, Section 404) and various state-based legislation	NSW Biodiversity Conservation Act (2016)
Administration	State-by-state regulations interacting with the federal legislation. Overseen by the US Army Corps of Engineers	State based scheme overseen by the NSW Department of Climate Change, Energy, the Environment and Water.
Environmental Objective	No net loss	Nature positive
Unit issued	Mitigation credits	Biodiversity credits
Additionality	Yes – credits are issued in proportion to the amount of ecological uplift	Yes – credits are issued in proportion to the amount of ecological uplift
Protection period	In perpetuity via a caveat on the land title	In perpetuity via a caveat on the land title
Est. annual turnover	> USD 5B	approx AUD 200M
Parties to the transaction	Sale is by direct negotiation between the landholder (‘bank owner’) and the developer and usually proceeds via a broker.	Sale is by direct negotiation between the landholder and the developer or another third party (philanthropy or other). Some sales proceed via a broker.
Credit transactions	Approx 30% to transportation projects, 30% to residential & commercial, 15% to mining & drilling	Major infrastructure projects (e.g. inland rail), renewable energy projects (e.g. EnergyCo), residential development
Price transparency	Prices are not made publicly available	Prices are made publicly available
Credit issuance timeline	Mixed. Varies by state. Up to 30% of credits may be issued ex-ante once the landholder agrees to undertake conservation works and a conservation covenant has been placed on the land. The remainder are issued ex-post along an agreed schedule once agreed milestones have been achieved (may be over a period of 10+ years)	Ex-ante. Credits are issued once the landholder agrees to undertake conservation works and a conservation covenant has been placed on the land.
Spatial trading restrictions?	Within drainage basin trading only. Each drainage basin represents its own sub-market. As an example, Florida has 85 drainage basins, each representing a distinct market for mitigation credits.	Ecosystem credits can only be used to offset a development in the same or an adjacent biogeographic sub-region, or within 100km of the development site. Species credits have no spatial restrictions.
Credit type trading restrictions?	Broad categories only (e.g. wetland, stream, species)	More than 1000 types of credit with complex trading rules.
Political stability	Scheme has continued under 6 different governments (3 Democrats, 3 Republican)	Scheme has continued under 5 different governments (2 Labor, 3 Liberal)

References

ArcGIS online. (2021). Florida’s Mitigation Watersheds and Basin. https://www.arcgis.com/home/item.html?id=d1a72ad0c8654d028b0111c8b1288d5cs

Bloomberg NEF. (2024). Biodiversity Finance Factbook. https://assets.bbhub.io/professional/sites/24/Biodiversity-Finance-Factbook_COP16.pdf  

NSW Department of Climate Change, Energy, the Environment and Water. (2025). NSW Biodiversity Credits Market Sales Dashboard. https://app.powerbi.com/view?r=eyJrIjoiZWI3MmZhMTctZGVjNi00ZTdlLTkwZTEtOGY4NWNhYjc3M2RiIiwidCI6Ijk2ZWY4ODIxLTJhMzktNDcxYy1iODlhLTY3YjA4MzNkZDNiOSJ9   

NSW Department of Planning and Environment. (2023).Offset rules and ecosystem credits. https://www.environment.nsw.gov.au/sites/default/files/offset-rules-and-ecosystem-credits-230051.pdf

NSW National Parks and Wildlife Service. (2003). The Bioregions of NSW. https://www.environment.nsw.gov.au/publications/bioregions-new-south-wales

The Environmental Policy Innovation Center (2024). Wetland Mitigation and Endangered Species Habitat Banking, United States. https://hive.greenfinanceinstitute.com/wp-content/uploads/2024/10/R4N-GUIDEBOOKS-US-WETLANDS.pdf

The Paulson Institute, The Nature Conservancy, and the Cornell Atkinson Center for Sustainability. (2020).  Financing Nature: Closing the global biodiversity financing gap. https://www.paulsoninstitute.org/wp-content/uploads/2020/09/FINANCING-NATURE_Full-Report_Final-Version_091520.pdf 

Theis & Poesch. (2022). Assessing Conservation and Mitigation Banking Practices and Associated Gains and Losses in the United States Sustainability vol 14, 6652. https://www.wisdomlib.org/uploads/journals/mdpi-sust/2022-volume-14-issue-11--2071-1050-14-11-6652-.pdf

United Nations. (2019). Nature’s Dangerous Decline. https://www.un.org/sustainabledevelopment/blog/2019/05/nature-decline-unprecedented-report/.

United States Environmental Protection Agency. (2008). Mitigation Banks under CWA Section 404. https://www.epa.gov/cwa-404/mitigation-banks-under-cwa-section-404

zu Ermgassen, Sophus O.S.E. et al. (2024). Financing ecosystem restoration. Current Biology, Vol 34, Issue 9, R412 - R417. https://www.cell.com/current-biology/fulltext/S0960-9822(24)00173-8