When designing an environmental offset scheme, it is important to account for the probability that an offset project will fail to deliver its intended benefits. The offsets in a scheme need to be large enough in scale to compensate for some failures.

There are various potential causes of offset failure that might need to be considered.

• Vegetation that has been established in the offset project might die.
• Habitat that has been created for the benefit of a particular species of fauna might not be used by that species
• The site might be affected by a natural hazard, such as drought, fire, flood, a severe storm, water-logging or salt intrusion.
• If the site is not legally protected, it might be mined, or built on, or cleared for agriculture at some future time.
• The offset project might not generate ecological benefits that are as large as expected due to a lack of current knowledge about how effective it will be, or about how best to design the project.

Combining all those risk factors, and any others that might be relevant,the scheme needs to estimate the extent to which a large sample of offset projects of the relevant type would fall short of delivering their full intended benefits. The shortfall can be substantial. As I mentioned in PD432, May et al. (2017) found that only 39% of Western Australian offsets between 2004 and 2015 could be considered effective.

The expected proportion of full benefits is used to adjust the calculations to come up with the predicted benefits of any single offset.

Predicted benefit per unit of offset action = Predicted benefit if fully successful × Proportion of full benefits expected on average across a sample of offsets

As a result of this adjustment, the scale of offset required to deliver the required aggregate benefits will be increased. For example, if the expected proportion of benefits is 0.5, then the required scale of the offset will be doubled.

Many schemes do make an adjustment of this type. For example, the Australian Government’s Offset Assessment Guide includes a factor called “Confidence”, which is effectively what I have called “Proportion of full benefits expected on average across a sample of offsets”.

However, I have seen a scheme that does not make this adjustment, and consequently fails to fully compensate for the impact of developments.

Further reading

May, J., Hobbs, R.J. and Valentine, L.E. (2017). Are offsets effective? An evaluation of recent environmental offsets in Western Australia, Biological Conservation 206, 249–257. Here

The offsets series

432. Environmental offsets 1. Introduction
434. Environmental offsets 2. The currency for measuring impacts and benefits
435. Environmental offsets 3. Risk of failure (this post)