2.3 Additionality and Conditionality

One common problem of market-based instruments is adverse selection. Because nature markets follow classical market logic, they incentivize participation by suppliers whose opportunity costs are low. For example, a farmer might stop farming land if selling biodiversity credits pays more. But if they were likely to stop farming anyway, the credit doesn’t lead to a real gain for nature. 

This can make voluntary markets look efficient compared to regulation-based approaches, but it risks funding projects that don’t actually create new ecological benefits.  

Our evidence from impact evaluations of biodiversity offset and carbon credit projects highlight the extent of this issue in practice, revealing widespread non-additionality (zu Ermgassen, 2023; West et al., 2023). “Avoided-loss offsets” (credits given for preventing environmental damage that was likely to happen) are especially prone to this issue, while ones aimed at restoration are typically more likely to deliver ecological gains (Inkinen et al., 2022). 

To show additionality, projects must be compared to what would have happened without them. This means looking at conditions before the project (baseline) and defining a realistic "what-if" scenario without the intervention (counterfactual). While comparing outcomes to a baseline allows the identification of ecological changes over time, the counterfactual is necessary to determine whether these changes are due to the project interventions. 

There are scientific methods to measure a project’s real impact, like comparing similar areas with and without the project. But in practice, these methods are not used consistently. (Wunder et al., 2025). For instance, avoided-loss biodiversity offsets and carbon credits often rely on baselines with self-selected counterfactuals that overstate the threats to selected sites (Calyx 2023; Haya et al. 2023). For a large part of currently used biodiversity crediting approaches, baselines and counterfactuals are non-existent, ambiguous, flexible enough to be manipulated ex-post, or are not based on monitored outcomes. In fact, many existing and planned credits are merely based on actions and their forecasted outcomes, or do not clearly justify how they will deliver impacts. To avoid over-crediting, some researchers propose that credits should ideally only be issued ex-post, once outcomes have been measured relative to a robust, statistically derived counterfactual. 

Most public payment programs for biodiversity, like many agri-environment schemes in Europe, have problems with additionality. They pay landowners for certain actions, but these actions are often unclear and not clearly linked to real ecological benefit (Reed et al., 2014). Because of problems with additionality and widespread adverse selection, many of these programs have had limited positive impact on nature. (Batáry et al., 2015; European Court of Auditors, 2020; Kleijn et al., 2001, 2004, 2006; Reed et al., 2014). In the hope of improving scheme additionality, scientists and policymakers are increasingly interested in result- or outcome-based approaches, in which payments are tied to the achievement of biodiversity targets rather than the completion of prescribed actions. However, while result-based schemes feature a clearer link between public expenses and ecological outcomes, they also present higher risks and costs for forest owners, thus requiring higher compensation levels (Süring & Lundhede, 2025). It is therefore not yet clear whether result-based schemes have a higher biodiversity return on investment than their action-based counterparts.