Why Local Government Capacity Matters for Nature Markets

England’s Biodiversity Net Gain (BNG) policy is often presented as a pioneering environmental reform.

Introduced under the Environment Act 2021, the policy requires most new developments to deliver at least a 10% increase in biodiversity compared to the pre-development baseline. In practice, this means that if a development destroys habitats, the developer must compensate by creating or restoring habitats either on-site or elsewhere.

To enable this, the policy has created a new market for biodiversity units. Landowners can generate these units by creating or enhancing habitats on land registered as a Biodiversity Gain Site (BGS). Developers who cannot deliver sufficient biodiversity gains on their development site can then purchase units from these BGS providers.

The idea is elegant: channel private investment from development into long-term habitat restoration. But like many market-based environmental policies, the real test lies not in the design of the policy, but in how it works on the ground.

Our research “From Policy to Market: The Role of Local Governance in the Creation and Effectiveness of Biodiversity Markets” shows that one factor matters more than many policymakers might expect: the governance capacity of local planning authorities (LPAs).

Creating a BGS Is Not the Same as Making It Work

The first step in the BNG market is relatively straightforward: land can be registered as a BGS and committed to create or enhance habitats for at least 30 years. This requires ecological planning, legal agreements, and registration with Natural England. However, creating a BGS is only the beginning. The real test is whether the site actually sells biodiversity units to developers.

Our analysis of BGS data across England reveals a striking pattern: many registered sites have not yet recorded any sales of biodiversity units. In other words, the supply of biodiversity credits exists on paper, but market activity is uneven. This difference between creating a BGS and making it financially viable highlights a key insight: environmental markets depend not only on ecological supply but also on institutional and governance conditions.

The Hidden Role of LPAs

LPAs sit at the centre of the BNG system. They review biodiversity gain plans, ensure developers comply with the biodiversity metric, approve off-site compensation arrangements, and enforce the legal agreements that secure habitats for decades. In effect, they act as regulators, gatekeepers, and market facilitators at the same time.

Our findings suggest that this role matters enormously. LPAs differ significantly in their financial capacity, administrative efficiency, and environmental orientation. These differences translate directly into variation in BNG outcomes.

Although the link between the LPAs’ governance capacity and their propensity to have BGSs is weak,  LPAs with strong governance are more likely to see biodiversity units actually sold. By contrast, areas where LPAs face financial stress or administrative bottlenecks often see weaker market activity.

Markets for Nature Need Institutions

The experience of BNG reinforces an important lesson from environmental policy: markets for nature do not function without strong institutions.

Unlike conventional commodities, biodiversity units represent ecological outcomes that must be measured, verified, and maintained over long time horizons. This makes trust, transparency, and enforcement essential.

Local authorities provide much of this institutional infrastructure. They validate ecological assessments, ensure legal commitments are enforceable, and monitor compliance. Without capable institutions performing these roles, biodiversity markets risk becoming either ineffective or untrustworthy. Either way, they will not grow.

Policy Design vs Policy Delivery

The BNG framework is one of the most comprehensive biodiversity offset frameworks in the world. The BNG system combines a statutory target, a national biodiversity metric, and a public register of biodiversity sites. But policy design is only half the story.

The success of BNG ultimately depends on policy delivery, and delivery happens largely at the local level. Local authorities must have the expertise, staff, and financial resources needed to implement the system effectively.

Our findings suggest that uneven governance capacity could lead to uneven environmental outcomes. Some areas may see thriving biodiversity markets and large-scale habitat restoration, while others may struggle to translate policy ambitions into real ecological gains.

If policymakers want BNG to succeed, they should look beyond market design and focus more on institutional capacity. Strengthening local governance is not just an administrative issue. It is central to the success of the UK’s flagship nature policy.

A Broader Lesson for Green Policy

BNG is part of a wider trend toward market-based environmental policy, where governments create financial incentives for conservation and restoration.

These policies promise to mobilise private investment for environmental goals. But they also depend heavily on public institutions to ensure credibility and effectiveness.

The early experience of England’s biodiversity market suggests a simple but powerful lesson: good environmental policy requires good governance.

Designing markets for nature is difficult. Making them work requires capable institutions, especially at the local level.