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39 Trends 1 (2007-2008)

handle is hein.journals/trends39 and id is 1 raw text is: ooking to build a golf course in the middle of 88.5 acres of high-quality endangered species habitat? Well, you're not out of the woods yet, but your project may have a greater likelihood of success with the issuance of a new interagency partnership agreement on habitat credit trading. In April 2007, the Natural Resources Conservation Service, the U.S. Fish and Wildlife Service (FWS), and the Association of Fish and Wildlife Agencies signed a partnership agree- ment designed to further habitat credit trading as a regulatory tool. The agencies have agreed to develop an operational definition of habitat credit trading, as well as standards for habitat credit trading programs. The agreement also calls for the agencies to identify programs that may be suitable for habitat credit trading and to develop at least one pilot project (which probably won't include your planned golf course). Habitat credit trading isn't a new concept. California has had a conservation bank policy since 1995. FWS issued federal guidance for habi- tat conservation banks in 2003 and has approved habitat banks in areas as diverse as the Texas hill country, California's San Joaquin Delta, lower Alabama, and Colorado's front range. But the new partnership agreement brings in new participants to the concept and seeks to expand its scope. Why trade habitat credits? The idea behind habitat credit trading is to apply a market-based approach to the conservation of at-risk species and their habitats. A market- based program creates an economic incentive to attain an environmental objective. In theory, ratio- nal actors working within a well-designed environ- mental program will apply innovative, disciplined methods for compliance, knowing they will reap the financial rewards of efficiency. As a result, the regulated community is able to achieve greater environmental benefit per dollar spent, compared to prescriptive regulations. There are different market-based models. The choice of model in a given case depends on the nature of the market and the environmental values at stake. A model tends to be more straightforward where the market is large and the product is fun- gible. Consider the acid rain trading program. While there are some complexities, the basic idea is simple: Determine an acceptable quantity of sul- fur dioxide emissions from participating sources, and let them figure out how best to reduce emissions to the budgeted amount. If the market is well- designed and participants are economically rational, participants will work toward the most cost-effective means of compliance. This trading model works well and functions much like a futures exchange, but it does so only because there are multiple buyers and sellers and transparent rules, and there is uniformity in the product. In contrast, natural resource credits tend to be site-specific and less fungible, something that calls for a different market-based model. For example, in the case of wetlands mitigation banks, the quali- ty of the wetlands encompassed by the bank affects the value of the credits that can be sold and the ability to use them for a given project. In addi- tion, credits are generally available only for pro- jects in the same watershed as the bank. Further, for a site-specific product to deliver on its environmental promise, it has to be perpetually tied to the property. A factory owner could theoreti- cally close the plant and sell air-quality credits associated with the facility, but wetlands mitigation credits, once issued, are linked to a specific off-site development. The environmental integrity of the transaction in wetlands credits depends on both the mitigation bank and the project developer honoring their commitments, which may include long-term, site-specific monitoring obligations. Although a habitat conservation bank is likely to function similarly to a wetlands bank in many respects, there is at least one key difference. Generally, regulators have required the creation or restoration of wetlands to generate credits. The notion is to provide at least as much new function- ality to replace what is lost. A habitat program is more likely to provide credit for preserving existing habitat. There are at least two reasons why this is so. First, it is critically important to the long-term protection of many species that further loss of their existing habitat be stopped. Second, existing habitat is a known quantity, meaning regulators know that it supports the species. To create habitat is a gam- ble, because one cannot be sure the project is a success unless and until the species begins to thrive there. That can take a long time to determine. The site-specific nature of a habitat credit pro- gram raises particular challenges and concerns. However, it also raises opportunities-not just for cost efficiency, but also for high-quality conserva- tion actions that are not possible through tradition- al, on-site mitigation. Questions of implementation The main challenges in setting up a habitat conservation bank are not unlike those associated with a wetlands bank. They have to do with how to measure the bank's benefits, compare them to pro- Continued on page 14 CPrinted on recycled paper September/October 2007 Volume 39, Number 1

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