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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