Designing markets for biodiversity offsets: lessons from tradable pollution permits

Biodiversity offset markets are one option for managing the trade-offs that exist between conservation targets and the increasing demand on land for urban development and agricultural expansion at local, regional and international scales. Drawing on lessons from the tradable pollution permit market literature, we review the key design parameters for biodiversity offset markets and consider how these have been applied in practice in the U.S., Australia, and the UK. We argue that offset markets should only be applied where the conservation target is a well-defined measure of biodiversity. Efficient offset markets require goods to be simple, measurable units that are fully exchangeable. This allows the market to operate under simple trading rules and engage with the widest number of participants, allowing gains from trade to be realised. We argue that a well-designed and managed offset scheme can be a more cost-effective way of meeting conservation targets than regulation.