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Designing markets for biodiversity offsets: lessons from tradable pollution permits

Author

Listed:
  • Katherine Simpson

    (University of Edinburgh)

  • Frans P de Vries

    () (Economics Division, University of Stirling)

  • Paul Armsworth

    (Department of Ecology and Evolutionary Biology, The University of Tennessee)

  • Nick Hanley

    () (School of Geography and Sustainable Development, University of St. Andrews)

Abstract

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.

Suggested Citation

  • Katherine Simpson & Frans P de Vries & Paul Armsworth & Nick Hanley, 2017. "Designing markets for biodiversity offsets: lessons from tradable pollution permits," Discussion Papers in Environment and Development Economics 2017-04, University of St. Andrews, School of Geography and Sustainable Development.
  • Handle: RePEc:sss:wpaper:2017-04
    as

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    File URL: http://www.st-andrews.ac.uk/media/dept-of-geography-and-sustainable-development/pdf-s/DP%202017-04%20Simpson%20et%20al.pdf
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    References listed on IDEAS

    as
    1. Hanley, Nick & Shogren, Jason & White, Ben, 2013. "Introduction to Environmental Economics," OUP Catalogue, Oxford University Press, edition 2, number 9780199568734.
    2. Richard Schmalensee & Robert N. Stavins, 2013. "The SO 2 Allowance Trading System: The Ironic History of a Grand Policy Experiment," Journal of Economic Perspectives, American Economic Association, vol. 27(1), pages 103-122, Winter.
    3. O'Neil, William & David, Martin & Moore, Christina & Joeres, Erhard, 1983. "Transferable discharge permits and economic efficiency: The fox river," Journal of Environmental Economics and Management, Elsevier, vol. 10(4), pages 346-355, December.
    4. Stine Broch & Suzanne Vedel, 2012. "Using Choice Experiments to Investigate the Policy Relevance of Heterogeneity in Farmer Agri-Environmental Contract Preferences," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 51(4), pages 561-581, April.
    5. Doyle, Martin W. & Yates, Andrew J., 2010. "Stream ecosystem service markets under no-net-loss regulation," Ecological Economics, Elsevier, vol. 69(4), pages 820-827, February.
    6. Lawrence H. Goulder, 2013. "Markets for Pollution Allowances: What Are the (New) Lessons?," Journal of Economic Perspectives, American Economic Association, vol. 27(1), pages 87-102, Winter.
    7. Wainger, Lisa A. & King, Dennis M. & Mack, Richard N. & Price, Elizabeth W. & Maslin, Thomas, 2010. "Can the concept of ecosystem services be practically applied to improve natural resource management decisions?," Ecological Economics, Elsevier, vol. 69(5), pages 978-987, March.
    8. Linda Fernandez & Larry Karp, 1998. "Restoring Wetlands Through Wetlands Mitigation Banks," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 12(3), pages 323-344, October.
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    10. Robert N. Stavins, 1998. "What Can We Learn from the Grand Policy Experiment? Lessons from SO2 Allowance Trading," Journal of Economic Perspectives, American Economic Association, vol. 12(3), pages 69-88, Summer.
    11. Jason Shogren, 1998. "A Political Economy in an Ecological Web," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 11(3), pages 557-570, April.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Biodiversity; offsets; tradeable pollution permits; transactions costs; conservation planning;

    JEL classification:

    • Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy
    • Q57 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Ecological Economics
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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