Ecological-Economic Framework to Investigate and Promote the Effectiveness of Biodiversity Offsets

Biodiversity offsets are a popular tool in conservation policy. Offsets seek to balance biodiversity losses from development projects in one location with an equivalent biodiversity gain in a separate location, with the goal of achieving “no net loss” (NNL) of biodiversity. One strategy that has received increasing attention is that of a market approach, whereby private firms conserve large tracts of land and whose restoration activities can be converted into ecological credits that landowners can sell to developers to meet their offset requirements. One key objective of our project is to provide evidence of the ecological performance of existing market-based programs to biodiversity offsetting. Our empirical approach is based on data from the US wetland mitigation market, which corresponds to the largest, more well-developed, and lasting example of a market for biodiversity offsets. Using wetland area as a proxy for biodiversity values, we analyzed satellite imagery to identify and delineate the extent of wetland area gains at mitigation banks established between 2001 and 2020. In a difference-in-differences framework, we compare outcomes at established bank sites against planned mitigation sites. Our analysis provides three main findings. First, the share of wetland area created at mitigation banks averaged 20 percentage points, which translates into 15,900 wetland acres gained from the banking program. Second, 88% of wetland gains were additional (i.e., the majority of wetland gains would not have occurred without dedicated compensation activities). And third, by contrasting the estimated wetland gains against wetland losses, we estimate that there is a net loss of 1,600 wetland acres per year over the 2012-2020 period (i.e., the program is not achieving NNL of wetland area). The outcomes of our analysis are highly relevant for the design of existing and future offsetting policies.

This project is financed by the Strategic Research Area BECC.