U.S. Department of the Interior

U.S. Geological Survey

Circular 1414

Prepared in cooperation with the U.S. Department of Agriculture, Office of Environmental Markets

Biodiversity and Habitat Markets—Policy, Economic, and 

Ecological Implications of Market-Based Conservation
Cover. Compilation of wildlife and habitat photographs found in the report. Original design by 

Shonté Jenkins, U.S. Geological Survey.
Biodiversity and Habitat Markets—Policy, 

Economic, and Ecological Implications of 

Market-Based Conservation

By Emily Pindilli and Frank Casey

Prepared in cooperation with the U.S. Department of Agriculture, 

Office of Environmental Markets

Circular 1414

U.S. Department of the Interior

U.S. Geological Survey
U.S. Department of the Interior

SALLY JEWELL, Secretary

U.S. Geological Survey

Suzette M. Kimball, Acting Director

U.S. Geological Survey, Reston, Virginia: 2015

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Suggested citation:

Pindilli, Emily, and Casey, Frank, 2015, Biodiversity and habitat markets—Policy, economic, and ecological implications 

of market-based conservation: U.S. Geological Survey Circular 1414, 60 p., http://dx.doi.org/10.3133/cir1414.

ISSN 1067-084X (print)

ISSN 2330-5703 (online)

ISBN 978-1-4113-3977-4
iii

Acknowledgments

The authors would like to thank Dr. Chris Hartley and Ms. Kathryn Zook of the U.S. Department 

of Agriculture Office of Environmental Markets for the ongoing support and guidance in developing this circular. The authors would also like to acknowledge the thoughtful review and insights 

provided by Dr. Carl Shapiro and the research support provided by Mr. Patrick Prendergast of 

the U.S. Geological Survey Science and Decisions Center. The authors are especially grateful 

to Sarah Cline (Department of the Interior, Office of Policy Analysis), Marc Ribaudo (Department of Agriculture, Economic Research Service), and Sara Vickerman (formerly of Defenders of 

Wildlife) for their technical review of the circular. Finally, the development of this circular relied 

on input from experts and practitioners in biodiversity and habitat markets. The authors would 

like to thank the following people for contributing their time and sharing their knowledge on the 

topic: Jim Caudill (U.S. Fish and Wildlife Service (FWS)), Deblyn Mead (FWS), Ted Maillet (FWS), 

Susan Culliney (Lewis and Clark Law School), Ted Toombs (Environmental Defense Fund), Patrick 

Coady (Coady Diemar), Sara Obrien (Willamette Partnership), Bobby Cochran (Willamette Partnership), Shauna Ginger (FWS), Todd Gartner (World Resources Institute), Kevin Halsey (Ecometrix Solutions), Josh Donlan (Advanced Conservation), Eric Sprague (Alliance for the Chesapeake 

Bay), and Doug Bruggeman (Ecological Services and Markets).
iv

Contents

Acknowledgments........................................................................................................................................iii

Executive Summary.......................................................................................................................................1

Chapter A—Introduction to Biodiversity and Habitat Markets .............................................................3

Background............................................................................................................................................3

Provision of Biodiversity Benefits......................................................................................................5

Introduction to Environmental Markets ............................................................................................6

Introduction to Market-Based Conservation Mechanisms...........................................................7

Chapter B—Policy Context for Biodiversity and Habitat Markets ......................................................11

Payment for Ecosystem Services ....................................................................................................11

Farm Bill Programs ....................................................................................................................11

Other Federal Programs ...........................................................................................................13

State and Local Compensation Programs .............................................................................14

Conservation Banking........................................................................................................................15

Habitat Exchanges..............................................................................................................................17

Eco-Labeling........................................................................................................................................18

Institutional Incentives ......................................................................................................................18

Summary of Biodiversity and Habitat Markets Policy Context ...................................................19

Chapter C—Structural Components of Conservation Mechanisms ...................................................21

Market-Like Payments for Ecosystem Services............................................................................21

Conservation Banking........................................................................................................................24

Habitat Exchanges..............................................................................................................................26

Eco-Labeling........................................................................................................................................28

Comparison of Types of Approaches...............................................................................................28

Chapter D—Economics of Biodiversity and Habitat Markets..............................................................31

Foundations of Environmental Markets ..........................................................................................31

Biodiversity Specific Market Considerations ................................................................................33

Payments for Ecosystem Services .........................................................................................34

Conservation Banks ..................................................................................................................34

Habitat Exchanges.....................................................................................................................36

Eco-Labeling...............................................................................................................................37

Chapter E—Performance Measurement in Biodiversity and Habitat Markets ................................39

Performance Measures.....................................................................................................................39

Species-based Indicators ........................................................................................................39

Habitat-based Indicators..........................................................................................................40

Credit Types and Ratios .....................................................................................................................40

Credit Type ..................................................................................................................................40

Credit Metrics and Ratios.........................................................................................................41

Tools to Support Biodiversity and Habitat Markets ......................................................................43

Market Facilitation Tools ..........................................................................................................43

Habitat Quantification Tools.....................................................................................................44

Verification and Monitoring of Conservation Benefits ........................................................45

Discussion and Observations ...........................................................................................................45
v

Chapter F—Future Outlook for Conservation Mechanisms .................................................................49

Institutional Barriers...........................................................................................................................49

Issue.............................................................................................................................................49

Opportunity..................................................................................................................................49

Outlook.........................................................................................................................................49

Administrative Capacity.....................................................................................................................50

Issue.............................................................................................................................................50

Opportunity..................................................................................................................................50

Outlook.........................................................................................................................................51

Alternative Mitigation.........................................................................................................................51

Issue.............................................................................................................................................51

Opportunity..................................................................................................................................51

Outlook.........................................................................................................................................51

Standardization of Metrics................................................................................................................51

Issue.............................................................................................................................................51

Opportunity..................................................................................................................................51

Outlook.........................................................................................................................................51

Habitat Quantification Tools..............................................................................................................51

Issue.............................................................................................................................................51

Opportunity..................................................................................................................................51

Outlook.........................................................................................................................................52

Financing..............................................................................................................................................52

Issue.............................................................................................................................................52

Opportunity..................................................................................................................................52

Outlook.........................................................................................................................................52

Conclusions..........................................................................................................................................52

References....................................................................................................................................................53
vi

Figures

1. Diagram showing the differences between developer and societal 

preferences for land use defined graphically........................................................................33

2. Graph showing the acres of habitat that benefited annually from the 

Conservation Reserve Program from 1992 through 2012 .....................................................34

Tables

1. Examples of direct, prescriptive, market-like, and market-based types 

of biodiversity conservation mechanisms................................................................................2

2. Examples of direct, prescriptive, market-like, and market-based types 

of biodiversity conservation mechanisms................................................................................5

3. Summary of the regulatory authorities (legislation) for each major program 

within the market-like or market-based conservation mechanism types.........................19

4. Descriptions of components of conservation mechanisms................................................21

5. Descriptions of credit types......................................................................................................40

6. Sample conservation bank projects from the Army Corps of Engineer’s 

Regulatory In-lieu fee and Bank Information Tracking System (RIBITS)..........................42

7. Summary of biodiversity and habitat market issues, opportunities, and 

future outlook ..............................................................................................................................50
vii

Abbreviations

ACEP Agricultural Conservation Easement Program

CFAA Cooperative Forestry Assistance Act

CRP Conservation Reserve Program

CSP Conservation Stewardship Program

DOI PPA U.S. Department of the Interior, Office of Policy Analysis

ECAS Ecosystem Credit Accounting System

EDF Environmental Defense Fund

EPA U.S. Environmental Protection Agency

ESA Endangered Species Act

FAO Food and Agriculture Organization of the United Nations

FLP Forest Legacy Program

FWS U.S. Fish and Wildlife Service

GAO U.S. Government Accountability Office

HQT Habitat Quantification Tools

IUCN International Union for Conservation of Nature 

NFWF National Fish and Wildlife Program

NMFS U.S. National Marine Fisheries Service

NOAA National Oceanic and Atmospheric Administration

NRCS U.S. Natural Resources Conservation Service

NWF National Wildlife Federation

PES Payments for Ecosystem Services

PFWP Partners for Fish and Wildlife Program

RCPP Regional Conservation Partnership Program

RIBITS Regulatory In-lieu fee and Bank Information Tracking System

SHA Safe Harbor Agreement

USACE U.S. Army Corps of Engineers

USDA U.S. Department of Agriculture

USFS U.S. Forest Service (USDA)

WHIP Wildlife Habitat Incentive Program
Photograph by U.S. Fish and Wildlife Service
Biodiversity and Habitat Markets—Policy, Economic, and 

Ecological Implications of Market-Based Conservation

By Emily Pindilli and Frank Casey

Executive Summary

The United States is experiencing significant losses of 

biodiversity, species, and unique habitats (International Union 

for the Conservation of Nature (IUCN), 2014). This circular 

explores the policy context, structure, ecological effectiveness, and tools associated with market-based mechanisms for 

biodiversity and habitat conservation. The theoretical basis for 

applying market-based approaches and the outlook for these 

markets are also described. The focus of this circular is on 

market-like and market-based incentives for individual species conservation rather than biodiversity in the more holistic 

sense, although incentives for conservation of a species’ habitat can have broad impacts across other species that constitute 

biodiversity in a given target area.

Why is there a need for market-based approaches to 

conserve biodiversity and habitat? The benefits of providing biodiversity—a public good—often do not accrue to 

the landowner. Market-based mechanisms use incentives to 

leverage market forces. These incentives may be driven by 

regulation or other forces such as consumer preferences for 

‘green’ products. Another way to achieve conservation is via 

prescriptive regulation; however, economic theory lends itself 

to approaches that can achieve the same benefits with a more 

efficient and less costly allocation of resources.

What are the market-based mechanisms for biodiversity 

and habitat conservation? Table 1 summarizes the types of 

market-based conservation mechanisms. They are classified by 

the type of incentive they provide.

Payments for Ecosystem Services (PES) “...is...a voluntary, conditional agreement between at least one ‘seller’ and 

one ‘buyer’ over a well-defined environmental service...” 

(Wunder, 2007). PES programs may be funded by the government or other groups, such as nonprofit organizations or 

businesses.

Market-Based Compensatory Mitigation Programs have 

a regulatory requirement for one party to offset the environmental impacts of their activities. The U.S. Fish and Wildlife 

Service’s (FWS) conservation banking program is a prime 

example. A conservation bank is “a site where habitat or other 

ecosystem resources are conserved and managed in perpetuity 

for listed species ...” (FWS, 2003). Conservation banks sell 

credits that represent an expected ecological outcome to offset 

impacts.

Habitat exchanges provide a marketplace platform that 

allow for the trade of credits from conservation banks along 

with credits from other market-based biodiversity conservation efforts. The exchange concept applies conservation banking more broadly to regulatory and pre-compliance markets 

that can address candidate species or other voluntary habitat 

conservation scenarios. Pre-compliance demand is based on 

reducing regulatory uncertainty regarding future development 

and land use activities by providing species conservation.

Eco-labeling is an approach to differentiate a product 

based on how it is produced, in this case if it supports a species, habitat, or overall biodiversity in a specific place or type 

of habitat. By differentiating a product, consumers may shop 

more selectively and be willing to pay more; in turn, this 

provides an incentive for landowners or producers to conduct 

biodiversity-enhancing activities.

What drives biodiversity and habitat conservation markets? Federal, State, and local government policies can drive 

market-based conservation mechanisms. The Endangered Species Act and the Farm Bill(s) provide the regulatory basis for 

many of the markets considered in this circular. It is important 

to note that although a regulation may compel mitigation, 

participation in a market is always voluntary.

Some mechanisms do not rely on regulation, as with 

eco-labeling. For this mechanism, consumer preference is the 

incentive. Habitat exchanges are designed to provide a platform for both compensatory and voluntary credits.

What influences the success of biodiversity and habitat 

markets? The biodiversity conservation mechanisms each 

have different specifications for their major structural components as a result of regulation, program management, or 

by design, to address specific issues. The structural elements 

considered in this circular include land eligibility, site selection, approval process, management practices, term, credit 

determination, trade, and other conditions. The specifications 

can affect landowners’ willingness to participate in programs 

and the biodiversity outcomes that are achieved.

Ecological performance is also influenced by the design 

of the program: specifically the method for biodiversity or 

habitat measurement. Market-based mechanisms rely on an 

indicator that may be either performance- or practice-based. 
2 Biodiversity and Habitat Markets: Policy, Economic, and Ecological Implications of Market-Based Conservation

Practice-based measurement assumes that installation of a 

conservation practice will result in the desired ecological outcome. Performance-based measurement requires evidence that 

the intended biophysical results are being obtained.

The complexity of what constitutes biodiversity, measuring outcomes, and establishing markets is challenging. Biodiversity benefits depend on source, location, size of available 

habitat, ecological context, and the initial conditions of a site. 

Habitat quantification and monitoring tools can improve the 

success of markets.

There are two classes of tools that facilitate biodiversity 

and habitat markets: habitat quantification tools (HQTs) and 

market support tools. Market support tools provide protocols and platforms to assess biodiversity benefits. HQTs use 

ecological information about species and habitats of concern 

to provide improved metrics that assess biodiversity baselines 

and improvement.

What is the outlook for biodiversity and habitat markets? In the U.S., there are numerous threats to biodiversity 

and wildlife habitat: the transformation of land from habitat to 

agriculture; residential, commercial, and industrial development; energy and mineral production; and, climate change. 

This circular highlights issues that inhibit wider adoption and 

success of biodiversity and habitat markets. The most significant are institutional barriers, administrative capacity, alternative mitigation, standardization of metrics, lack of HQTs, and 

lack of financing.

There are significant challenges to extend trading programs, which have enjoyed great success curbing air emissions 

to biodiversity and habitat, which are localized, complex, and 

difficult to measure. There are also numerous opportunities to 

increase the adoption and success of these markets.

Although somewhat constrained, there has been marked 

growth in the utilization of market-based approaches for 

biodiversity and habitat conservation in the U.S. over the last 

few decades. The implementation of federal market-based 

mechanisms for compensatory species mitigation has largely 

been achieved due to the efforts of individuals in the FWS. 

From a nascent market in California, conservation banking has 

expanded to other states with a record of delivering conservation benefits for species. The potential expansion to species 

not yet listed represents a much broader marketplace.

PES programs have a long history. The move towards 

targeting high yield land, employing habitat quality metrics, 

and even employing performance-based metrics indicates that 

PES programs can adapt to address the growing awareness 

that biodiversity and habitat are crucial to national prosperity 

and well-being.

Eco-labeling markets have remained largely regional, but 

continued consumer preferences for ‘green’ products provide 

the opportunity for the expansion of this market approach. 

Addressing the challenges and taking advantage of the opportunity to promote and grow biodiversity and habitat markets 

can help protect the Nation’s wildlife.

Table 1. Examples of direct, prescriptive, market-like, and market-based types of biodiversity conservation mechanisms.

Direct Prescriptive Market-like or market-based

Approach

Voluntary Command and control Payments for 

Ecosystem Services

Market-based 

compensatory 

mitigation

Multiproduct exchange Product differentiation

Description

Activities by private 

citizens or 

organizations to 

conserve/restore 

biodiversity

Required activities, 

mitigation, or 

best practice 

implementation 

based on regulation

Conservation or 

restoration by 

landowners 

incentivized by 

funding, or other 

incentive

Regulatory driven 

marketplace with 

ability to trade

Marketplace that 

includes multiple 

conservation or 

restoration credit 

types such as precompliance credits

Conservation/restoration 

conducted by 

landowners to appeal 

to consumers

Example

Land trusts Permittee-responsible 

mitigation

Conservation 

Stewardship Program 

Conservation bank Habitat exchange Eco-labeling

Parties

Private citizens, 

nonprofit 

organizations

Federal, State, or 

local governments; 

industry, developers

Federal, State, or 

local governments; 

landowners

Federal, State, or 

local governments; 

industry, developers, 

bankers, investors, 

entrepreneurs

Federal or State governments, nonprofit 

organizations, 

industry, developers, 

bankers, investors, 

entrepreneurs, 

landowners

Consumers, nonprofit 

organizations, 

suppliers, landowners
The United States is home to a remarkable variety of 

wildlife. Biological diversity (hereafter referred to as ‘biodiversity’) and unique habitats provide substantial benefits 

to humans. In the Endangered Species Act (2003), Congress 

states that “...species of fish, wildlife, and plants are of 

esthetic, ecological, educational, historical, recreational, and 

scientific value to the Nation and its people”. The rate of loss 

for biodiversity, species, and unique habitats is significant 

(IUCN, 2014). In 2014, the International Union for Conservation of Nature (IUCN) reported that the United States had 

1,006 animal species facing imminent extinction due to human 

activity; this represents nearly 20 percent of all animal species 

in the country. Numerous public and private incentive mechanisms exist to protect and conserve biodiversity and habitat 

(Casey and others, 2006). The Federal Government, States, 

localities, academia, businesses, non-governmental organizations, and individuals are engaged in some or all of these 

activities.

This circular is a primer on market-like and market-based 

mechanisms designed to conserve biodiversity and habitat. 

The types of markets and market-based approaches that were 

implemented or are emerging to benefit biodiversity and habitat in the United States are examined. The central approaches 

considered in this circular include payments for ecosystem services, conservation banks, habitat exchanges, and eco-labels. 

Based on literature reviews and input from experts and practitioners, the circular characterizes each market-based approach 

including policy context and structure; the theoretical basis for 

applying market-based approaches; the ecological effectiveness of practices and tools for measuring performance; and 

the future outlook for biodiversity and habitat markets. This 

circular draws from previous research and serves as a summary of pertinent information associated with biodiversity and 

habitat markets while providing references to materials that go 

into greater detail on specific topics. The circular is organized 

into the clearly defined chapters:

A. Introduction to Biodiversity and Habitat Markets

B. Policy Context for Biodiversity and Habitat Markets

C. Structural Components of Conservation Mechanisms

D. Economics of Biodiversity and Habitat Markets

E. Performance Measurement in Biodiversity and Habitat 

Markets

Chapter A—Introduction to Biodiversity and Habitat Markets

F. Future Outlook for Conservation Mechanisms

The remainder of this chapter provides additional background on biodiversity and habitat markets, discusses the 

provision of biodiversity benefits, introduces environmental 

markets, and describes market-based mechanisms. Chapter B 

explores the regulatory context for biodiversity markets and 

identifies how regulation can drive or constrain these markets. 

Chapter C delves into more detail on the conservation mechanisms’ structure, provides additional examples, and highlights 

the components of each that help or hinder market efficiency 

and effectiveness. Chapter D considers the economic foundations for biodiversity markets and explores the efficiency and 

potential of market-like structures and processes. Chapter E 

describes the types of measures used to estimate effectiveness, 

determine credits, and develop habitat quantification tools. 

Finally, Chapter F draws conclusions on the current status 

of biodiversity and habitat markets, provides an indication 

of their future outlook, and identifies opportunities to overcome challenges to future development and success in these 

markets.

Background

In 2011, the U.S. Department of Agriculture (USDA) 

funded the Willamette Partnership, a nonprofit coalition 

dedicated to increasing the pace, scope and effectiveness of 

restoration, to evaluate the measures and metrics employed 

to assess the impact of conservation efforts on biodiversity. 

Building on the Willamette Partnership Study, this circular 

assesses how the policy context, structural design, and other 

factors influence the success of market-based mechanisms 

to provide biodiversity benefits. To consider the state of and 

potential for biodiversity and habitat markets, a clear definition of biodiversity and the activities that deliver positive biodiversity outcomes must first be established. “At its simplest 

level, biodiversity is the sum total of all the plants, animals, 

fungi and microorganisms in the world, or in a particular 

area; all of their individual variation; and all the interactions 

between them” (Raven, 1994).

Measuring biodiversity is a complex task: “Assessment 

and monitoring [of biodiversity] are only possible for specific 

aspects or particular, defined goals” (Food and Agriculture 

Organization of the United Nations (FAO), 2010). Some proxy 

measures have emerged to characterize biodiversity. Species 
4 Biodiversity and Habitat Markets: Policy, Economic, and Ecological Implications of Market-Based Conservation

richness is a measure often used to assess biodiversity in a particular area; however, this measure has weaknesses, including 

inconsistencies in measurement (Gotelli and Colwell, 2001). 

Additional indicators of biodiversity are the existence of rare 

or threatened species (Caro, 2010).

With threats to species driving biodiversity losses, biologists often use endangered species as an indicator of biodiversity. The loss of these species often represents a loss to an 

ecosystem’s overall diversity. This circular discusses mechanisms focused on endangered and threatened species as well as 

other indicators, such as wildlife habitat.

This circular focuses on market-like and market-based 

incentives for individual species conservation rather than 

biodiversity in a holistic sense, although incentives for conservation of a species’ habitat can have broad impacts across 

the species that make up biodiversity in a given area. An area 

suited for further research into market-based mechanisms is 

comprehensive strategies that integrate considerations about 

maintaining and restoring ecosystems essential to biodiversity 

at all scales—genetic, species, ecosystems and landscapes. 

One way of doing this is to apply the market concept to 

broader-scale planning and management that considers fish 

and wildlife needs alongside other ecological goals like clean 

water, clean air, and protection from floods, fire, and other natural and anthropogenic disturbances. An awareness of the need 

to address a variety of threats at appropriate scales is becoming more apparent. For example, hydrologic processes, invasive species, fire, human development, and climate change all 

occur on broad scales and cannot be addressed on a speciesby-species or site-by-site basis. These larger-scale assessments 

are critical to the identification and selection of priority sites 

for development and conservation, and more widely based 

“ecosystem service markets” may be more efficient for achieving larger-scale biodiversity conservation goals. Examples of 

addressing broader-scale biodiversity include Vickerman and 

Kagan (2014) and Culliney (2014). Research on the challenges 

and opportunities associated with broader-scale market mechanisms is an important need.

The Willamette Partnership defines biodiversity benefits 

as the “range of variables used to describe species population 

status and trend, habitat conditions, and ecological processes, 

as well as biodiversity values of a given area” (Willamette 

Partnership, 2011). Adopting this concept, biodiversity benefits in the context of this circular includes the protection, 

conservation, or restoration of biodiversity, species, or habitat 

and is limited to the United States.

Biodiversity benefits can be achieved on public and 

private land by nonprofit organizations, private citizens, 

Federal, State, or local government, and others. The ‘place’ 

where biodiversity benefits are received is termed the benefit 

site; this may be a geographic location where land is preserved, restored, or created to support biodiversity at a given 

level. Mitigation site is used interchangeably with benefit 

site. Impact sites are the geographic locations where some 

disturbance reduces or changes the composition of biodiversity. Within the scope of the current study, an impact site is 

a human-induced disturbance. Polluters is used as a general 

term to refer to those conducting activities that disturb, pollute, or otherwise negatively impact biodiversity.1

There are many economic and institutional mechanisms 

used to achieve biodiversity conservation (Casey and others, 2006). These mechanisms are identified as conservation 

mechanisms. Conservation mechanisms can be direct, voluntary activities; they can be prescriptive based on regulation; or 

they can be market-based or incentive driven. Direct, voluntary activities are actions that a private citizen or organization undertake to preserve or restore biodiversity based on 

their preference for biodiversity benefits. An example of this 

is a land trust that invests in land conservation. This circular 

focuses on market-based approaches and does not further 

consider direct, voluntary conservation mechanisms. Finally, 

the circular is limited to mechanisms that benefit biodiversity 

as a primary goal and does not include mechanisms that provide biodiversity as a co-benefit (such as wetland mitigation 

banks).

The implementation of regulations can take a prescriptive 

approach (for example, command and control) or a marketbased approach. Command and control approaches compel 

polluters to comply with specific parameters such as the use 

of best practices, use of specific technology, or the restriction 

of certain activities. While market-based approaches adhere 

to strict guidelines in the implementing of policy or programs, 

they provide additional flexibility for achieving biodiversity 

benefits in comparison to command and control methods 

(EPA, 2010). Command and control methods are considered to 

the extent that they provide a comparison with market-based 

alternatives to achieve biodiversity benefits. However, this 

circular does not include a comprehensive review of command 

and control approaches that benefit biodiversity.

Market-based or market-like approaches rely on incentives for biodiversity benefits. They may be voluntary or 

driven by regulation. Market-based approaches allow prices 

(or payments) to be determined through market exchange. 

Similar mechanisms, often considered as “market-like,” 

rely on a fixed price that can be determined by the cost of a 

practice or by another approach. Market-like approaches that 

benefit biodiversity include payments for ecosystem services 

(PES). Market-based approaches include compensatory mitigation markets, habitat exchanges, and eco-labels. For simplicity, market-like approaches are referred to in the same category as market-based approaches throughout this circular. It 

is noteworthy that incentives are commonly monetary, but not 

strictly, and other types of incentives are considered. Table 2 

summarizes the categories of conservation mechanisms, 

provides a description of each, gives an example, and indicates 

the parties usually involved in these types of approaches.

1

For conservation banking, the term ‘project proponent’ is used to identify 

those parties proposing a project that may impact a listed species. The more 

general term ‘polluter’ is used in this circular to identify project proponents 

and others that affect species, biodiversity, or habitat and may be market 

participants.
Chapter A—Introduction to Biodiversity and Habitat Markets 5

Provision of Biodiversity Benefits

All conservation market mechanisms in this circular are 

designed to provide biodiversity benefits. First, a market must 

translate biodiversity benefits into a good to be exchanged. 

The unit of exchange in a biodiversity or habitat market is 

typically a credit; in some cases it is a label that may induce a 

price premium. The credit represents an expected ecological 

outcome. A credit may have any number of specific meanings depending on the quantification methodology, but credits 

are a proxy representing the species, biodiversity, or habitat 

being considered and serve as the unit of trade exchanged. For 

example, in a conservation bank scenario developed for the 

preservation of a species, the credit may be an acre of habitat, 

an individual of the species, or a breeding pair. Since a credit 

is not a tangible good, confidence that the credit represents 

what it promises is an important component in a successful 

market.

To provide a biodiversity benefit, additionality must be 

present; alternatively known as uplift; above and beyond a 

baseline. The baseline is defined as the in-place biodiversity 

benefits that a site, whether a benefit or impact site, provides 

under current, non-improved conditions. For example, the 

current conditions of a habitat on a site may support 25 individuals from an endangered species. If a credit represents one 

individual, the site must increase to 26 individuals to provide 

a biodiversity benefit and to receive one credit. Uplift includes 

any measure that increases the long-term viability of a site to 

provide biodiversity benefits. In some cases, this includes protecting a previously unprotected site (as with a conservation 

easement), particularly if that site is at high risk for land use 

change.

A disturbance is also measured against the baseline. 

The impact is quantified as a debit. The debit represents the 

direct and indirect ecological damage expected to result from 

an activity. For example, given the baseline example of 25 

individuals, if a housing development is expected to reduce 

habitat so that only 12 individuals are supported, the debit will 

be 13 individuals. Equivalent approaches to quantify credits 

and debits are important for trading. Quantification methods 

should be scientifically sound, transparent, and consistent.

Another important concept in biodiversity and habitat 

markets is the measurement of ecological performance and the 

relationship of specific measures to market effectiveness and 

ecological outcomes. Both credits and eco-labels are based on 

an indicator of ecological performance; however, performance 

can be either practice- or outcome-based. Practice-based 

measurement assumes that a particular conservation practice 

(for example, vegetation management through grazing) will 

result in the desired ecological outcome. Performance-based 

measurement requires evidence that the intended biophysical 

results are being obtained.

Practice-based measurement can be inflexible and 

provides uncertain outcomes. For example, the implementation of the same practice on two different plots of land may 

have dissimilar results due to the land itself or the installation 

and management practices. A practice-based credit does not 

provide an incentive to ensure practices are optimally implemented unless there is effective monitoring. It also does not 

provide an incentive to supply the best habitat for conservation 

Table 2. Examples of direct, prescriptive, market-like, and market-based types of biodiversity conservation mechanisms.

Direct Prescriptive Market-like or market-based

Approach

Voluntary Command and control Payments for 

Ecosystem Services

Market-based 

compensatory 

mitigation

Multiproduct exchange Product differentiation

Description

Activities by private 

citizens or 

organizations to 

conserve/restore 

biodiversity

Required activities, 

mitigation, or 

best practice 

implementation 

based on regulation

Conservation or 

restoration by 

landowners 

incentivized by 

funding, or other 

incentive

Regulatory driven 

marketplace with 

ability to trade

Marketplace that 

includes multiple 

conservation or 

restoration credit 

types such as precompliance credits

Conservation/restoration 

conducted by 

landowners to appeal 

to consumers

Example

Land trusts Permittee-responsible 

mitigation

Conservation 

Stewardship Program 

Conservation bank Habitat exchange Eco-labeling

Parties

Private citizens, 

nonprofit 

organizations

Federal, State, or 

local governments; 

industry, developers

Federal, State, or 

local governments; 

landowners

Federal, State, or 

local governments; 

industry, developers, 

bankers, investors, 

entrepreneurs

Federal or State governments, nonprofit 

organizations, 

industry, developers, 

bankers, investors, 

entrepreneurs, 

landowners

Consumers, nonprofit 

organizations, 

suppliers, landowners
6 Biodiversity and Habitat Markets: Policy, Economic, and Ecological Implications of Market-Based Conservation

because all sites yield the same number of credits. The potential that ecological outcomes do not meet expectations is a 

significant risk in practice-based measurement. An important 

benefit, however, is that practice-based measurement is relatively simple and less expensive to implement than outcomebased approaches.

Outcome-based measurement allows flexibility for 

innovative conservation practices and ensures that ecological 

outcomes are attained before crediting. This approach is more 

costly to develop and monitor and puts more financial risk on 

the landowner or bank owner to ensure they attain outcomes 

regardless of the practices that they implement. When, how, 

and where to measure outcomes are critical questions. Chapter 

E describes ecological measurement in more detail.

The institutional design of biodiversity markets influences their overall capability to deliver conservation benefits. 

The terms of easements and the relative involvement of government influences landowner participation and the potential 

for biodiversity conservation. “There is an inherent trade-off 

between maximizing participation and maximizing the conservation benefits when designing a conservation incentive program” (Sorice and others, 2013). The structural components of 

the conservation mechanisms are discussed in Chapter C.

Introduction to Environmental Markets

Environmental markets, like traditional markets, are 

mechanisms used to exchange goods, in this case, environmental amenities. Environmental amenities can be cleaner 

air via reduced emissions, cleaner water via implementation 

of best management practices, or increased biodiversity via 

habitat creation. Environmental markets provide amenities 

not supplied in traditional markets due to market failure. The 

establishment of an environmental market typically requires 

some incentive to form the basis for supply and demand of an 

environmental amenity. Incentives are commonly monetary, 

but can take other forms such as legal assurances or the transfer of liability.

This circular focuses on market-based and market-like 

mechanisms, such as the Conservation Stewardship Program 

for achieving biodiversity benefits. Market-based mechanisms

are instruments that influence behavior through market signals 

rather than explicit directives (Stavins, 2001). Market signals 

are prices based on demand or supply. As a price increases, 

suppliers become willing to increase the quantity of supply. 

Conversely, as a price increases, the quantity demanded will 

decrease. Market-based mechanisms are designed to leverage market forces to achieve conservation goals in the most 

efficient manner.

The benefits of providing biodiversity often do not accrue 

to the landowner. A landowner may, therefore, utilize the land 

for a competing land use (such as for crops or grazing). This 

lack of remuneration for providing diverse, non-use services 

and biodiversity creates an economic problem known as an 

externality. Conservation payment mechanisms incentivize 

landowners to maintain or manage their property to improve 

biodiversity and habitat for which markets do not exist.

The conservation mechanisms are classified by the type 

of incentive they provide. For PES programs, the incentive is a 

direct financial payment. In the case of market-based compensatory mitigation, requiring mitigation induces demand for 

biodiversity and habitat credits. And for eco-labeling, the price 

of products is influenced by distinguishing a given product 

prompting a price premium.

From an economic perspective, the goal of an environmental market is to provide the desired level of environmental 

amenities with the greatest efficiency. An assumption about 

the benefits of environmental markets over command and 

control type regulation is that some parties can provide environmental amenities at a lower cost than others. The heterogeneity in the cost of supply provides an opportunity to increase 

the economic efficiency of achieving a given environmental 

objective. For instance, to protect an endangered species, 

ranchers may already have land suitable for the species, and 

the cost to enhance the habitat to allow the species to thrive is 

relatively low compared to the cost for a land developer who 

must mitigate the impact of development. This heterogeneity in cost allows the buyer―the land developer―to pay the 

rancher to achieve the biological objective for the species or 

a particular habitat. This result is a win-win-win situation: the 

species is protected, the rancher is compensated for protecting 

the species by managing or improving habitat on their land, 

and the developer incurs a lower cost.

Theory does not always translate into practice. The 

impacts of development on a species and approaches to ‘abate’ 

the impact are complex. The complexity of what constitutes 

biodiversity, measuring outcomes, and establishing markets 

for trade is challenging. The ecological needs of any species 

will differ from another, requiring specific land management 

practices whose overall impacts may or may not be well 

understood.

The complexity of biodiversity impacts and benefits is a 

substantial barrier to achieving efficient and effective markets. 

Market-based mechanisms are most successful when marginal 

environmental benefits are constant (Jack and others, 2008), 

although marginal environmental benefits from an additional 

Biodiversity Market Considerations

A traditional market is a place where buyers and sellers 

‘meet’ and goods are offered for sale with the potential for exchange. Biodiversity benefits are not goods 

traditionally brought to a market. What would be the 

good brought to the market for exchange? Why would 

one want to purchase biodiversity benefits or habitat? 

How would a buyer verify they received what they paid 

for? These challenges must be resolved to set up either 

a public administrative or private market for biodiversity 

or wildlife habitat.

Highlight 1
Chapter A—Introduction to Biodiversity and Habitat Markets 7

unit of biodiversity conservation practices may not be constant. 

Instead, they depend on source, location, the size of available 

habitat, ecological context, and the initial conditions of any impact 

or benefit site.

Despite the inherent complexity, there have been some initiatives to establish biodiversity and habitat markets. Additional 

efforts are currently underway to develop standardized, sciencebased tools that quantify habitat quantity and quality and relate 

them to desired biodiversity outcomes. The metrics and tools are 

discussed in greater detail in Chapter E. Chapter D examines the 

economic foundations of environmental markets more closely.

Introduction to Market-Based Conservation 

Mechanisms

Referring back to table 2, the approaches are ordered from 

left to right as the least to most market-like. The final column is the 

suite of market-based mechanisms being attempted in the United 

States that are considered in detail in this circular. Practice-based 

payments for ecosystem services (PES) are commonly used by 

the Federal Government to provide biodiversity and other environmental benefits (including water quality and carbon sequestration). Typically, PES are market-like rather than market-based, 

with payments that are fixed outside of a market exchange. This 

approach often occurs with a contract between one buyer and one 

seller, rather than in a market for competitive exchange. PES are 

important mechanisms to encourage biodiversity conservation with 

the use of a price signal and are considered along with the more 

traditionally market-based approaches in this circular.

Conservation banks more closely mimic a marketplace than 

PES due to the establishment of multiple buyers and sellers (theoretically, if not in practice). Habitat exchanges are multi-credittype marketplaces. These can include credits from conservation 

banks, pre-compliance credits, and other types of voluntary credits. 

Finally, eco-labels are a mechanism used to differentiate products 

with practices that protect biodiversity. A brief description of each 

conservation mechanism is provided below.

Market-Like Payments for Ecosystem Services (PES)

“...simply stated, is defined as a voluntary, conditional agreement 

between at least one ‘seller’ and one ‘buyer’ over a well-defined 

environmental service—or a land use presumed to produce that 

service” (Wunder, 2007). It is important to note that this definition 

limits PES to voluntary agreements. Conservation mechanisms 

in this category rely on an incentive (monetary or otherwise) to 

induce action unlike the direct conservation activities previously 

described. There are other definitions of PES, and this term is 

often used to represent all types of activities in which a payment is 

exchanged for an ecosystem service; however, PES here references 

the direct, voluntary payments and agreements for biodiversity and 

habitat considered in this circular.

PES programs may be funded by government entities or 

others such as nonprofit organizations or utilities (see an example 

in highlight 2). There is a limited pool of buyers and sellers, and 

agreements are typically between one buyer and one seller. While 

PES are traditionally an agreement for a specific outcome, this 

Highlight 2

Natural Resources Conservation Service Sage 

Grouse Initiative

The U.S. Department of Agriculture Natural 

Resources Conservation Service (NRCS) started 

the Sage Grouse Initiative in 2010 to encourage partnerships within agency programs and 

with external partners to conserve the bird and 

its habitat. The sage grouse is a candidate for 

listing by the Fish and Wildlife Service on the 

Endangered Species list. Conservation investment pre-listing may prevent the need to list 

and the potential for recovery prior to listing 

may be higher.

By making the sage grouse and its habitat, 

sagebrush steppe, a priority, the NRCS is 

leveraging multiple payments for ecosystem 

programs including the Environmental Quality 

Incentives Program and the Wildlife Habitat 

Incentive Program to provide technical and 

financial assistance to encourage rangeland 

practices that benefit the birds. The Farm Bill 

provides funds, and the initiative is designed to 

encourage additional funding from partners. In 

Idaho, financial incentives for easements from 

the NRCS are supplemented by The Nature 

Conservancy, The Blaine County Land and 

Wildlife Program and other sources.

Since 2010, over 700 ranchers have joined in the 

initiative and implemented practices on 2.5 million acres of rangeland across multiple States. 

The Initiative has a science-based strategy that 

includes conservation easements on core sage 

grouse areas, installation of fence markers to 

reduce bird collisions, removal of junipers, and 

increased sagebrush cover.

Adapted from USDA, 2013b.

Photograph by U.S. Fish and Wildlife Service
8 Biodiversity and Habitat Markets: Policy, Economic, and Ecological Implications of Market-Based Conservation

discussion of PES includes practice-based payments that 

incentivize biodiversity and habitat conservation. While outcomes may vary from field to field, best management practices 

have often been demonstrated to provide specific environmental benefits.

PES programs are growing internationally and vary in 

objective from carbon sequestration to protecting a specific 

species. In the United States, PES policies have been in place 

for a number of decades in the form of conservation programs 

that pay landowners to carry out conservation through specific 

management practices, but not necessarily for the outcomes of 

those practices. The USDA’s Conservation Reserve Program 

has paid farmers to plant permanent vegetation on environmentally sensitive cropland since the mid-1980s (Sullivan and 

others, 2004).2 A study by Forest Trends (Mercer and others, 

2011) estimated that in 2007, government PES for forestlands to benefit biodiversity totaled about $31.7 million. The 

USDA and the Department of the Interior have multiple PES 

programs.

There are also incentive-based programs that do not 

provide monetary payments. Like PES, these programs leverage incentives to influence landowner behavior. Regulatory 

assurances, such as the Safe Harbor Program administered by 

the FWS, provide examples of non-monetary incentives. With 

Safe Harbor Agreements, the FWS or National Marine Fisheries Service (NMFS) provide assurances that no additional 

regulatory constraints will be placed on a landowner if the land 

is managed for a listed species for an agreed amount of time, 

providing a net conservation benefit. According to the FWS 

(2005b), more than 300 landowners are enrolled in Safe Harbor 

Agreements that protect 36 endangered or threatened species.

Fundamentally, a PES approach provides a monetary 

incentive to establish a benefit site, and is a formal agreement 

between two parties. PES approaches are considered in greater 

detail in the following chapters.

Market-Based Compensatory Mitigation Programs have 

statutory or regulatory authority driving them that requires a 

polluter to offset the environmental impacts of their activities. Under this approach, an impact site results from a human 

activity which must be mitigated via a benefit (or offset) site. 

Polluters are allowed to conduct the activities that create the 

impact site and to purchase credits from a benefit site to offset 

2

Marc Ribaudo (USDA Economic Research Service), written commun., 

December 31, 2014 argued that traditional practice-based subsidy payments 

are not PES, rather PES instruments are limited to mechanisms that base payments on the amount of environmental services produced. The authors adopt 

a broader view after Jack and others (2008) to include payment for practice 

mechanisms and consider those within the PES category. While payment 

is based on practice cost rather than environmental services, the practice 

is designed to achieve an environmental objective and the purpose of the 

payment is to incentivize behavior that results in that objective. In regards to 

the economic efficiency of practice-based payments versus outcome-based 

mechanisms, Ribaudo describes the advantages of an outcome-based payment 

that encourages landowners who can provide the most environmental services 

at the lowest cost to enter a program without the need for specific government 

targeting. The authors agree and compare practice- versus outcome-based 

mechanisms in more detail in Chapter E.

these activities. This provides an opportunity for the mitigation to be achieved at the lowest cost while ensuring that ecological requirements are met. In comparison to PES programs, 

compensatory mitigation provides an incentive for voluntary 

benefit site development, but the incentive comes from the 

polluter being required to mitigate rather than from a payment 

by the government. This approach has a shorter history than 

PES in the United States.

Similar to PES programs, compensatory mitigation can 

be implemented to achieve numerous objectives, including 

species protection, water quality, and wetland protection. For 

biodiversity benefits, the primary market-based compensatory mitigation program is conservation banking. A conservation bank is “a site where habitat and/or other ecosystem 

resources are conserved and managed in perpetuity for listed 

species expressly for the purpose of offsetting impacts occurring elsewhere to the same resource values” (FWS, 2003). As 

previously mentioned, endangered species and their habitat are 

common indicators for overall native biodiversity. A conservation bank is a compensatory mitigation program requiring 

polluters to mitigate impacts to listed species.

Individual landowners, including farmers, or in other 

cases professional mitigation bankers, establish conservation 

banks that must be approved by the FWS or NMFS, which 

administer conservation bank programs. There are currently 

132 conservation banks in the United States (USACE, 2014). 

An example of a conservation bank in California which 

provides a benefit site for multiple species, including the San 

Joaquin kit fox, is featured in highlight 3. This is one bank of 

many that provide benefit sites for this species, and there are 

multiple buyers (such as polluters) that may choose this or 

other banks from which to purchase credits.

In comparison to PES approaches, conservation banks 

more closely resemble a market, with the potential for multiple buyers and sellers to compete for the same ‘product’ 

or ‘revenue’. Banks are intended to preserve large tracts of 

land. The Wetland Banking Program administered by the U.S. 

Army Corps of Engineers (USACE) has provided lessons 

for the development of the conservation banking program. In 

particular, findings by the Government Accountability Office 

(2005) that the wetland banking program lacked oversight and 

that permittee-responsible mitigation was largely unsuccessful 

provided motivation to develop a conservation banking program that includes strong oversight and monitoring to ensure 

improved biodiversity outcomes.

It is important to note that a conservation bank must 

maintain land for the given purpose in perpetuity, in contrast to PES, which often have annual, 5-year, or 10-15 year 

contracts. There are considerable implications caused by the 

requirement for land to be set aside in perpetuity, and the positive and negative effects are discussed in greater detail in the 

following chapters.

Habitat Exchanges are a platform to exchange habitat 

or biodiversity credits, or a marketplace. Building on the 

concept of conservation banks, habitat exchange developers 

attempt to apply the approach more broadly to regulatory or 
Highlight 3

Deadman Creek Conservation Bank

Deadman Creek Conservation Bank is a multi-species bank 

in southwest California managed by Wildlands, Inc. The 

684 acre bank was approved and provided 639 credits for 

upland habitat to offset San Joaquin kit fox habitat impacts. 

To date, the bank has sold 429 credits (USACE, 2014). The 

San Joaquin kit fox is federally listed as an endangered 

species and it’s estimated that only a few thousand remain 

in its native California range (NatureServe, 2013).

One stipulation of a conservation bank is a management 

plan; the Deadman Creek Conservation Bank uses grazing 

to reduce invasive species and maintain native vegetation 

species (Wildlands, Inc., 2008). In coordination with a permanent easement, the management activities are designed 

to support the kit fox and other wildlife. The management 

plan also accommodates compatible activities such as bird 

watching and hunting. Grazing, recreation, and hunting may 

all be sources of additional revenue (above and beyond the 

sale of credits) for the owner. This revenue can help sustain 

the bank and incentivize investment in new bank locations.

Another stipulation of a conservation bank is that impact sites 

must be located within a specified service area. This condition 

protects diverse subpopulations. 

Photograph by U.S. Fish and Wildlife Service

Chapter A—Introduction to Biodiversity and Habitat Markets 9

Photograph by U.S. Fish and Wildlife Service
10 Biodiversity and Habitat Markets: Policy, Economic, and Ecological Implications of Market-Based Conservation

pre-compliance markets that can address candidate species or 

other voluntary habitat conservation scenarios in addition to 

listed species.

Pre-compliance demand is based on industry (including 

agriculture) and agency agreements to achieve conservation 

while reducing regulatory uncertainty about development and 

land-use activities. Firms and agencies are willing to pay to 

reduce this uncertainty and penalties associated with species 

impacts. For example, the Colorado Habitat Exchange is being 

developed by a number of parties to provide a market structure 

that allows ranchers who improve their land for sage-grouse to 

sell habitat credits to energy developers to offset their impacts 

on sage-grouse, pre-listing. The objective is to establish an 

incentive-driven market that can result in a net benefit for the 

species and potentially eliminate the need for a listing (Environmental Defense Fund (EDF), 2013a).

A similar example is the voluntary gopher tortoise habitat 

credit system, which is based on demand from an Army base 

in the tortoise’s current range, but where the species is not 

currently listed. This effort is featured in highlight 4. Habitat 

exchanges are trying to reverse species or biodiversity loss to 

minimize the need for regulatory action while achieving conservation gains. By managing the habitat needs of a species of 

concern, the entire ecosystem benefits.

An exchange can provide the platform for voluntary and 

compensatory mitigation, and in the case of compulsory mitigation the polluter purchases a credit from a conservation bank 

via the exchange. The exchange platform theoretically brings 

all buyers and sellers to a single, virtual marketplace. This can 

make it easier for buyers to find credits and increase market 

transparency. Exchanges are discussed in greater detail in the 

following chapters.

Certification or Eco-labeling is a way to differentiate 

a product based on how it is produced; in this case when it 

supports a species, habitat, or overall biodiversity in a specific 

place or type of habitat. By differentiating a product, consumers may shop more selectively and may be willing to pay 

more, providing an incentive and competitive edge for producers who conduct biodiversity-friendly activities. An example is 

the Salmon-Safe eco-label available in the Pacific Northwest. 

The label is only given to businesses verified by Salmon-Safe 

as using practices that lead to better habitat quality for salmon; 

currently, more than 60,000 acres of farm and urban lands 

are certified Salmon-Safe in Oregon, Washington, California, 

and British Columbia (Salmon-Safe, 2014). Eco-labeling is 

discussed in greater detail in the following chapters. See Casey 

and others (2006) for more examples of eco-labeling.

Voluntary Gopher Tortoise Habitat Crediting System

The American Forest Foundation and the World Resources 

Institute partnered to develop a voluntary conservation 

banking system to protect and enhance the longleaf pine 

habitat that eastern gopher tortoises rely on. The tortoise is 

listed as threatened in its western range and is a candidate 

for listing in its eastern range. The partnership’s goal is to 

encourage conservation banks to provide habitat pre-listing. A bank can generate credits based on a set of indicators of good longleaf pine habitat for tortoises. The credit 

itself is a tradable unit of habitat.

The gopher tortoise habitat crediting system illustrates the 

indicators often used to assess the biodiversity benefits of 

a conservation activity. For operation, indicators need to be 

comprised of a standard set of observable and verifiable 

metrics. Although the crediting system was developed, this 

initiative has not been implemented.

The figure below shows the relationship between the 

gopher tortoise and the longleaf pine forest. A potential listing of the species is the regulatory impetus for generating 

interest and demand for credits that will mitigate activities 

that would disturb the tortoise habitat.

The metric used to measure conservation is a unit of 

longleaf pine habitat which can be turned into a credit and 

traded. The ecological premise is that the habitat leads 

to tortoise benefits. In turn, tortoises are an indicator of 

ecosystem health and the other species of the longleaf pine 

forest can benefit as well, leading to overall biodiversity 

increases.

Adapted from Gartner and Donlan, 2011.

Highlight 4

Photograph by U.S. Army
Chapter B—Policy Context for Biodiversity and Habitat Markets

To understand the market-based mechanisms considered 

in this circular, reviewing the regulatory context in which 

these market-based mechanisms evolved is important. The 

different approaches may or may not have a specific regulatory mandate. Additionally, the overarching policy, including guidance developed by agencies, can affect how market 

mechanisms are implemented programmatically and for individual projects. The regulatory and policy context that impacts 

biodiversity or habitat markets is explored in this chapter.

Payment for Ecosystem Services

Payment for Ecosystem Services (PES) is an incentivebased approach that promotes conservation or restoration of 

environmental services by private landowners through funding 

from the government or other sources. There are Federal, 

State, and local government mandates that promote the use 

of payments for ecosystem services. The Federal Government has provided payments to farmers for soil conservation 

since the 1930s (Scarlett and Boyd, 2011). This earlier process 

evolved into the current PES suite of programs (some of which 

are practice-based and payments are largely cost-based) mandated by the Food Security Act of 1985 (Public Law 99–253). 

Commonly known as the Farm Bill, this act has gone through 

multiple iterations over the years with the most recent being 

the Agricultural Act of 2014 (Public Law 113–79). The Farm 

Bill has established many conservation programs that provide 

private landowners with cost-share payments. The Farm Bill 

also provides procedural rules for the conservation programs 

managed by the USDA.

Current Farm Bill-based PES programs with the potential to create biodiversity benefits include the Conservation 

Reserve Program, the Conservation Stewardship Program, the 

Environmental Quality Incentives Program, the Agricultural 

Conservation Easement Program, the Regional Conservation 

Partnership Program, and the Forest Legacy Program. Other 

Federal Government efforts to incentivize biodiversity benefits 

include the Partnership for Fish and Wildlife Program. There 

are also PES programs supported by State or local regulations 

and those that have no regulatory driver. The scope of the PES 

programs considered in this circular includes only voluntary 

participation programs (as compulsory mitigation is considered 

separately). This section describes the major Federal efforts 

along with examples of State and local programs.

Farm Bill Programs

Conservation Reserve Program (CRP) is one of the longest running federally funded programs and was established in 

the Food Security Act of 1985. CRP is a voluntary land rental 

program in which private agricultural producers receive payments and cost-share assistance in return for planting vegetation cover on their land to deliver ecosystem services such as 

soil erosion reduction, water quality improvement, and the 

development of wildlife habitat (USDA, 2013a). CRP funds 

aimed at improving or preserving wildlife habitat are considered in this circular.

Section 1231 of the Food Security Act of 1985 provides 

programmatic guidance for CRP including the determination 

of eligible cropland, maximum enrollment in the program, 

contract duration, procedures for handling conservation priority areas, re-enrollment guidance, and the balance of natural 

resource purposes. The overall acreage covered in CRP is 

scheduled to decrease over the next four years from a maximum acreage of 27.5 million acres in 2014 to 24 million acres 

in 2018.

Conservation Stewardship Program (CSP) was established by the Farm Security and Rural Investment Act of 2002 

(United States Government, 2002). CSP is a voluntary, performance-based program in which private agricultural producers receive payments for maintaining and improving existing 

conservation activities and adopting additional conservationbased activities that address natural resource concerns (USDA, 

2014c). The benefits of CSP include improvement in soil conditions, air and habitat quality, water quality and quantity, and 

energy conservation. This circular focuses on the CSP funds 

aimed at improving or preserving wildlife habitat. Highlight 5 

describes an example of CSP in action to benefit Missouri 

Quail. Section 1238D of the Food Security Act of 1985, as 

amended through 2014, provides programmatic guidance for 

CSP including the establishment and purpose of the program, 

the determination of eligible land, stipulations of stewardship 

contracts, and the duties of the USDA in the program. To reach 

the program’s conservation goals, the USDA identifies at least 

five priority resource concerns in a particular watershed, appropriate region, or area within a State that stewardship agreements are designed to address through performance thresholds. 

Unlike CRP, CSP is scheduled to increase in size; from 2014 to 

2022, the program is allowed to increase by 10 million acres a 

year with a national average payment of $18 per acre.
12 Biodiversity and Habitat Markets: Policy, Economic, and Ecological Implications of Market-Based Conservation

Environmental Quality Incentives Program (EQIP)

was established by the Federal Agriculture Improvement and 

Reform Act of 1996 (United States Government, 1996). EQIP 

is a voluntary program in which agricultural producers receive 

financial and technical assistance to implement conservation 

practices or conservation planning to deliver environmental 

benefits such as improved water and air quality, conserved 

ground and surface water, reduced soil erosion and sedimentation, or improved or created wildlife habitat (USDA, 2014d). 

The potential benefits for biodiversity and wildlife habitat 

generated by this program are included in this circular. Section 

1240 of the Food Security Act of 1985, as amended through 

2014, provides programmatic guidance for EQIP including 

the purpose of the program, establishment and administration, evaluation of applications, the duties of the agricultural 

producers, the duties of the USDA, limitations on payments, 

and guidance for competitive grants for innovative conservation approaches. Similar to CSP, EQIP is scheduled to increase 

in size. The program will receive $1.35 billion in 2014, $1.6 

billion in 2015, $1.65 billion in 2016, $1.65 billion in 2017, 

and $1.75 billion in 2018. Previously a standalone program, 

the Wildlife Habitat Incentive Program (WHIP) is now a component of EQIP. WHIP supports conservation practices that 

promote restoration, development, protection, and improvement of upland wildlife habitat, wetland wildlife habitat, 

threatened and endangered species habitat, fish habitat, field 

pivot corners, and other types of wildlife habitats. Each fiscal 

year between 2014 and 2018, WHIP is slated to receive at least 

five percent of appropriated EQIP funds.

Agricultural Conservation Easement Program (ACEP)

was established by the 2014 Farm Bill. ACEP is a voluntary 

program in which agricultural producers receive financial 

Conservation Stewardship Program and Missouri Quail

Scott County, Missouri, is an intensely farmed area where 

soybeans, corn, wheat, and cotton are produced in large 

fields with few environmental habitat benefits for wildlife. 

Bird populations such as quail have experienced population 

declines in this area.

Before the Conservation Stewardship Program, portions of 

Scott County were designated quail focus area where farmers were encouraged to convert cropland to quail habitat, 

but there was little progress.

In 2005 and 2006, CSP funds were made available in two 

watersheds covering most of the Scott County quail focus 

area. Missouri Department of Conservation biologists and 

NRCS employees worked together to incentivize the best 

land stewards in the area to improve their environmental 

performance by helping them meet wildlife enhancement 

criteria. These included quail-friendly wildlife practices like 

adding shrubby cover and diverse crop rotations, and leaving rows of unharvested grain standing in fields.

Under CSP, 3.5 percent of the county’s cropland was 

converted to quality quail habitat, resulting in an increase 

of roadside quail counts of 200 percent. Quail siting reports 

from hunters also increased after the program’s inception.

Adapted from National Wildlife Federation (NWF, 2014).

Highlight 5

Photograph by U.S. Fish and Wildlife Service

and technical assistance to conserve agricultural lands and 

wetlands, and their related benefits. Benefits such as environmental quality, historic preservation, wildlife habitat, and 

protection of open space are managed under the Agricultural 

Land Easements component of ACEP. The Wetland Reserve 

Easements component provides assistance for the provision of 

habitat for fish and wildlife, improved water quality, reduced 

flooding, groundwater recharge, and protected biological diversity (USDA, 2014a). ACEP consolidated the three 

formerly independent programs: Grassland Reserve Program, 

Wetlands Reserve Program, and the Farm and Ranchland 

Protection Program into one larger easement program (NWF, 

2014). Section 2301 of the Agricultural Act of 2014 provides 

programmatic guidance for ACEP including the establishment 

and purpose of the program, stipulations for Agricultural Land 

Easements, stipulations for Wetland Reserve Easements, and 

administration. Funding for ACEP increases through 2017, 

with the program scheduled to receive $400 million in 2014, 

$425 million in 2015, $450 million in 2016, $500 million in 

2017, and then decreasing to $250 million in 2018.

Regional Conservation Partnership Program (RCPP)

was established by the 2014 Farm Bill. RCPP is a voluntary 

program in which NRCS coordinates with State, local, and 

regional partners to help agricultural producers install and 

maintain conservation activities in selected project areas to 

deliver environmental benefits such as clean and abundant 

water, healthy and productive soils, and enhanced wildlife and 

pollinator habitat (USDA, 2014e). This circular focuses on the 

enhanced wildlife and pollinator habitat that RCPP delivers. 

Section 1271 of the Agricultural Act of 2014 provides programmatic guidance for RCPP, including the establishment 

and purpose of the program, procedures for creating regional 
Chapter B—Policy Context for Biodiversity and Habitat Markets 13

conservation partnerships, stipulations for contracts with agricultural 

producers, funding, administration, and the stipulations for critical 

conservation areas. RCPP will be appropriated $100 million for each 

of the fiscal years from 2014 through 2018, with 25 percent of funds 

allocated to projects on the basis of a State competitive process, 40 percent of funds allocated to projects on the basis of a national competitive 

process, and the remaining 35 percent of funds allocated to projects for 

critical conservation areas.

Forest Legacy Program is a USDA program that provides financial incentives to private forest landowners to prevent forest conversion 

and fragmentation and ultimately protects wildlife habitat. The Cooperative Forestry Assistance Act (CFAA) of 1978, as amended, (16 U.S.C. 

2101 et. seq.) authorizes the USDA to provide financial, technical, 

educational, and related assistance to States, communities, and private 

forest landowners. The USDA delegates authority of program administration to the U.S. Forest Service (USFS). The CFAA and the Farm 

Bill jointly provide the authority and means for the USFS to administer 

this PES program. The Forest Legacy Program (FLP) was established 

in Section 1217 of Title XII of the Food, Agriculture, Conservation, and 

Trade Act of 1990 (United States Government, 1990b). The mission 

of the program is to protect private forests nationwide and promote 

sustainable forest management for working forest lands (U.S. Endowment for Forestry and Communities, 2008). In 2003, the USFS published guidance for the implementation of FLP. The guidance specifies 

the land eligibility criteria, the process for allocating funds, cost share 

requirements, and required monitoring, management, record-keeping, 

and enforcement (USFS, 2003). The USFS works with State partners 

and may fund up to 75 percent of project costs to private landowners as 

part of conservation easement acquisition; 25 percent of the funds may 

come from private, State or local sources (USFS, 2013). Participants 

may also be eligible for tax benefits. FLP protected more than 1.5 million acres of working forests across 36 States and Puerto Rico in 2008 

(U.S. Endowment for Forestry and Communities, 2008).

While the Farm Bill offers multiple PES programs, there are 

potential factors that could constrain biodiversity benefits. In the past, 

Farm Bill conservation programs have been criticized for inefficiently 

allocating funds to high-priority ecosystems and not using metrics 

related to ecosystem functionality or types of ecosystem services provided when evaluating program results (Scarlett and Boyd, 2011). It is 

important to note that the Farm Bill conservation programs mentioned 

in this section are voluntary. The success of each program is therefore 

highly dependent on how many private landowners are willing to participate. A number of factors influence willingness to participate in PES 

programs, including awareness of existing programs, knowledge of 

ecosystem services, willingness to enter into contracts, and willingness 

to work with Federal, State, or local governments (Prokopy and others, 

2008).

Other Federal Programs

Partners for Fish and Wildlife Program (PFWP) is a PES program administered by the FWS (see an example in highlight 6). The 

program was not directly established through legislation. Rather, the 

Fish and Wildlife Act of 1956 and the Fish and Wildlife Coordination 

Act provided the authority to use Federal funds to benefit wildlife on 

private lands. The FWS has used this authority to provide additional 

Highlight 6

Batten Kill River Brook Trout Stream 

Restoration Project

Brook trout are often considered health 

indicators for the watersheds they inhabit. 

Healthy brook trout populations may 

indicate that a stream or river ecosystem 

is healthy and that water quality is good. 

Eastern brook trout populations have 

declined greatly and are now primarily 

found in scattered headwater streams.

Eastern brook trout habitat is threatened in 

many parts of the northeast United States 

by extensive erosion, widening, and shallowing of rivers. Eastern brook trout, alongside other native species, prefer deeper, 

cooler channels. To address this issue, a 

project on the Batten Kill River in Washington County, New York, is implementing 

measures to restore fish habitat.

The partnership is leveraging funds from 

the FWS Partners for Fish and Wildlife Program, along with the Batten Kill Watershed 

Alliance of New York, Vermont Trout Unlimited, and the Washington County Soil and 

Water Conservation District. Working with 

local landowners, the habitat restoration 

includes returning this section of river to 

a natural channel by installing rock vanes, 

log vanes, and large wood debris. The 

channel and materials provide substrate 

for macro invertebrate production and 

cover for juvenile fish.

This project restored 17 sections of the 

river for a total cost of $87,000. Not only are 

benefits expected for eastern brook trout 

but for many native species that occupy 

similar habitat and even the entire local 

ecosystem.

Adapted from FWS Regional Showcase 

Accomplishments, 2010, Available at: http://

www.fws.gov/partners/docs/PFW_Accomplishments_2010.pdf.

Photograph by U.S. Fish and Wildlife Service
14 Biodiversity and Habitat Markets: Policy, Economic, and Ecological Implications of Market-Based Conservation

Highlight 7

The Bobolink Project

The Bobolink Project was started in 2007 

in Jamestown, Rhode Island, to protect the 

habitat of bobolinks, promote ecosystem 

services as a marketing opportunity for 

local farmers, and to encourage community members to participate in ecosystem 

preservation.

Bobolinks are small migratory birds that 

nest in open grassy fields. This makes 

farm hay fields a perfect breeding habitat 

for Bobolinks. Unfortunately, bobolink 

populations have declined due to loss of 

habitat from the reduction of the number of 

hayfields in North America, conversion of 

fields from hay to corn and soybeans, and 

the increased frequency and intensity of 

hay cutting over the past 30 years. Farmers 

often mow their fields before young bobolinks can fly; young that survive the mowing 

often fall victim to predators.

Unlike the mandate-driven PES programs 

of the Farm Bill and State damage compensation programs, the Bobolink Project was 

founded on an initiative by the University of 

Rhode Island (URI) and EcoAsset Markets 

Inc. (EAM) to gauge the willingness of 

Jamestown community members to pay 

farmers to delay mowing hayfields until 

after young bobolinks are ready to leave 

their nests.

In 2007 and 2008, residents of Jamestown 

preserved five fields during the bobolink 

breeding season via community payments 

to farmers, which helped hatch an estimated 40 to 60 bobolinks. Since then, the 

Bobolink Project has spread throughout 

Rhode Island and into parts of Vermont.

Adapted from Jain, 2013 and Bobolink 

Project Official Website, 2014

Photograph by U.S. Fish and Wildlife Service

funds to CRP projects (established in the 1985 Farm Bill). Initially, the 

focus of the PFWP was wetland restoration, but it currently provides 

funding for fish habitat and endangered species habitat restoration 

(FWS, 2011a). The program was established in 1987 as a small collaborative effort and is considered the FWS premiere non-regulatory and 

voluntary habitat restoration program.

In 2006, Congress enacted the Partners for Fish and Wildlife Act 

(Public Law 109–294, 16 USC 3771). Nearly twenty years after its 

initiation, the act acknowledges that the majority of wildlife is found on 

private lands and that the program exemplifies cooperative conservation as an innovative, voluntary partnership with private landowners 

to restore wetland and other fish and wildlife habitat. The act specifies 

which species are considered and defines habitat enhancement, establishment, improvement, and restoration in detail. The act authorized the 

FWS to continue providing technical and financial assistance under this 

program and authorized $75 million per year through 2011. The PFWP 

has restored an estimated 800,000 acres of wildlife habitat across the 

nation since 1987 (FWS, 2011a).

In 1984, Congress chartered the National Fish and Wildlife 

Foundation (NFWF) to “further the conservation and management of 

fish, wildlife, plants, and other natural resources” of the United States 

(National Fish and Wildlife Foundation Establishment Act, 16 U.S.C. 

§3701 et seq.). The NFWF acts as a third party to direct funding from 

litigation or required for mitigation towards effective conservation programs. This approach brings funds from multiple sources together and 

increases the ease of administering grants to biodiversity and habitat 

restoration projects.

State and Local Compensation Programs

Much like the Farm Bill conservation programs, regulatory and 

non-regulatory programs at the State and local levels offer landowners financial incentives to offset threats to specific habitats or species. 

Examples of compensation programs that offer these types of incentives include reimbursements to landowners who suffer losses due to 

wildlife predators and payments to agricultural producers for adopting 

land management practices that benefit biodiversity.

As humans and predators occupy the same habitat, there is a growing risk that carnivores prey on pets or livestock which could encourage depredation by humans. Compensation programs are designed to 

mitigate these types of conflicts between humans and wildlife to sustain 

biodiversity (Casey and others, 2006). Since 1982, the State of Wisconsin has used a compensation program for livestock losses caused 

by wolves. Administered by the Wisconsin Department of Natural 

Resources and the Bureau of Endangered Resources, the Wisconsin 

wolf compensation program pays designated percentages of losses to 

all livestock, commercially raised game animals, hunting dogs, pets, 

and veterinary bills for injured animals (Agarwala and others, 2010). 

Other animals covered under compensation programs include the 

pronghorn antelope in Colorado, the black bear in Pennsylvania, and 

deer and elk in Washington (Wagner and others, 1997).

Private, often nonprofit efforts to pay for ecosystem services 

are not based on regulation but may provide meaningful biodiversity 

benefits. An example of a local program that is non-regulatory driven is 

the Bobolink Project in Jamestown, Rhode Island, which is discussed in 

highlight 7.
Chapter B—Policy Context for Biodiversity and Habitat Markets 15

Conservation Banking

Conservation banking is a market-based approach to 

compensatory mitigation. A strong regulatory mandate allows 

for the use of conservation banks to achieve biodiversity 

benefits. However, under the current regulatory regime, polluters may choose an in-lieu fee option or permittee-responsible 

mitigation. Agency guidance provides the procedural rules for 

conservation banking.

Federally listed endangered or threatened species can be 

indicators of biodiversity, but not necessarily.3 The Endangered Species Act (ESA) (Public Law 93–205) “set the 

nation’s biodiversity conservation policy on a path that emphasized species-based conservation and triggered action only 

when a species faced imminent extinction” (Davis and others, 

2006). Not only does the ESA set the course for focusing on 

species, it also serves as the regulatory authority that enables 

protection of the listed species.

The purpose of the ESA is to “provide a means whereby 

the ecosystems upon which endangered...and threatened species depend may be conserved...[and] to provide a program 

for the conservation of such endangered...and threatened species...” (16 U.S. Code § 1531). The regulation prohibits ‘take’ 

of endangered or threatened species - defined as to “harass, 

harm, pursue, hunt, shoot, wound, kill, trap, capture, or collect, 

or to attempt to engage in any such conduct” (16 U.S. Code 

§ 1532). The ESA sets out procedures for listing species as 

endangered or threatened and designating critical habitat. The 

Federal agencies responsible for regulating endangered species 

are the FWS for terrestrial and freshwater species and some 

marine mammals, and the NMFS for marine and anadromous 

species.

Section 4(d) of the ESA allows the FWS to establish 

special regulations for threatened―not endangered―species, subspecies, and Distinct Population Segments (FWS, no 

date). If “necessary and advisable to provide for the conservation of such species”, Section 4(d) allows for special rules to 

take the place of normal ESA protections. The special rules 

allow relaxation of normal ESA restrictions if it is in the best 

interest of species recovery. The special rules provision allows 

regulatory flexibility in the ESA and allows for take of certain 

threatened species under well-defined circumstances (Martin 

and Mead, 2014).

Sections 7(a)(1) and 10(a)(1)(B) of the ESA provide additional regulatory language to govern mitigation of incidental 

take. Where 7(a)(1) applies to Federal agencies, 10(a)(1)(B) 

applies to private entities. Section 7(a)(1) requires that Federal agencies, in consultation with―and with the assistance 

of―the FWS, use their authority in furthering ESA purposes 

by carrying out programs for conservation of listed species. 

Impacts on listed species are minimized by including conservation measures in a Federal agency’s project description.

3

Vickerman ((formerly of Defenders of Wildlife), written commun., December 29, 2014) points out that a particular listed species may not be a good 

indicator of overall biodiversity.

Section 10(a)(1)(B) authorizes the FWS to issue a permit 

to non-Federal entities for the incidental take of endangered 

and threatened species that might occur during an otherwise 

legal activity. A habitat conservation plan must accompany an 

incidental take permit, which ensures that the effects of the 

permitted action on covered species are adequately minimized 

and mitigated, and that the action does not jeopardize the 

survival and recovery of a particular species.

The implementation of ESA sections 7(a)(1) and 10(a)

(1)(B) create the need for mitigation to offset impacts to listed 

species and their habitat (Ruhl and others, 2005). Mitigation 

for activities that impact threatened species is compensatory 

or required by statute. The party responsible for impacts may 

choose to implement either permittee-responsible mitigation, 

the in-lieu fee program (where available), or purchase credits via a conservation bank (U.S. Department of the Interior 

(DOI), 2013b). Conservation banking is the market-based 

mechanism designed to meet mitigation requirements.

The in-lieu fee program provides the funds to a governmental or nonprofit natural resources management entity for 

restoration, establishment, enhancement, and preservation of 

habitat to satisfy compensatory mitigation. This option may be 

offered at the discretion of the FWS if no conservation banks 

are available for credit purchasing. In contrast, permitteeresponsible mitigation is a “do-it-yourself” offsetting conducted by a developer or subcontractor and may take place on 

the development site or at another location.

Additional regulatory statutes require compensatory 

mitigation to encourage the use of conservation banks. The 

Magnuson-Stevens Fishery Conservation and Management 

Act requires Federal agencies to consult with NMFS if they 

may adversely impact critical habitat (16 U.S.C. §§ 1801-

1884). The Clean Water Act, Section 404 (33 U.S. Code § 

1344), provides the authority to regulate the dredge and fill 

of the Nation’s navigable waterways. Section 404 allows the 

administrative authority (the USACE in coordination with 

EPA) to grant permits that include compensatory mitigation 

and may be in the form of a conservation bank.

While the management of waterways and wetlands 

under the Clean Water Act may be for the purpose of maintaining clean water, there can be co-benefits for biodiversity 

and habitat. The Code of Federal Regulations 33, Part 332, 

prescribes allowances for the compensatory mitigation for 

losses of aquatic resources; according to the code, “mitigation 

projects...may be designed to holistically address requirements under multiple programs and authorities for the same 

project.” This allowance led to the establishment of several 

joint conservation-mitigation banks. All of the same statutory 

drivers from the ESA apply; however, there may be an additional impetus to establish a bank with the increased demand 

for wetland mitigation credits.

The seeds for conservation banking took root in the mid1990s. During that time, there was much demand for mitigation options in the State of California. In April of 1995, the 

Resources Agency and California Environmental Protection 

Agency announced the State’s Official Policy on Conservation 
16 Biodiversity and Habitat Markets: Policy, Economic, and Ecological Implications of Market-Based Conservation

Banks (Ruhl and others, 2005). With a long list of endangered and 

threatened species, and demand for development that would require 

offsets, California was an early adopter of conservation banking as 

a mitigation tool. Shortly thereafter, the FWS included conservation 

banking as a mitigation option, but without official guidance (Ruhl and 

others, 2005). California continues to develop policy and guidance on 

conservation banking specific to banks in the State; see highlight 8.

In 2003, the FWS published guidance for the establishment, use, 

and operation of conservation banks (FWS, 2003). Updated guidance is 

expected before the end of 2015. The design of conservation banks was 

greatly influenced by lessons from the USACE’s regulation of wetlands under the Clean Water Act (Ruhl and others, 2005). In 1995, after 

several findings that indicated the wetland mitigation program did not 

maintain or improve upon environmental benefits, the USACE published guidance on mitigation banks. The USACE stated that “banks 

provide greater flexibility to applicants needing to comply with mitigation requirements and can have several advantages over individual 

mitigation projects”:

• It may be more advantageous for maintaining the integrity of the 

aquatic ecosystem to consolidate compensatory mitigation into 

a single large parcel or contiguous parcels...;

• Compensatory mitigation is typically implemented and functioning in advance of project impacts, thereby reducing temporal losses of aquatic functions and uncertainty over whether 

the mitigation will be successful in offsetting project impacts 

(Federal Register, 1995).

In 2008, the USACE and the EPA published regulations that 

state a preference for mitigation banks for the wetland program over 

permittee-responsible mitigation (Federal Register, 2008).

The FWS’s guidance provides procedures and standards to evaluate the effectiveness of conservation banks. The guidance does not 

direct field offices to prefer or use conservation banks over alternatives, 

and some local and regional FWS field offices may use conservation 

banking more than others. While the guidance provides standardized 

Federal regulations for the approval process for conservation banks, it 

is not a Federal policy to establish conservation banks. The new policy 

guidance may increase the use of conservation banking if it establishes 

a stronger preference towards banking over the in-lieu fee program and 

permittee-responsible mitigation.

The details of the 2003 guidance underpin the provisions of 

conservation banks; Chapter C considers these provisions in detail 

alongside other structural components that define conservation banking. One potential constraint on the wider application of conservation 

banking is the allowance of alternatives for compensatory mitigation 

under the ESA. The alternatives effectively compete with the establishment of conservation banks. While competition is not innately bad, it 

is important that alternatives have an equal basis. All of the stipulations 

required for a conservation bank―including financial assurances, ecological performance, and oversight―should be the same for permitteeresponsible mitigation and the in-lieu fee program.

The obligations of the FWS and limitations on resources may be 

an institutional barrier to the broader adoption of conservation banking. In 2013, the Department of the Interior Office of Policy Analysis 

conducted a survey of FWS staff to assess the conservation banking 

program. Based on survey results, FWS staff identified “institutional 

Highlight 8

California Fish and Game Conservation 

Banking Guidance

California was an early adopter of conservation banking. The State has 129 federally 

listed endangered and threatened species 

and another 83 designated by the State 

(California Resources Agency, 2014). The 

1995 Official Policy on Conservation Banks 

provided the initial guidance for conservation banking in California. A brief three 

pages, the document provides general 

guidelines such as the preference for an 

offsite bank for long-term preservation, 

a stipulation that minimum size should 

account for ecological viability, and basic 

elements that should be associated with 

any bank (Wheeler and Strock, 1996).

In 1996, supplemental policy was published 

and stated that “...agencies support the 

creation of conservation banks because 

they: (1) further the conservation of habitat; 

(2) help with regional open space planning; 

(3) help implement NCCPs; and (4) assist 

in endangered species issue resolution 

and provide a relatively simple means for 

landowners to obtain “value” for properties” (California Department of Fish and 

Game, 1996).

In 2012, the California legislature enacted 

the California Fish and Game Code Guidance, Chapter 7.9, Sections 1797 to 1799.1, 

to govern bank applications and fees 

(California Department of Fish and Wildlife, 

2015). Unlike other States, California now 

requires fees from applicants such as the 

prospectus review fee of $10,000 (California 

Fish and Game Code; Section 1797–1799.1). 

The code goes into greater detail on what 

is included in an application and the timeline for approvals.

Photograph by U.S. Fish and Wildlife Service
Chapter B—Policy Context for Biodiversity and Habitat Markets 17

obstacles to bank creation including delays in banking document approval, which were thought to be most influenced by 

insufficient staffing, delays in solicitor approval, and lengthy 

banking documents” (DOI, 2013a).

Habitat Exchanges

A habitat exchange is a market platform for trading 

biodiversity and habitat credits. The current vision for habitat 

exchanges under development includes upfront determination 

of a standardized set of protocols, including a habitat quantification tool (HQT), which is used to quantify potential habitat 

and species’ benefits from restoration activities and impacts 

from disturbance activities on the same basis (Environmental 

Defense Fund (EDF), 2013a). The HQT will be used to assess 

functional acres that incorporate measures of habitat quality (credit types are addressed in Chapter E). According to 

one of the exchange developers, the Environmental Defense 

Fund (2013), the exchange will establish protocols to validate 

projects and quantify, register, certify, and transfer associated 

credits within a trading platform.

In contrast to conservation banking, an exchange would 

not require individual banks (or landowners) to complete the 

entire process for FWS approval. Rather, if the landowner 

met the exchange protocol’s requirements they could use the 

HQT to determine how many credits they might receive (or be 

debited in the case of a negative impact). The credits generated are subject to the same regulatory requirements imposed 

by the ESA as for conservation banks sold outside of a habitat 

exchange; however, the exchange streamlines the process for 

permitting. This concept is designed to reduce the transaction 

costs associated with the time and effort needed to comply 

with regulatory requirements and increase the participation of 

landowners, and to increase the recovery potential for species on the landscape. While there are many efforts to develop 

habitat exchanges across the country, this approach has not yet 

been successfully demonstrated.

In addition to designing a different approach to conservation banking, habitat exchanges are intended to advance the 

protection of species not listed as threatened or endangered. 

Termed pre-listing conservation (Donlan and others, 2013), 

and also known as pre-compliance, these efforts focus on 

benefiting at-risk species that are candidates for listing. The 

ESA does not provide protections for these species, nor does 

it require polluters that impact the species to mitigate for their 

actions. From the perspective of Federal law, there is no regulatory driver for protecting species in a pre-listing status.

Although at-risk candidate species are not protected by 

the ESA, their potential for listing creates a perceived regulatory driver that can affect behavior. The perceived threat 

of future regulatory restrictions on their activities is a ‘soft’

regulatory incentive for landowners to consider mitigation 

approaches. Pre-compliance approaches rely on some assurance that mitigation or credits for mitigation purchased in a 

pre-compliance environment will be recognized in a postlisting environment. In essence, the buyer is purchasing down 

the uncertainty of the future regulatory regime.

Highlight 9

Voluntary versus Regulatory Markets

Regulatory markets for biodiversity benefits are driven by 

specific legislation and the requirement to mitigate. The 

protocols for providing and buying credits are strict and 

highly regulated. The U.S. Fish and Wildlife Service and 

the U.S. National Marine Fisheries are the predominant 

authorities that administer regulatory markets. In regulatory 

markets, demand is driven by the polluter’s requirement to 

mitigate. Supply of conservation is not required by the legislation, but the assignment of credits is subject to regulation.

Voluntary markets encompass a number of different forms. 

Private, voluntary markets for eco-labels do not have a 

regulatory driver mandating the implementation of practices. 

Third party verifiers establish rules and procedures for procuring labels. Consumers have the option of buying products 

with these labels but there is no requirement to do so.

Habitat exchanges can have a number of voluntary credit 

types. Individuals, nonprofits, or businesses can purchase 

credits for reasons other than compensatory mitigation. For 

example, businesses may have sustainability objectives. 

Standards for credits in voluntary markets may not be as 

stringent as in regulatory markets.

Alternatively, ‘voluntary’ markets may have credits for 

pre-listed species. In an effort to reduce future risk, firms 

may purchase offsets prior to species becoming protected. 

Credits for mitigation of State-listed species are often considered as a pseudo-voluntary market. Photograph by U.S. Fish and Wildlife Service
18 Biodiversity and Habitat Markets: Policy, Economic, and Ecological Implications of Market-Based Conservation

This type of advanced credit acquisition would provide the 

incentive to purchase credits and provide the financial incentive to 

landowners to provide biodiversity benefits (Ted Toombs (Environmental Defense Fund), oral commun., February 26, 2014). Since 

buyers are purchasing away uncertainty rather than complying 

with current regulations, less demand is probable for these types 

of credits. Lower demand is also likely to lead to decreased prices. 

There are some limited examples of this approach, and the potential 

is discussed in Chapter D.

Habitat exchanges seek a new, more streamlined approach to 

conservation banking and a wider concept application to provide 

pre-listing conservation. There are constraints to this approach 

within the current regulatory regime. While developers intend to 

design the exchanges so that biodiversity benefits and mitigation for 

impacts comply with the ESA, streamlining the process by developing protocols for approval is subject to approval by the FWS and 

may be met with resistance by the FWS. The gopher tortoise habitat 

crediting system attempted to secure assurances and reportedly lost 

momentum when the potential for receiving assurances from FWS 

decreased.4

Eco-Labeling

Eco-labeling is a market-based approach to differentiate 

products based on practices, sources of materials, or other factors 

that protect or enhance the environment. Biodiversity conservation 

through eco-labeling in the United States is not driven by regulations―regulatory agencies are involved in some types of eco-labeling such as USDA organic certification, which can be considered 

to promote biodiversity. Eco-labeling is an approach that targets 

consumers willing to pay more for products that protect species or 

habitat with a certified label.

Institutional Incentives

Although not a PES program, the Safe Harbor Agreement 

(SHA) is an important complementary policy under the Endangered 

Species Act established in 1999 (FWS and NOAA, 1999). The 

SHA creates a legal-institutional framework to remove barriers to, 

and facilitate the creation of, market-like structures for biodiversity 

conservation. The SHA is a voluntary agreement between private 

landowners and the FWS or the National Oceanic and Atmospheric 

Administration (via NMFS). Participating landowners receive formal assurances that no additional land management activities will be 

required of them without their consent in exchange for actions that 

contribute to the recovery of listed species (FWS, 2011b). Like other 

incentive programs, SHAs are voluntary, although landowners do 

not receive a financial incentive. Rather, the incentive is a regulatory 

assurance. Since SHAs ensure future property use limitations will 

not occur on participating land without the landowner’s consent, 

4

Multiple individuals involved in program development identified this challenge.

Highlight 10

Permanent versus Term Credits

Credits can exist for a permanent or fixed 

term. Permanent credits provide the most ecological benefits in terms of net present value 

since they continue to deliver conservation 

year after year. However, permanent credits 

can limit the number of agricultural producers willing to participate in programs. The 

potential ecological benefits of perpetual land 

protection may be outweighed by reduced 

program participation.

Term credits may be more suitable to mitigate 

impacts under certain conditions. For example, coal mining is disruptive during exploration and extraction, but there is an opportunity 

to reclaim the site once production is complete. Term credits could cover the period of 

disturbance without being cost prohibitive. 

The specific needs of the species and the 

potential for reintroduction would have to be 

taken into account.

In other cases, permanent credits are the 

only way to ensure survival or recovery of a 

species. Residential development is likely to 

be permanently transformed from a wildlife 

habitat. Permanent credits can provide perpetually protected habitat for those species 

impacted while term credits would risk the 

development of protected habitat once terms 

have expired. Especially with an increasing 

demand for shrinking real estate, property 

values are likely to increase, further incentivizing development.

Photograph by U.S. Fish and Wildlife Service
Chapter B—Policy Context for Biodiversity and Habitat Markets 19

people may be more willing to undertake land management 

activities that support endangered species.

Section 10(a)(1)(A) of the Endangered Species Act permits the use of tools like Safe Harbor Agreements to be used 

as permitted exceptions to actions otherwise prohibited by the 

Act. The Announcement of the Final Safe Harbor Policy contains a detailed explanation of the policy including purposes, 

definitions, procedures for cooperation and coordination with 

the States and tribes, species net conservation benefit, policy 

standards, baseline conditions, assurances to property owners, 

management of non-covered or newly listed species, required 

monitoring, compliance with the National Environmental 

Policy Act, transfer of agreements, property owner discretion, 

management of neighboring landowners, public review, and 

the scope of the policy (FWS and NOAA, 1999).

Summary of Biodiversity and Habitat Markets 

Policy Context

The policy context for the various biodiversity and 

habitat market mechanisms varies widely. There are examples 

of efforts that were initiated with no regulatory basis and 

rely fully on voluntary contributions from local residents or 

other sources of funding to incentivize landowners to engage 

in management that yields biodiversity benefits. Many PES 

programs are based on the Farm Bill and have similar terms 

regarding administrator obligations, landowner obligations, 

and the lengths of contracts. While the funding and programmatic authority for these programs is based on regulation, PES 

programs rely on the voluntary participation of landowners 

who consider multiple factors in determining their willingness 

to participate.

Conservation banking is grounded in the Endangered 

Species Act and additional programmatic guidance. While 

robust regulatory authority provides incentives for polluters 

(in the form of compensatory mitigation), this program still 

relies on voluntary participation by agricultural landowners to 

supply habitat. The regulatory requirements associated with 

conservation banking may be a hurdle for individual landowners, and habitat exchanges being developed are attempting to 

reduce the administrative burdens on these potential suppliers. 

Table 3 below summarizes the regulations that form the basis 

for the major programs discussed in this chapter.

Legislation may provide the incentive for a biodiversity 

or habitat market, it may authorize funds for a PES program, 

or it may provide other types of non-financial incentives 

such as regulatory assurances. Programs developed based on 

regulations, and those that developed without any regulatory 

impetus, have stipulations that impact their ability to provide 

biodiversity benefits. Chapter C considers the structure of each 

conservation mechanism and how they can affect the ecological effectiveness and economic viability of each particular 

approach.

Table 3. Summary of the regulatory authorities (legislation) for each major program within the market-like or market-based 

conservation mechanism types.

Conservation mechanism Program Regulatory authority

Payments for Ecosystem 

Services

Conservation Reserve Program Food Security Act of 1985

Conservation Stewardship Program Farm Security and Rural Investment Act of 2002

Environmental Quality Incentives Program Federal Agriculture Improvement and Reform Act of 1996

Agricultural Conservation Easement Program Agricultural Act of 2014

Regional Conservation Easement Program Agricultural Act of 2014

Forest Legacy Program Food, Agriculture, Conservation, and Trade Act of 1990

Partners for Fish and Wildlife Program Initiated in 1987; formally authorized by Partners for 

Fish and Wildlife Act of 2006

Market-based compensatory 

mitigation

Conservation banking Endangered Species Act

Multiproduct exchange Habitat exchanges Compensatory: Endangered Species Act

Voluntary, pre-compliance: State regulations, none

Product differentiation Eco-labeling None

Other Safe Harbor Agreement Endangered Species Act
Photograph by U.S. Fish and Wildlife Service
Chapter C—Structural Components of Conservation Mechanisms

The various conservation mechanisms that benefit 

biodiversity and habitat share common structural components 

based on regulatory context, programmatic management, and 

program design. A number of structural components common to most conservation mechanisms, including marketlike programs, exist: baseline, criteria for eligible lands, site 

selection, approval process, practices, term, protocols for 

credit determination and measurement, and trading rules. Each 

structural component is briefly described in table 4. Specific 

structural components for each of the conservation incentive 

mechanisms (PES, conservation banking, habitat exchanges, 

and eco-labeling) are then discussed.

Table 4. Descriptions of components of conservation mechanisms.

Component Description

Baseline The baseline represents the characteristics of a site prior to implementing biodiversity or habitat 

conservation. It can include conditions only or can also require a suite of practices that are already 

occurring on-site.

Land eligibility Depending on the mechanism and program, this component outlines what lands and what entities are 

eligible to participate.

Site selection The process for selecting a biodiversity benefit site is a component of any approach. The market-based 

approaches considered in this circular largely rely on private landowners to voluntarily supply land for 

program participation.

Approval process The approval process is a set of administrative procedures carried out by the approving authority whether 

it is a government program, exchange administrator, or an independent accreditor (as in eco-labeling).

Management practices The practices for each mechanism depend on the specific program. These practices can include the 

acquisition and protection of land for conservation, habitat restoration or creation activities, and the 

ongoing management approaches necessary to maintain habitat.

Term Contract term is the length of a contract and may be 1, 5, 10, or 15 years, or in perpetuity depending on 

the mechanism. Term is considered a crucial component of conservation programs because it impacts 

how long biodiversity benefits accrue and the willingness of agricultural producers to participate in a 

program.

Credit determination The process for defining and determining the number of credits or level of funding for a project varies 

between mechanisms. Credits are the currency for market-based biodiversity mechanisms.

Trade rules Trade rules in the current context are how payments for a Payments for Ecosystem Services (PES) are 

disbursed or how tradable credits are regulated. This element considers who the buyers are, where they 

purchase credits, and what, if any, approvals are needed for transactions.

Market-Like Payments for Ecosystem Services

Eligible Lands: For USDA Payments for Ecosystem 

Services (PES) programs, agricultural producers and lands that 

produce agricultural commodities, livestock, or forest-related 

products are typically eligible to receive assistance to conserve 

ecosystem services, excluding private industrial forestland. 

Significantly, only privately held lands―which include tribal 

lands―are eligible for participation in the program.

The Conservation Reserve Program (CRP) currently 

focuses on water quality and habitat and accepts applications from farmers with marginal pastureland, grassland, and 
22 Biodiversity and Habitat Markets: Policy, Economic, and Ecological Implications of Market-Based Conservation

cropland. The other programs consider all lands owned or operated by 

agricultural producers that supply commodities, livestock, or forestrelated products, including cropland, grassland, rangeland, pastureland, 

and nonindustrial private forest land.

Similar to PES, another mechanism that incentivizes biodiversity 

is a compensation program. The Defenders of Wildlife Predator Compensation Program is featured in highlight 11. Similar to other mechanisms, these programs provide benefits to private landowners. Rather 

than receiving a payment for an environmental service, landowners can 

receive a type of ‘insurance’ that, if they don’t kill endangered predators (and hence adversely impact an area’s overall biodiversity), they 

will be compensated for lost livestock.

Site Selection: While USDA PES programs rely on private agricultural producers volunteering their land for programs, the Department does designate priority areas for conservation. The designation of 

conservation priority areas allows USDA PES conservation programs 

to give precedence to projects in areas of special environmental sensitivity. For example, the CRP places a priority on projects on land with 

actual and significant adverse water quality or habitat impacts due to 

agriculture production.

Approval Process: USDA PES programs are voluntary and 

highly competitive. The Farm Bill includes guidelines for administrators to evaluate applications from agricultural producers or eligible 

partners. For the CRP, applications are ranked against each other at a 

national level according to an Environmental Benefits Index (EBI). An 

applicant’s EBI is dependent on factors such as wildlife habitat, water 

quality, erosion reduction, and air quality as well as enduring benefits 

beyond the project’s completion.

The CSP has an 11-step enrollment process that includes a selfscreening checklist; a Conservation Management Tool (CMT) used 

to assess existing and proposed conservation practices and determine 

which conservation activities are to be added during the contract 

length; and verifying activities that occur on a yearly basis to enable 

funding (Kemp, 2009). For EQIP, the NRCS ranks applications according to local and national criteria. Local conservationists, agricultural 

producers, and others in the natural resources community choose what 

resource problems are most important at the local level; these are 

weighted at 25 percent while national criteria comprise the remaining 

75 percent of ranking points.

ACEP has a five-step evaluation process. The ranking criteria 

emphasize maximizing conservation values that protect agricultural 

lands, rather than strictly focusing on the highest conservation value. 

Cost-effectiveness may be considered, but it does not increase a project’s priority ranking if other criteria are not satisfied.

For RCPP, eligible partners and agricultural producers must submit a pre-proposal with basic information followed by a more detailed 

proposal. The application requires a description of the scope of the 

project; the plan for monitoring, evaluating, and reporting on progress; requested resources for the project; and the roles, responsibilities, 

capabilities, and financial contribution of collaborating partners. The 

Farm Bill outlines what applications are given a higher priority, including applications that assist producers in meeting regulatory requirements; cover multiple participating producers in the same area; utilizes 

significant amounts of non-Federal funds; addresses regional, State, or 

national conservation initiatives; and provide conservation innovations 

(American Farmland Trust, 2014).

Conservation Management Practices: 

Predator Compensation Program

Defenders of Wildlife, a national nonprofit 

conservation organization, operates a 

Predator Compensation Program to help 

conserve large predators. The mechanism 

operates by providing financial compensation for livestock killed by predators at fair 

market value. The objective is to provide an 

incentive for ranchers not to kill the predators. The program works to reduce the 

view of predators as a liability or increase 

‘predator tolerance’.

In 1987, Defenders initiated a compensation program for wolf conservation. The 

compensation fund has paid out nearly 

$40,000 to ranchers since that time. Ten 

years later, Defenders took over and 

expanded a program for grizzly bears that 

was previously administered by the Great 

Bear Foundation.

To be eligible for either of these programs, 

a landowner has to find and cover the 

remains of livestock suspected of predation with a tarp. The landowner then 

contacts State or Federal officials whom 

verify the loss. Upon verification, the 

agency contacts Defenders, who assesses 

the market value of the livestock and send 

the landowner a check. There is a limit of 

$2,000 for compensation on a single animal.

The program is designed to compensate 

landowners in a short time – often less 

than two weeks - and provide a reliable, 

objective source of compensation. Multiple 

States, including Oregon and Minnesota, 

also have compensation programs.

Adapted from Defenders of Wildlife, 1997.

Highlight 11

Photograph by U.S. Fish and Wildlife Service
Chapter C—Structural Components of Conservation Mechanisms 23

Management Practices: The specific practices allowed 

within any USDA PES program depends on the intent of that 

program. The level of specificity can impact how many farmers are willing to participate in a particular program. The CRP 

incentivizes several practices, with wildlife habitat buffers and 

wetland restoration being the most relevant to biodiversity 

benefits.

The CSP allows grazing management, shallow water 

habitat creation, patch burning, prairie restoration, and the 

establishment of pollinator habitat, all of which can directly or 

indirectly benefit biodiversity. The RCPP includes forest restoration and habitat conservation, restoration, and enhancement 

practices in their suite of PES activities. An example of a common practice is the riparian buffers described in highlight 12.

For some programs, the USDA partners with an eligible 

entity to help producers install and maintain conservation 

activities. For example, under the RCPP, the USDA collaborates with local partners such as farmer cooperatives and local 

governments to coordinate resources and provide assistance 

to producers for projects (USDA, 2014e). The programs 

also permit certain activities or commercial land use under 

contract as long as they are consistent with the approved 

conservation plan.

Term: The Farm Bill governs the length of conservation program contracts between the USDA and agricultural 

producers. The CRP has contracts ranging from 10 to 15 years, 

while EQIP contracts are not to exceed 10 years. The CSP 

contracts are the shortest at five years (with renewal options). 

The longest USDA PES contract terms are for ACEP, which 

may require land to be held in permanent easements or for the 

maximum duration allowed under State law.

Credit Determination: In return for implementing or continuing to maintain conservation land management practices, 

USDA PES programs offer combinations of direct payments 

and project cost assistance to private landowners. Landowners don’t receive tradable credits as in the conservation bank 

program or habitat exchanges. The approval process considers 

the quantity of biodiversity benefits that a particular project 

may yield, but payments are based on what a practice costs 

(though often a set payment rather than based on actual costs). 

A significant factor in PES programs is that funds are distributed on an annual basis.

Conservation Management Practices: Riparian Buffers

Riparian buffers are areas of trees and shrubs bordering streams, lakes, ponds, and wetlands. Riparian buffers 

provide thermal, nesting/fawning, and hiding cover in riparian 

zones, stream banks, and shorelines; diverse food sources; 

a steady source of leaves, brush, and small woody material 

for downstream aquatic food webs; root systems to enhance 

bank stability; and vegetation filters for surface water run-off 

(USDA, 2014b).

Riparian buffers are usually established as part of a conservation management system with other practices. For 

example, riparian buffers would have to be established concurrently with other projects, such as filter strips and critical 

area planting to control upslope, excessive water flows and 

erosion, in order to maintain proper functioning of the trees 

and shrubs (USDA, 1997).

In a collaborative program headed by the Leopold Center for 

Sustainable Agriculture at Iowa State University, researchers worked with landowners in the Bear Creek watershed 

to install riparian buffers to mitigate erosion, reduce nitrate 

runoff, and improve wildlife habitat between 1990 and 2002. 

Over 22,500 acres of riparian buffers were installed in Iowa.

Through the Leopold Center Program, researchers were able 

to intensively study the benefits of riparian buffers. Researchers learned that riparian buffers can reduce sediment in surface runoff by as much as 90 percent, increase soil organic 

compounds by 66 percent, and support five times as many 

bird species as row cropped or heavily grazed land (Leopold 

Center, 2013).

Highlight 12

Photograph by U.S. Fish and Wildlife Service
24 Biodiversity and Habitat Markets: Policy, Economic, and Ecological Implications of Market-Based Conservation

CRP payments typically include 50 percent cost-share 

and an annual payment intended to compensate for foregone 

crop production. The annual payment for each enrollment is 

based on a county-average survey estimate of cash rents and 

a soil-specific agricultural productivity index. Average CRP 

rental payments were $46.51 per acre in 2010 and $55.06 per 

acre in 2011 (USDA, 2011b). EQIP provides up to 75 percent 

of average estimated project costs associated with planning, 

design, materials, equipment, installation, labor, management, 

maintenance, or training and up to 100 percent of income 

forgone by the producer (Food Security Act of 1985).

ACEP offers cost-share assistance for the purchase of 

agricultural land easements not to exceed 50 percent of the fair 

market value for cropland and 75 percent of the fair market 

value for grasslands (Agricultural Act of 2014).5 Under the 

Regional Conservation Partnership Program, the USDA partners with local entities such as farmer cooperatives and local 

governments to help fund conservation activities such as water 

quality restoration and habitat conservation. Regional Conservation Partnership Program receives funding from ACEP, 

EQIP, CSP, and the Healthy Forests Reserve Program, and 

payments follow the requirements of those specific programs.

The CSP is different from other USDA PES programs 

as participants are paid annually based on continuous performance as opposed to a flat rental rate or cost share percentage, 

thus making CSP payments more “market-like” than other 

USDA conservation programs. Annual land use payments are 

calculated by multiplying the land use acres by program performance points and land use payment rate (USDA, 2014c).

Annual payments, as opposed to the one-time lump sum 

used in conservation banking, may be preferred by farmers. 

In a study conducted on government agencies working with 

landowners on conservation in Oregon, Washington, Idaho, 

and Montana, researchers found that landowners preferred 

program participation benefits such as tax incentives and insurance against legal liability and contract failure in addition to an 

appropriate annual payment amount (Gosnell and others, 2013).

Trade Rules: For the PES mechanisms considered here, 

the USDA, on behalf of the public, is the sole buyer. These 

incentive-based programs provide direct payments, cost share, 

or technical assistance in return for the ecosystem services 

derived from private landowners, whether based on environmental outcomes or the installation of best management practices and the assumed benefits derived therefrom. The Farm 

Bill outlines the rules for payments and assistance, which can 

include the availability of payments, the timing of payments, 

limitations on payments, activities excluded from payments, 

and how payments are delivered. For example, producers 

under EQIP are paid to implement one or more conservation 

practice; payments are not to exceed 75 percent of the costs 

associated with the planning, design, materials, equipment, 

installation, labor, management, maintenance, or training; and 

they are not to receive aggregate cost-share or incentive payments that exceed $450,000 between 2014 and 2018.

5

The cost-share may be as high as 90 percent for historically underserved groups. 

Additional Conditions: The USDA and participants in the 

Farm Bill conservation programs enter into contracts to define 

the responsibilities necessary to deliver desired ecosystem services. Requirements are included in the conservation program 

sections in the Farm Bill and generally include land ownership 

or operation requirements for entering into a contract, payment 

amount, producer land management requirements, provisions 

for the sale or transfer of lands covered in the conservation 

program, and provisions for the modification, termination, and 

violation of the contract. Conservation programs in the Farm 

Bill often have elements such as special programs or practices 

that require specialized rules and regulations in addition to 

the overall conservation program. The CSP offers additional 

supplemental payments for resource-conserving crop rotations 

as well as outreach and technical assistance for specialty crop 

and organic producers.

Conservation Banking

The design of the conservation banking program was 

influenced by lessons learned from the USACE regulation of 

wetlands under the Clean Water Act. From the finding in 1995 

that the wetland mitigation program was not delivering ecological benefits, the USACE published guidance on mitigation 

banks (in 2008, the USACE and EPA published regulations). 

The USACE stated that “banks provide greater flexibility to 

applicants needing to comply with mitigation requirements 

and can have several advantages over individual mitigation 

projects”:

• Establishment of a mitigation bank can bring together 

financial resources, planning and scientific expertise 

not practicable to many project-specific compensatory 

mitigation proposals. This consolidation can increase 

establishment and long-term management of successful 

mitigation that maximizes opportunities for contributing to biodiversity and (or) watershed function;

• Banks may reduce permit processing times and provide 

more cost-effective mitigation;

• Consolidation of compensatory mitigation within 

a bank increases the efficiency of limited agency 

resources in the review and compliance monitoring 

of mitigation projects, and improves the reliability of 

efforts to restore, create or enhance wetlands for mitigation purposes. (Federal Register, 1995).

Eligible Lands: Private, tribal, State and local government lands are eligible. The FWS (2003) guidance specifies 

land must be habitat acquired or further protected through a 

conservation easement; disturbed habitat that is restored or 

enhanced; or habitat that is created. All of these represent additionality for the species in the FWS view; with the minimum 

being to protect habitat that would not otherwise be protected. 

All require prescriptive management based on the species’ 

needs. For privately held habitat without the species present, 

directed management is essentially for at-risk habitat and does 
Chapter C—Structural Components of Conservation Mechanisms 25

not necessarily aid in the species’ recovery. Habitat can be purchased 

outright, or it may remain in the original landowner’s possession, as 

long as a permanent conservation easement is put in place. The additional layer of land protection and prescribed management are considered additional biodiversity benefits. In practice, conservation banks 

may take several different land ownership models. The typical models 

include a joint venture, an outright purchase of property, or a landowner 

managed bank.6

Site Selection: A conservation bank site is ultimately selected by 

the bank owner or manager, although it is often selected in coordination with the FWS. During the bank approval process, the FWS must 

agree that the proposed site will “fit into the overall conservation needs 

of the listed species the bank intends to cover” (FWS, 2003). There are 

currently 1,535 endangered and threatened species (FWS, 2014), each 

with different recovery and protection needs, which are reflected in the 

limited guidance on site selection. The elements that make a site suitable for one species, such as a gray bat, and another species, such as an 

oyster mussel, are different. The FWS guidance, therefore, encourages 

the use of best science and the fundamentals of recovery ecology.

Approval Process: The process of approval for a conservation 

bank is regimented by the 2003 FWS Conservation Banking Guidance. 

Initially, a landowner or banker proposes to establish a conservation 

bank. Depending on the State or FWS office, there might be a standard 

template for the initial application. The Sacramento, California, office 

developed a template to streamline the application process, benefitting 

applicants and the FWS staff.

The next step is to convene a Conservation Bank Review Team 

(CBRT) that includes biologists. The CBRT is an interagency group of 

Federal, State, tribal, and local regulatory and resource agency representatives that are signatory to the bank agreement and oversee the 

establishment, use, and operation of the bank. The CBRT reviews the 

site and a management plan on the practices that the bank will implement to benefit the species. During the approval process, the CBRT and 

applicant develop a banking agreement that details the responsibilities 

of the conservation bank manager. At this time, the easement holder 

must be named and funding assurances for permanent management 

described. The approval process for conservation banks is lengthy; 

it can take as little as six months or as long as five years to receive 

approval for a bank.

Management Practices: The specific conservation practices for a 

given bank may differ depending on a species’ needs. Practices may be 

aimed at habitat preservation and management, restoration of degraded 

habitat, connecting separated habitats, buffering already protected areas, 

creating habitat, or other appropriate actions. Conservation banks will 

have both initial practices to preserve, restore, or create habitat, as well 

as ongoing management practices. One example of a management practice is grazing, which is featured in highlight 13.

The FWS guidance allows bankers to conduct activities on conservation bank land that are compatible with conservation. Fox and NinoMurcia (2005) surveyed conservation banks and found that 66 percent 

allowed cattle grazing, hunting, biking, horseback riding, hiking, or 

fishing. In some cases, grazing or other revenue generating activities can be a part of the management plan as a component of habitat 

enhancement for the species.

6

Patrick Coady (Coady Diemar Investment Banking), oral communication.

Conservation Management Practices: 

Grazing

In California and Oregon, vernal pools 

contain species that rely on the habitat. The 

vernal pool fairy shrimp is federally listed as 

a threatened species throughout its range. 

The primary threat to vernal pool fairy 

shrimp is the elimination and degradation 

of its habitat. This habitat is threatened by 

industrial, urban, and residential development, as well as the conversion of grasslands to agricultural fields (FWS, 2006).

Within vernal pool habitat areas, invasive 

nonnative plants negatively impact the 

vernal pool hydrology and further threaten 

vernal pool fairy shrimp (FWS, 2007). One 

way to manage protected vernal pool 

habitat is to reduce the invasion of nonnative vegetation via grazing. Grazing is 

used on conservation banks for vernal pool 

fairy shrimp to reduce weeds and invasive 

plants in California.

At the Orchard Creek conservation bank 

in Placer County, California, the long-term 

management includes weed control via 

grazing cattle on the pastureland. Cattle 

grazing is the preferred method for weed 

control; cattle walk through the vernal 

pools when they are wet and preferentially 

graze on invasive exotic grasses targeting a source of detriment for the vernal 

pool fairy shrimp (The Conservation Fund, 

2010a).

Grazing must be well managed to ensure 

that an excess of cattle do not negatively 

impact the habitat and that the timing 

optimizes their ability to control weeds. 

Effective grazing can be a win-win for 

conservation banks by managing invasive 

species and providing an additional source 

of revenue.

Highlight 13 Photograph by U.S. Fish and Wildlife Service
26 Biodiversity and Habitat Markets: Policy, Economic, and Ecological Implications of Market-Based Conservation

Term: Conservation banks, by definition, exist in perpetuity. The FWS guidance has two requirements to safeguard perpetuity in practice. The first is a financial assurance intended to 

cover all the ongoing management costs of the bank. The FWS 

guidance suggests a non-wasting endowment as an approach 

to ensure that conservation activities will be funded over time 

(FWS, 2003).

The second component for ensuring conservation bank 

perpetuity is a conservation easement. Most banks must have 

a conservation easement, or another fee title, that legally 

protects the land in perpetuity. The easement has to be in place 

by the time the first credit is sold. This approach ensures, at a 

minimum, that the land is legally protected. Permittee-responsible mitigation is also meant to protect habitat permanently, 

although in practice this might not be achieved because of 

inefficient economies of scale at the single project level (DOI, 

2013b).

Credit Determination: Credits represent the biodiversity benefits that conservation banks yield. The credit is the 

asset for the bank owner. The FWS determines the number 

of credits the bank will receive based on biological criterion 

such as habitat quality, habitat quantity, species covered, and 

conservation benefits, including the contribution to regional 

conservation efforts, property location and configuration, and 

available or prospective resource values (FWS, 2003).

The methods for defining and determining credits are not 

specified further in the FWS guidance. For a particular species, 

a credit may simply represent one acre of habitat, a “functional acre”, a breeding pair and their associated habitat, or 

other biophysical characteristics. A functional acre is a unit of 

measurement based on factors that include geospatial units and 

habitat quality indicators. A functional acre may assign a different value to a given acre of land based on how it is used by 

the species. For example, upland habitat may be given a score 

of half an acre while vernal pools are a full acre in the case of 

a vernal-pool-dependent species. Further consideration of the 

credit types and methodologies is discussed in Chapter E.

The definition of a credit for a bank is not standardized 

and can differ between FWS field offices. The method for 

assigning the number of credits a bank receives; or an impact, 

which would be debited; is also not standardized. A significant 

criticism of conservation banking is the lack of standardization 

in credit quantification methods. According to a 2012 survey 

of FWS employees, determining the number of credits was 

considered one of two areas needing the most improvement in 

the program (DOI, 2013a). In addition to the number of credits 

attributed to a bank, the release schedule through which bankers can offer credits for sale is determined by the FWS.

Trade Rules: For a buyer to purchase credits from a 

conservation bank for use in compensatory mitigation, the 

transaction must be approved by the FWS. There are two key 

components in transaction approval: (1) the impact in the 

service area of the conservation bank and 2) the debits for 

which the project proponent has to purchase credits. A service 

area for any conservation bank is determined in the banking agreement and is associated with the specific recovery 

unit, watershed, or other geospatial boundary for which the 

conservation bank provides biodiversity benefits (FWS, 2003). 

A service area may have one or more banks, and there may be 

one or more buyers within a service area. Impacts that occur 

outside the bank’s service area may affect a genetically distinct 

subgroup of the species or otherwise affect the species in such 

a way that the bank would not provide sufficient mitigation.

From a banker’s perspective, siting the banks in the 

largest possible service area broadens their potential market. 

Additionally, the desirability of the land in the service area, 

and, therefore, the number of potential developers and credit 

seekers, affects the size of the market for biodiversity credits.

The FWS determines the magnitude of impact, or debits, 

that a party has on their site. The FWS guidance calls for 

debits to be determined using the same method banks use with 

credits. A consideration for project proponents is that the purchase of a credit in a conservation bank fully transfers liability 

for mitigation to the banker, as opposed to the rules under 

permittee-responsible mitigation, where they would retain 

liability (DOI, 2013b). The transfer of liability may be a significant enticement for purchasing bank credits. This contrasts 

with other markets, such as water quality trading, where the 

regulated source (for example, a wastewater treatment facility) 

remains liable for pollution abatement; the potential failure of 

a project from which a buyer purchased credits then creates a 

disincentive for trading (Ribaudo and others, 2008).

Additional Conditions: The FWS guidance also requires 

conservation banks to have management plans detailed in 

their banking agreements, regular monitoring, and specified 

remedial actions.

Habitat Exchanges

Habitat exchanges are trading platforms designed to ease 

administrative burden and address uncertainties that arise from 

the structure of conservation banks. The concept is, rather than 

to approve banks and assign debits on a case by case basis, to 

use a programmatic mechanism to create credits across large 

areas; these credits and debits would be based on the same 

HQT (EDF, 2013b). HQTs and similar tools are discussed in 

Chapter E.

There are many efforts to develop habitat exchanges 

or similar market mechanisms. Some efforts are focused on 

pre-compliance markets (such as the gopher tortoise example), 

while others anticipate broader application in both pre-compliance and compensatory mitigation (such as the Greater Sage 

Grouse habitat exchange effort).

Eligible Lands: Similar to conservation banks, a property 

must be able to yield a certain amount of biodiversity benefits 

or uplift to qualify. Within the habitat exchange framework, 

the HQT is used to estimate habitat quality within a given area 

and considers four geographic scales: the site, the surrounding 

landscape, the allowable service area, and the overall range of 

the species (EDF, 2013b). The exact method for quantifying 

habitat quality differs between exchanges and depends on the 
Chapter C—Structural Components of Conservation Mechanisms 27

species of concern. Habitat exchanges will likely focus on private 

land and specify how the baseline from which the HQT will estimate potential uplift is determined.

Site Selection: Like conservation banks, bankers or landowners ultimately determine the biodiversity benefit site. The HQT 

uses landscape-scale factors to create a higher value for habitat 

in priority areas for species of concern. Theoretically, this can 

encourage siting conservation in high priority areas and discourage 

development in areas with high-quality habitat. Priority areas and 

avoidance areas are determined by the exchange’s science team or 

by adopting pre-existing areas delineated by States (as with Wyoming Core Areas), the FWS, or others (EDF, 2013b). Unlike conservation banks, which have advisory teams to approve individual 

banks, habitat exchanges use a science team to determine priority 

areas and quantification methods for a comprehensive program 

rather than for individual efforts.

The HQT approach may provide significant information to 

improve banker, landowner, and developer decisions on where to 

conserve and develop land. However, based on current information, a comprehensive assessment of the exchange area is not to 

be completed. Rather, the HQT is to be used in an on-demand 

approach when a banker or developer expresses interest in a site. 

At this time, they will use (directly or via a third party assessor) the 

HQT to estimate the potential of their site. A full assessment could 

enable the intra-regional decisions envisioned by habitat exchange 

developers, but this on-demand approach could limit additional siting benefits. A comprehensive assessment is not without concerns 

either, as landowners may be sensitive to the analysis of their 

private property and costs could be substantial.

Approval Process: Based on the upfront development of the 

HQT, the approval process could be streamlined in comparison to 

the approval process of conservation banks, but this would need to 

be tested in the field.

Management Practices: Practices for habitat exchanges are 

likely similar to conservation banks and aimed at habitat preservation, management, restoration of degraded habitat, connecting 

separated habitats, buffering already protected areas, creating habitat, and other appropriate actions. An example of a management 

practice is prescribed fire, which is featured in highlight 14. Habitat exchanges are designed to encourage outcome-based incentives. 

This encouragement could engender innovative practices beyond 

the scope of traditional conservation strategies. Outcome- or 

performance-based approaches versus practice-based incentives are 

discussed in Chapter E.

Term: The term for habitat exchanges varies depending on 

the type of mitigation. The term for compensatory mitigation is in 

perpetuity to comply with conservation banking regulations. Precompliance mitigation may vary. The Environmental Defense Fund 

(2014) has designed an innovative approach to provide credits for 

permanent mitigation for a lesser prairie chicken habitat exchange. 

The exchange allows traditional conservation banks to trade on 

the exchange alongside two additional categories: static permanent 

mitigation and dynamic permanent mitigation. For static permanent mitigation, landowners would be subject to restrictions similar 

to those of conservation banks, such as land being in a permanent 

easement prior to the sale of credits.

Conservation Management Practices: 

Prescribed Fire

Prescribed fire is a management approach that 

reduces hazardous fuels (such as undergrowth) 

and protects human communities from extreme 

fires, minimizes the spread of pest insects 

and disease, removes unwanted species that 

threaten species native to an ecosystem, 

provides forage for game, improves habitat for 

threatened and endangered species, recycles 

nutrients back into the soil, and promotes the 

growth of trees, wildflowers, and other plants 

(USFS, 2014).

As a conservation tool, the ecosystems in 

which prescribed fire is frequently practiced 

are loblolly, short-leaf, longleaf or slash pine 

forests. According to Wade and Lundsford 

(1986), fire tends to favor species that require 

open habitats that result in a mosaic of burnt 

and unburnt areas that maximizes the “edge 

effect”. This type of habitat promotes a large 

and varied wildlife population. Deer, dove, quail 

and turkey all benefit from prescribed fire. 

Several endangered species, including Florida 

panthers, gopher tortoises, indigo snakes and 

red-cockaded woodpeckers, also benefit from 

fires (Wade and Lundsford, 1986).

Fires need close management to prevent outof-control burns leading to greater damage 

than benefits. In prescribed fire, it is important 

to select the appropriate size, frequency, and 

timing of burns.

Prescribed fire remains controversial in some 

ecosystems. It is used in sagebrush to provide 

more grasslands for ranching. Prescribed fire 

was once thought to improve sagebrush habitat 

for sage grouse, but the Sage and Columbian 

Sharp-tailed Grouse Technical Committee (2009) 

concluded that prescribed fire is detrimental to 

the species (which is a candidate for ESA listing).

Highlight 14 Photograph by U.S. Fish and Wildlife Service
28 Biodiversity and Habitat Markets: Policy, Economic, and Ecological Implications of Market-Based Conservation

Dynamic permanent mitigation is designed to address 

issues caused by a lack of available credits for static permanent mitigation. Not all property owners may be willing to 

place a permanent easement on their land. A dynamic permanent mitigation approach allows for permanent mitigation 

from a debtor to be achieved through the purchase of dynamic 

credits from multiple landowners over a period of years. As 

a result, these credit types may have a limited term although 

they are intended to cover a permanent impact in aggregate.

The lesser prairie chicken habitat exchange design 

includes assurances against gaps in mitigation. One novel 

feature of the habitat exchange is the Reserve Account. This 

account is a reserve of credits; the exchange has stipulations 

such that purchasers and sellers must contribute a predetermined number of credits to the reserve in addition to the 

quantity of credits required for mitigation. The reserve account 

accumulates credits that can ensure there are no gaps in 

permanent mitigation through the use of dynamic permanent 

mitigation credits, as well as for other purposes (EDF, 2014).

Credit Determination: A cornerstone of habitat 

exchanges are the HQTs developed upfront and used to assess 

all proposals, assigning both credits and debits to a given project. The tools measure functional acres at a site and modify the 

number of credits based on site location within the landscape 

(EDF, 2013b). Credit determination is based on performance 

in habitat exchanges. Rather than awarding credits when a 

banker installs and manages a particular practice, the seller 

must perform and continue to show results to have credits 

verified throughout the life of each credit.

Trade Rules: Trade within habitat exchanges is when 

the differences from a conservation bank framework become 

noticeable. Rather than go through an approval process for the 

purchase of credits, the approval and verification of credits 

and debits has already occurred. The trading process can be 

conducted using a transparent, auction-based platform. Buyers 

pay a market price for credits listed for sale (EDF, 2013b).

Eco-Labeling

Eligible Lands: The eligibility of land for eco-labeling 

depends on the label’s purpose, even though certification 

is probably for private landowners. For Salmon-Safe certification, multiple types of land and structures are targeted: 

vineyards, farms, corporate and university campuses, green 

infrastructure buildings, large-scale residential developments, 

parks, golf courses, and large-scale construction sites (SalmonSafe, 2014). Unlike many of the approaches considered, 

Salmon-Safe is predominantly a regional program focused on 

the west coast of the United States. For vineyards, the SalmonSafe certification only considers Washington and Oregon State 

vineyards.

Site Selection: Similar to the approaches discussed, ecolabeling is a voluntary approach and applicants choose a site 

to be approved by accreditors.

Approval Process: The process for receiving an accreditation depends on the program. The Salmon-Safe program 

has a process designed for approval for each type of land and 

structure verified. For farms, a documented evaluation must be 

conducted by an independent expert evaluator. The evaluator 

assesses the farm with a scoring protocol designed to protect 

salmon streams (Salmon-Safe, 2005).

Management Practices: The biodiversity benefit conferred to an entity through a specific label is the factor upon 

which eco-labeling practices depend. The Salmon-Safe certification program is designed to verify that farm management 

practices incorporate Best Management Practices to “avoid 

harm, and where appropriate, enhance and restore the health 

of stream ecosystems” (Salmon-Safe, 2005). Practices focus 

on improving riparian and wetland area management, irrigation water use and management, erosion and sediment control, 

fertility and pest management systems to reduce impacts on 

salmon ecosystems, animal management, and biological diversity conservation.

The Wildlife Friendly certification program, administered 

by the Wildlife Friendly Enterprise Network, is featured in 

highlight 15. This mechanism requires non-lethal management activities that circumvent depredation for a landowner 

to receive certification. This approach is in contrast to the 

Defenders of Wildlife Compensation Program previously 

described, and landowners can seek incentives from both 

mechanisms to realize even greater benefits.

Term: The Salmon-Safe certification is valid for three 

years and subject to annual inspections (Salmon-Safe, 2005). 

Other eco-labels may have longer or shorter terms.

Credit Determination: Credit determination depends on 

the program. Some eco-labels may allow different levels of 

accreditation. The Salmon-Safe program requires that farms 

meet standards on the entire farm, not just for one area or 

crop. A pre-established scoring approach determines whether 

or not a farm meets a net positive score across all elements. 

If the farm passes, they receive the accreditation that theoretically differentiates their products to consumers willing to 

pay a higher price than they would for similar, unaccredited 

products.

Trade: For eco-labels, trade is not regulated. Once 

the accreditation is awarded, the product can be advertised 

(dependent on the programs parameters) as accredited and 

consumers can freely choose these products. Purchase of ecolabeled products is not compensatory and therefore not subject 

to transaction verification.

Comparison of Types of Approaches

The biodiversity conservation mechanisms discussed 

in this chapter have different specifications for their major 

structural components as a result of regulation or program 

management, or by design to address specific issues. A number 

of structural elements are considered: land eligibility, site 
Chapter C—Structural Components of Conservation Mechanisms 29

Conservation Management Practices: Non-lethal Predator Management

The Wildlife Friendly certification program verifies farm and 

ranch lands that employ non-lethal predator management 

practices. Examples of non-lethal predator management 

practices are listed below.

•	 Adaptive Grazing Planning, in which grazing is scheduled during periods of low predatory pressure. Knowledge of dens and patterns of wildlife use is necessary 

to implement this strategy.

•	 Mixing larger animals with smaller livestock for protection.

•	 Adaptive Feeding Strategies, in which feeding is done 

when livestock are collected in a secure location at 

night or during other strategic periods.

•	 Use of protected pastures, fenced lots, or sheds to 

secure stock during lambing/calving and other highly 

vulnerable periods.

•	 Producers time calving, lambing, kidding, farrowing 

and/or hatching to reduce predation risk.

•	 Use of livestock guardian animals, such as dogs, 

llamas, and donkeys, where their presence has been 

shown to add to predator deterrence.

•	 Use of barriers, such as electric fencing and fladry 

(fencing with special flags), and mechanical deterrents, such as RAG (radio-activated guard) boxes, to 

deter predators.

Adapted from Certified Wildlife Friendly, 2013.

Highlight 15

selection, approval process, management practices, term, 

credit determination, trade, and other conditions. The specifications for these components can affect a landowner’s willingness to participate in programs and the anticipated biodiversity 

outcomes.

Land eligibility ordinarily involves private property, 

with agricultural land, forests, and grasslands being centrally 

important for biodiversity and habitat conservation. Site selection is largely conducted by applicants because all of these 

approaches are voluntary. Different conservation mechanism 

programs allow varying degrees of outside input into the site 

selection process. For instance, with conservation banks the 

FWS is regularly involved to ensure potential bank sites are 

suitable for a specific species.

The approval process for each mechanism varies in time 

and administrative processing. Some programs have more 

rigid criteria for evaluating potential projects while others 

examine biodiversity benefits on a case-by-case basis. Environmental indices like the Environmental Benefits Index can 

increase environmental cost-effectiveness in conservation programs by ensuring projects with the highest potential environmental benefits are funded first (Claassen and others, 2008). 

Some programs have long administrative processes, such as 

the multi-stepped CSP. Cheatum and others (2011) reported 

that excessive paperwork or the general hassle of applying are 

considered major constraints by some ranchers in their decision to apply to USDA resource conservation programs.

The management practices allowed by different mechanisms depend on the biodiversity target. For example, prescribed fire and grazing may be established practices that 

benefit some wildlife species while these practices may be 

detrimental to other species. Most approaches include practices to conserve and protect habitat. Some require proactive 

management to retain or improve habitat.

The contract term is an important factor and varies 

widely across conservation mechanisms. The USDA PES programs range from 1- to 15-year contracts, while conservation 

banking requires a conservation easement to guarantee land 

is set aside in perpetuity. The lesser prairie chicken habitat 

exchange may have an innovative approach with dynamic 

permanent mitigation (DPM) credits, although the DPM 

approach still needs to be field tested. Optimal contract length 

depends on the tradeoff between the biodiversity benefits from 

conserved land and the number of private landowners willing 

to enter into the program (Chen and Ando, 2006). While longer conservation contracts maximize environmental benefits, 

private landowners like ranchers are more willing to enter into 

contracts with shorter lengths and higher payments (Cheatum 

and others, 2011). Cheatum and others (2011) found that California ranchers required a marginal payment increase of $0.81 

per acre for each additional contract year. In a similar study, 

Maryland tree farmers and agricultural landowners required 

an additional $2.00 per acre for each additional contract year 

(Tjaden and others, 2013).

Credit determination and representation are critical 

components of either outcome- or practice-based conservation mechanisms. While USDA PES programs and conservation banking are largely practice-based, habitat exchanges 

are attempting to develop outcome-based crediting systems. 

Outcome-based credit assignment assures that the biodiversity 

benefits being sold are realized, and it allows for innovation 

in practices. However, there may be additional costs associated with verifying and monitoring outcome-based approaches 

in comparison to practice-based approaches. These methods 

may also require more intrusion on private land, which may 

discourage agricultural landowner participation.

Additional differences in credit determination occur 

across the programs. For PES programs, funds are disbursed 
30 Biodiversity and Habitat Markets: Policy, Economic, and Ecological Implications of Market-Based Conservation

based on well-established management practice installation costs and land rental rates. In comparison, credits are 

awarded based on methods developed for particular species 

and are often conducted on a case-by-case basis for conservation banking. Habitat exchange developers seek to reduce the 

administrative burden of conservation banking credit assignment and provide upfront, transparent approaches to credit 

methods with HQTs (or similar mechanisms) that are applied 

to all applicants trading on the exchange.

Trading is structured differently between biodiversity 

conservation mechanisms. USDA PES programs are singleclient transactions, where the USDA is the sole purchaser of 

all benefits provided by program participants. Conservation 

banking awards tradable credits to landowners; however, 

transactions for compensatory mitigation must be approved 

by the FWS. Habitat exchanges also award tradable credits, 

but the use of the HQT upfront for all exchange participants 

allows transactions to occur without additional oversight. 

Transactions are tracked and credits are retired, but overall 

this method reduces the transaction costs and administrative 

burden that occurs in conservation banking.

It is important to note that although the design and structure of biodiversity conservation mechanisms affect participation in the program, other factors also influence participation. 

Studies highlight the importance of incentives other than 

payments. Sorice and others (2011) used a survey to discover 

that payment levels can positively affect a private landowner’s 

willingness to participate in songbird habitat conservation 

programs, but the effect depends on their attitude towards 

enrollment as well as their perception of the social pressure to 

participate. The authors suggest that the promotion of private 

land conservation may be enhanced by including social networks as well as collaborative processes that reinforce social 

norms in addition to current incentives.
Chapter D—Economics of Biodiversity and Habitat Markets

This circular focuses on market-based mechanisms 

to promote biodiversity or habitat conservation. There are 

multiple economic questions to consider when evaluating 

these mechanisms. Why use market-based approaches? How 

well do current conservation mechanisms compare to markettype approaches? What is the market size and potential? This 

chapter reviews the foundations of environmental markets, 

including the theoretical basis for employing market-based 

approaches to environmental problems in consideration of 

these questions. The chapter also explores how well each 

current, market-based mechanism compares to market theory. 

Finally, the current size of markets and prices are discussed.

Foundations of Environmental Markets

Even though environmental protection and conservation 

can be achieved through prescriptive regulation, economic 

theory lends itself to the development of approaches that can 

achieve the same benefits with a more efficient and less costly 

allocation of resources. To understand how market-based 

approaches can lead to environmental protection and conservation, the role of the market and how environmental degradation/conservation factors into decisions about resource use 

must be considered.

Adam Smith introduced the free market theory where 

“Every individual necessarily labours to render the annual 

revenue of the society as great as he can. He generally neither 

intends to promote the public interest, nor knows how much 

he is promoting it ...He intends only his own gain, and he is 

in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention... By pursuing 

his own interest he frequently promotes that of the society 

more effectually than when he really intends to promote it. I 

have never known much good done by those who affected to 

trade for the public good.” (Smith and Cannan, 1904).

This is the treatise of the invisible hand, whereby market 

forces provide a sufficient supply of goods and services 

demanded by individuals. The market provides the most efficient distribution of resources, goods, and capital. The most 

common type of market is defined by perfect competition and 

has the following specific characteristics: the products of all 

firms are identical, participants in the market are small and 

cannot individually affect the product’s price, there are no barriers to enter or exit the market, and market participants have 

perfect knowledge about the products (Mansfield, 1979).

These necessary conditions are theoretical and few 

markets likely have these exact characteristics. Significant 

departures from these characteristics can result in market 

failure. Market failure is a condition in which the market does 

not efficiently allocate goods. The Pareto Optimal—when no 

additional gains by one consumer can be made without having 

a negative effect on another consumer—has not been met. 

Market failures occur due to externalities, common property, 

imperfect competition, natural monopolies, public goods 

provision, and certain kinds of uncertainty (Hartwick, 1986). 

In resource economics, a market failure often leads to a situation in which prices do not reflect society’s preferences. For 

example, prices of goods do not incorporate societal preferences for biodiversity and too little biodiversity conservation 

is thus supplied because the price for biodiversity (a non-rival 

and non-excludable public good) is essentially zero. In the 

context of biodiversity benefits, one factor leading to market 

failure is the presence of externalities and another factor is 

asymmetric knowledge of products and practices.

The concept of externalities is one in which an activity 

(specifically production) can result in an impact (negative or 

positive) that is not internal to the accounting of the production activity. Production might entail the manufacture of cars, 

mineral mining, agriculture, building new housing developments, or any human activity that provides a good or service. 

The producer’s operation is based on an efficient level of 

production for a particular good, where the marginal cost of 

the last unit of production equals the price that these goods can 

earn in the market (based on demand).

The producer’s efficient quantity of supply takes into 

consideration production costs including labor, capital, and 

materials. The problem is that externalities; in this case biodiversity loss or habitat degradation, or provision as a consequence of production; are not accounted for by the producer, 

who does not bear the cost nor reap the benefits. The cost of 

reduced biodiversity or habitat is instead borne by society. If 

society determined the optimal supply of production, these 

costs would be included—costs may be to prevent degradation, compensate for damage, or increase biodiversity or habitat—increasing the marginal cost associated with each unit of 

production and reducing the quantity of production.

A negative externality that affects biodiversity or wildlife habitat is a housing development that clears a forest and 

displaces the wildlife occupying the land. Another example is 

the installation of wells and other infrastructure to pump oil, 

which creates noise, dust, and activity beyond the acceptable 
32 Biodiversity and Habitat Markets: Policy, Economic, and Ecological Implications of Market-Based Conservation

threshold for wildlife, which are resultantly displaced. Both 

activities are economic endeavors that provide homes and 

energy for people, but the negative consequences are rarely 

considered when estimating the cost of production.

Positive externalities also exist. An example is the planting of vegetation along river banks to provide habitat for 

species. While this benefits society and individuals (assuming 

that society and the individual landowner value biodiversity 

and the co-benefits provided by riparian buffers), there is little 

economic incentive for an individual to engage in this practice 

because there is no compensation mechanism for the costs 

incurred. This leads to an undersupply of biodiversity benefits.

A.C. Pigou first identified the divergence of the producer’s and society’s interests and argued that the externality 

could not be mitigated through contractual negotiation within 

private markets; rather, it would require government intervention via taxes to coerce the offending party to recoup the costs 

to compensate the injured party (or parties) (Pigou, 1920). 

Highlight 16 provides a graphical explanation of producer and 

society divergence in markets.

Pigou recommended that to correct the inherent market 

failure, the government must intervene with a tax that should 

approximate the marginal cost of the externality so that a 

socially optimal equilibrium could be achieved (Pigou, 1920). 

The taxes, known as Pigouvian taxes, increase the producer’s 

marginal costs such that they shift the production curve. Under 

the new market conditions, the government would collect revenues and would theoretically compensate those impacted by 

the externality. This would result in the social optimum where 

the externality is reduced and those still harmed by the remaining externality could be compensated by the tax revenue.

Applying tax policy to address an environmental externality can be illustrated by an example relevant to biodiversity. 

In figure 1, the tan area represents a tract of land. The red 

areas represent species X habitat, with larger areas connected 

by corridors. In this example, a land developer is interested in 

building houses on the total area of the yellow box.The developer’s proposal is based on current land values, building costs, 

and expectations of purchase price. The green area represents 

society’s preference for development, with the additional 

yellow space outside of the green preserved to conserve the 

species’ habitat. In command and control, the yellow area may 

be placed ‘off-limits’ to producers. Alternatively, a tax on the 

land in the yellow area could influence the land developer to 

develop less land (since their costs are now higher).

While taxes are a disincentive to overproduce, Pigou’s 

theorem can be extended to subsidies, which are a positive 

incentive. The financial assistance or payments for ecosystem 

services provided by USDA PES programs in this circular are 

essentially subsidies that yield biodiversity or habitat benefits. 

The intent of a subsidy is to provide a financial incentive that 

shifts a producer’s supply curve closer to the societal supply 

curve.

Pigouvian taxes are criticized for imperfectly measuring 

marginal social costs or benefits (Barthold, 1994). Policymakers must determine the deadweight loss created from an 

Highlight 16

Externalities in Producer versus Societal Efficient 

Production

In Graph 1 below, Supplyproducer represents the producer’s 

supply curve (costs are lower due to lack of accounting 

for externality), and Supplysociety represents society’s supply 

curve. Supplysociety accounts for the externality, therefore the 

cost of each unit of production is higher. Demand is based 

on consumers’ willingness to pay for the product, with the 

demanded quantity decreasing as the price rises. The market 

equilibrium is the point at which the supply and demand curves 

intersect. The market equilibrium for society is a lower quantity 

of products at a higher price with less biodiversity loss. The 

difference in the supply curves creates dead weight loss. Dead 

weight loss is the amount by which the social cost outweighs 

the social benefit.

In Graph 2, the original Supplyproducer curve shifts to Supplyproducer 

+ tax. If the tax is set at the marginal cost of the externality, then 

the Supplyproducer + tax will be equal to the Supplysociety and dead 

weight loss will be fully or partially eliminated. The government 

also collects revenues equal to the area of the gray square.

1. Producer versus Societal Market Equilibrium

2. Pigouvian Tax Influence on Supply Curve

Supplysociety

Supplyproducer

Pproducer

Psociety

Deadweight loss 

Price

Quantity

Q society

Q producer

Demand 

Price

Supplyproducer+tax

Supplyproducer 

Quantity

Q society

Q producer

Pproducer

Demand 

Tax revenue

Tax
Chapter D—Economics of Biodiversity and Habitat Markets 33

In policy implementation, the cap and trade mechanism 

provides an upper biophysical limit on pollution, which provides an assurance that environmental goals will be met. The 

market leverages the ability of some parties to provide environmental goods, services, or amenities at a lower cost than 

others. The heterogeneity in the cost of supply provides an 

opportunity to increase the economic efficiency of achieving 

an environmental objective. For instance, to protect an endangered species, ranchers may already possess land suitable for 

the species along with the ability to enhance the habitat in a 

way that would allow the species to thrive at a relatively low 

cost, as opposed to a land developer who must mitigate the 

development impact of building a housing development community on land with a listed species. This heterogeneity in cost 

allows the buyer—the land developer—to pay the rancher to 

achieve the biological objective on behalf of the species. This 

is a win-win-win situation, whereby the species is protected, 

the rancher is compensated for protecting the species through 

habitat management or improvement on their land, and the 

developer has a lower cost.

Early attempts to apply economic theory to obtain environmental benefits occurred in the 1970s. These initial efforts 

employed market-based Pigouvian tax mechanisms. Largely 

focused on energy conservation during the period from 1978 

to 1986, Congress established a tax credit for residential 

energy conservation expenditures to encourage the use of 

more efficient products through a subsidy (Barthold, 1994). 

In 1978, Congress enacted a gas guzzler tax aimed at encouraging sales of vehicles with higher fuel economy (Barthold, 

1994); similar to the tax credit, this policy was aimed at 

encouraging consumers to purchase more efficient vehicles by 

increasing the unit price of less efficient models (via the tax).

In the 1990’s there was a shift to cap and trade. The 

sulfur dioxide trading program initiated under the 1990 Clean 

Air Act Amendments (United States Government, 1990a) 

limited sulfur dioxide emissions by electricity generating 

power plants. The program was instituted using a cap-andtrade mechanism that allowed firms to trade sulfur credits as 

a way to reduce the overall cost of compliance. This approach 

capped total emissions while allowing firms with heterogeneous costs to produce more or less emissions and trade 

credits to achieve cost efficiency (USDA, 2011a).

Biodiversity Specific Market Considerations

Unlike sulfur dioxide emitted from a stack in a specific 

region, which has well understood ramifications and relatively 

simple quantification methods, knowledge about minimum 

biophysical conditions (acres) to maintain or increase a species, and the impacts of development on a species and the 

methods used to ‘abate’ the impact are more complex. The 

complexity of what constitutes biodiversity, measuring biodiversity benefit outcomes, and establishing markets for trade is 

challenging. The ecological needs of a species will differ from 

another necessitating specific land management practices with 

impacts that may or may not be well understood.

externality and set the tax rate so that it shifts the supply curve 

in the correct direction and by the necessary amount. In policy 

implementation this is a challenge, and setting the tax rate to 

induce a specific reduction in pollution or an increase in ecosystem services may never occur perfectly. For many years, 

Pigou’s theorem dominated economic ideology for pollution 

abatement, but in 1960, Ronald Coase argued that a Pigouvian 

tax is not necessary to achieve the social optimum, and in 

some cases it is detrimental (Coase, 1960).

Coase argued that the market could achieve the optimal level of a produced good that resulted in fewer external 

impacts through negotiations with private parties under certain 

conditions. Coase’s work relied on two important assumptions: 

(1) property rights must be well-defined and (2) there are no 

(or very minimal) transaction costs. If these two assumptions 

are valid, than the private parties can find the least cost solution to resolve the externality associated with production.

Coase (1960) recommended that the government should 

strengthen property rights (and make them transferable) 

and provide ways to reduce transaction costs. Coase’s work 

provided the foundation for cap and trade policy instruments. 

Fundamentally, cap and trade assigns property rights on 

environmental degradation (or protection), making individuals 

liable and allows trading among regulated parties so that they 

can achieve a specified pollution reduction at the lowest cost.

Figure 1. Diagram showing the differences between developer 

and societal preferences for land use defined graphically. The 

area in yellow represents the developer's preferred development 

tract, whereas the area in green is the smaller, societally 

preferred development tract. Red areas show where species X 

occupies a considerable part of the developer's preferred tract.

Land area

Developer preferred development tract 

Societal preferred development tract

Habitat of species X 

EXPLANATION
34 Biodiversity and Habitat Markets: Policy, Economic, and Ecological Implications of Market-Based Conservation

In addition to the assumptions developed by Coase 

(1960), it was determined that for successful implementation of market-based mechanisms, marginal environmental 

benefits across providers should be equal (Jack and others, 

2008). However, marginal benefits from an additional unit 

of biodiversity or habitat protection may not be equal across 

all providers. Instead, they depend on source, location, size 

of available habitat, ecological context, and initial conditions of any impact or benefit site. The difficulty associated 

with quantifying a unit of benefit from biodiversity or habitat 

conservation—what a credit represents—leads to additional 

administrative burden in developing metrics that may or may 

not represent what constitutes a viable unit of improvement. 

It also adds to the cost of market transactions and reduces the 

streamlining that could be achieved with standardized metrics.

Payments for Ecosystem Services

When these market-based mechanisms were first introduced, they were listed from most to least market-like. Payments for ecosystem services (PES) is the least market-like. 

The incentives the USDA provides serve as subsidies to shift 

the supply curve in favor of biodiversity benefits. Without 

these subsidies, most agricultural producers would undersupply biodiversity and habitat because they do not reap society’s 

full benefits from them. Society benefits from biodiversity and 

habitat conservation and compensates farmers for providing 

them via the USDA PES programs.

USDA PES program contracts designate the biodiversity benefits on the landscape with property rights. PES uses 

incentives to obtain results on private land rather than making 

compulsory regulation (such as command and control). This 

fact does not mean that PES does not fully meet the criteria of 

a market as proposed by Coase (1960). The PES mechanism 

does not create tradable property rights. Rather, the USDA is 

the single source buyer of biodiversity and habitat benefits.

USDA programs can provide biodiversity benefits up 

to the statutory limit on either spending or acres; the overall 

benefits may depend on which site is enrolled in a given year 

and the quantity and quality of ecological benefits those sites 

yield. The benefits are unlikely to reflect complete societal 

preferences for biodiversity conservation. Figure 2 shows the 

number of acres enrolled in the CRP over the last 20 years 

(Barbarika, Alex, n.d). The figure shows the number of acres 

enrolled in the program—the number of acres benefitting from 

the program largely reflects the expenditures, and yet there is 

some variance based on differences in land rental rates. It is 

not possible to extract the amount of biodiversity benefits from 

this national expenditure and enrollment data alone.

Conservation Banks

Conservation banks are designed to assign property rights 

and make them tradable. The program uses the authority of 

the ESA and an allowance for take to give property rights 

for species and habitats. Property rights, in this case, are the 

liability for degradation of species and habitat and the requirement to mitigate. Habitat improvements for listed species can 

be assigned credits by the FWS, and these are tradable under 

the ESA authorities. Those activities that lead to an incidental 

take are required to mitigate, thus stimulating the demand for 

credits.

Coase’s second recommendation is to minimize transaction costs. Given current procedures related to habitat assessment, monitoring, and verification, conservation banking faces 

important challenges. Transaction costs can be defined as 

“the resources used to define, establish, maintain, and transfer 

property rights” (McCann and others, 2005). This definition 

Figure 2. Graph showing the 

acres of habitat that benefited 

annually from the Conservation 

Reserve Program from 1992 

through 2012 (area in tan). In 

comparison, expenditures are 

depicted by green bars. The 

graph illustrates that annual 

payments do not correlate 

perfectly with the acreage 

benefited, but there is a clear 

association.

0 

5 

10 

15 

20 

25 

30 

35 

40 

0 

5 

10 

15 

20 

25 

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 

Acres, in thousands

Payments (total financial outlays), in millions of U.S. dollars

Payments Acres

Year
Chapter D—Economics of Biodiversity and Habitat Markets 35

includes the administrative costs of a transaction as well as 

non-monetary costs such as time.

A banker survey conducted by Fox and Nino-Murcia 

(2005)7 revealed that the bureaucracy involved in establishing 

a banking agreement is a common hurdle. Sixty-seven percent 

of bankers cited technical and political challenges to State and 

Federal agencies. This was echoed in interviews conducted by 

the survey’s researchers with a number of individuals involved 

in setting up banks or in efforts to develop pre-compliance 

assurances. A snapshot of the prices and profitability of conservation banking is in highlight 17.

From a biological standpoint, some regulatory agencies 

believe that conservation banking is good for the species, as 

it more strategically secures permanently dedicated conservation lands and attracts people with expertise to the industry of 

creating and managing requisite lands (Ruhl and others, 2005). 

Professional bankers have an advantage in setting up banks 

as they have experience with the administrative and financial 

obligations and can more easily navigate the approval process 

than individual landowners. Additionally, professional bankers 

are more likely to have access to the investment capital needed 

to develop a new bank. Bankers also manage a portfolio of 

banks, reducing their overall risk if credits are not sold quickly 

or one bank fails; individual landowners are exposed to higher 

risk when their efforts are focused on a single project (Randy 

Wilgis (Environmental Banc and Exchange), written commun., April 15, 2014).

Large tracts of land, and a focus on high quality habitat 

and connectivity, often increase the ecological effectiveness of conservation banks over alternatives (DOI, 2013b). 

The alternative approaches, such as permittee-responsible 

on-site mitigation, are generally less robust than conservation banks. Additionally, mitigation provided by conservation 

banks occurs in advance of impacts, in contrast to permittee-responsible mitigation, which might reduce the risk of 

ecological failure (DOI, 2013b). The ecological benefits of 

conservation banks over their regulated alternatives can also 

lead to economic efficiencies. In particular, a bank can achieve 

economies of scale. For the banker, upfront, management, and 

maintenance costs per unit for a larger area of land are likely 

to be less than for a smaller parcel. With agencies, approving a 

single bank to mitigate the impacts of multiple developments 

rather than approving individual permittee-responsible mitigation sites reduces the overall cost of administration.

A benefit of the market-based approach of conservation banking is the minimum threshold placed on the amount 

of biodiversity conservation. Rather than using a subsidy 

that does not dictate the quantity of benefits, the mitigation 

requirement ensures that there is, theoretically, no net loss of 

species (although actual outcomes depend on the quality of 

practices implemented and should be ensured via monitoring 

and verification). As a pseudo cap and trade mechanism, there 

7

The DOI Office of Policy Analysis is conducting a survey of bankers with 

results anticipated in 2015-16 (Sarah Cline (DOI PPA), written commun., 

March 26, 2014).

Highlight 17

Conservation Bank Credit Prices and Profitability

Conservation bank credit prices are not transparent: 

most transactions occur through private trades. The 

prices vary depending on the species, the location, and 

the development opportunity. A survey of conservation 

bankers by Fox and Nino-Murcia (2005) found that credit 

asking prices ranged from $3000 for one acre of San 

Joaquin kit fox habitat to $125,000 for one acre with a 

breeding pair of Least Bell’s Vireo. The survey’s findings 

on asking price do not necessarily equate to the price 

negotiated between parties, but they do indicate the high 

prices and range at which credits are traded.

Another finding of the survey was that potential profits 

were competitive with alternative land uses, including golf courses and residential developments (Fox 

and Nino-Murcia, 2005). It is notable that this survey 

occurred before the 2008 real estate bubble burst. Since 

then, land demand has diminished, influencing demand 

for mitigation credits and the price of land (Shauna Ginger (FWS), oral commun., April 2, 2014).

A survey by Bunn and others (2013) identified and ranked 

the barriers to entry in the graph below. Estimating cost 

and funding site management are both high on the list of 

concerns. The Department of the Interior is planning to 

survey conservation bankers in 2015 (Sarah Cline (DOI 

PPA), written commun., March 26, 2014). This will provide 

insights into the current state of the market and barriers 

to adoption.

Site credit values

Service area

Funding site management

Title and easement issues

State/federal agency agreement

Endowment issues

Estimating cost

Process length

Access to site

Changing templates

Pollution on site

Fully assessing bio status of site

Ensuring market is adequate

Ability to maintain site long term

Getting agency support early

Site management flexibility

Reducing program bureaucracy

Political interventions

0 1 2 3 4 5 6 7 8

Number of respondents identifying this issue

Wildlife agency personnel

Conservation bank practitioners

EXPLANATION
36 Biodiversity and Habitat Markets: Policy, Economic, and Ecological Implications of Market-Based Conservation

is less uncertainty in the quantity of biodiversity, and the market 

is leveraged to achieve the requirements at the lowest cost.

The FWS first approved a conservation bank in the early 

1990s; today, 105 banks are approved (DOI, 2013b). A total of 

74,807 acres were permanently protected by conservation banking easements in 2011. The majority of banks today are sited in 

California, but growth has begun in other States (and considerable growth has occurred in Oregon, Texas, and Florida).

Most banks, 73 percent, are owned by private, commercial 

companies as opposed to individual landowners or nonprofit 

organized banks (DOI, 2013b). There are now conservation 

banks for 35 different species (DOI, 2013b). One concern is that 

the majority of the species that do have banks only have a single 

bank, limiting competition on the supply side. Known as thin 

markets, markets with too few transactions over a given period 

of time inhibit efficient price discovery (Anderson and others, 

2007). Environmental markets often have limited market activity 

and private transactions, which makes them prone to be “thin”. 

Thin markets are subject to a number of issues: prices that don’t 

represent overall supply and demand conditions, price volatility, 

and the potential for individual transactions affecting price and 

creating an incentive for price manipulation (Peterson, 2005). 

All of these issues contribute to the market’s reduced ability to 

efficiently achieve environmental objectives. For conservation 

banks, a lack of publicly available prices leads to asymmetric 

information for credit purchasers. Without transparent prices, it 

reduces the incentive for project proponents to favor purchasing 

credits from a bank over permittee-responsible mitigation, which 

may have more clearly defined costs.

Habitat Exchanges

Habitat exchanges, like conservation banks, assign property rights for outcomes related to biodiversity conservation or 

improvement and make them tradable in the form of credits. 

There are multiple exchanges attempting to extend the market 

approach to candidate species. For exchanges to be successful, 

property rights must be well established. For pre-compliance 

mitigation, this requires FWS assurances that if a candidate species is listed the credits will account for mitigation done prior to 

listing. Without a property right or assurances that liability will 

be transferable with the purchase of credits, a major challenge to 

pre-compliance efforts exists.

An issue relevant to all types of biodiversity conservation mechanisms is funding the upfront costs. An example of 

an approach to overcome the barrier of high upfront costs is 

described in highlight 18.

To address transaction costs, the habitat exchange model 

uses HQTs upfront that will apply to all landowners. Theoretically, this reduces the administrative burden on FWS offices in 

developing methods to assess credits for landowners and debits 

for polluters. It also increases transparency in the market so 

potential bankers can assess the viability of a specific property 

that would support a listed species.

Innovative Financial Tools

Conservation often requires high upfront investment. A majority of the upfront expenditures 

must be committed long before a credit is 

assigned and can be sold for revenue. This creates a substantial barrier to developing a conservation bank, especially for private landowners. There are also associated risks that are 

out of the manager’s control including: weather 

variability, invasive species issues, regulator 

biases, and vegetative success (Randy Wilgis 

(Environmental Banc and Exchange), written 

commun., April 15, 2014).

The Alliance for the Chesapeake Bay, a 

nonprofit organization, works with private 

forest owners in the Maryland part of the Bay 

watershed. The State requires mitigation to 

maintain forest cover via the Forest Conservation Act. Critical areas for Bay recovery are 

also regulated. The program is administered by 

local jurisdictions.

To address the barrier to entry associated with 

capital costs, the Alliance is working to develop 

innovative financing tools. Similar to small 

loans offered for homeowner renewable energy 

investments, the organization hopes to bring 

investors and landowners together to provide 

upfront financing that can bridge the gap until 

credits can be sold (Eric Sprague (Alliance for 

the Chesapeake Bay), oral commun., August 9, 

2014).

In parts of Maryland, the value of credits were 

estimated to be from $16,000 to $20,000 per 

acre for newly planted forest and from $6,400 to 

$8,000 for protecting woodlands, demonstrating 

the potential value of increasing forest conservation banks (Forests for the Bay, 2015).

Highlight 18 Photograph by U.S. Fish and Wildlife Service
Chapter D—Economics of Biodiversity and Habitat Markets 37

HQTs can also reduce transaction costs associated with 

trades. In conservation banking, each trade must be approved 

by FWS, which adds to FWS administrative costs and opportunity costs in the form of time used by bankers and others 

who need to buy mitigation credits. The HQTs assess projects 

upfront and remove redundancy in FWS trade approvals. 

These processes may also increase the number of private 

developers or public agencies interested in purchasing credits. 

Use of these tools could improve demand, benefit the market, and provide ecological benefits in the form of large tract 

banks as opposed to the checkerboard habitats that result from 

permittee-responsible mitigation.

Contributing to the success of the market, the dynamic 

permanent mitigation option in habitat exchanges could 

increase the supply of credits and provide greater competition and pricing. Institutional barriers to this type of approach 

persist, and it is yet to be proven in a functioning habitat 

exchange. For example, FWS policies and procedures for 

approving conservation banks require that banks have easements to protect the land in perpetuity. The dynamic permanent mitigation approach would need to be tested and accepted 

by FWS within the authority of the ESA.

The ability to avoid pre-approval of trades would allow 

an exchange to use an auctioning platform. It would also 

increase market price transparency, which could increase competition and reduce the price of credits.

Similar to conservation banks, habitat exchanges are 

much like cap and trade whereby there is a minimum habitat area that must be conserved and maintained. The risk 

that dynamic permanent mitigation credits introduce to this 

minimum threshold is moderated by the reserve account (see 

Chapter C: Habitat Exchanges, for more on dynamic permanent mitigation and reserve accounts). By reducing administrative burden on the approval and trading process, habitat 

exchanges possess the potential to improve the viability of 

conservation banking for species protection and recovery.

Eco-Labeling

Eco-labeling differs from the previously discussed environmental markets. Rather than a tax, subsidy, or cap and trade 

mechanism, eco-labeling uses consumer preferences to differentiate goods produced with an explicit goal of practicing 

environmental protection or conservation. Eco-labels attempt 

to address the market failure in which participants do not have 

perfect knowledge about products. From a biodiversity perspective, there is typically an information asymmetry between 

consumers and producers where the producer is aware of certain product characteristics, such as production processes that 

may be detrimental to biodiversity, but the consumer does not 

have this insight. Environmental certifications and eco-labels 

provide information about product characteristics that are 

not derived from its consumption, but may provide environmental benefits (Nunes and Riyanto, 2005). Two examples 

of eco-labels are described in highlight 19. Consumers that 

would like to purchase goods produced in a way that benefits 

biodiversity or habitat conservation are able to make informed 

decisions about their purchases with the information that certifications and eco-labels deliver.

Markets for Eco-labeled Products

Salmon-Safe and Certified Wildlife Friendly are examples 

of the many eco-labels in the United States. Salmon-Safe 

is a regional eco-label that certifies farms and urban lands 

in Oregon, Washington, California, and British Columbia 

for undertaking land management practices that secure 

healthy agricultural and urban watersheds so native salmon 

can spawn and survive. Participants of the Salmon-Safe 

eco-label include vineyards, farms, corporate and university 

campuses, large-scale residential developments, and golf 

courses, collectively covering over 60,000 acres of certified 

land (Salmon-Safe, 2014).

Similarly, Certified Wildlife Friendly is an international 

certification program that aims to conserve wildlife through 

the certification of organizational production practices and 

enterprise development that allows people and wildlife to 

coexist. Certified Wildlife Friendly producers conserve over 

12 million hectares of land, including wetlands, forests, and 

grasslands globally (Certified Wildlife Friendly, 2013). In 

North America, Certified Wildlife Friendly focuses on agricultural farms and ranches. Certified Wildlife Friendly seals 

are found on a range of products including meats, wool, 

animal fiber yarn, leather goods, eggs, honey, and soaps.

Highlight 19

Photograph by U.S. Fish and Wildlife Service
38 Biodiversity and Habitat Markets: Policy, Economic, and Ecological Implications of Market-Based Conservation

Environmental certifications are often seen as the “ultimate 

use of a market mechanism” (Clark and Russell, 2003). This 

is because there is no requirement (regulatory or otherwise) 

for any market participant to act in a certain way and there is 

minimal interference from the government. Producers have 

the option (but are not required) to change their production 

processes and consumers have the option (but are not required) 

to purchase the environmentally beneficial products. By simply 

making information about the environmental benefits of products available to consumers, labeling policies can circumvent 

the market inefficiencies associated with asymmetric information (Teisl and Roe, 1998).

According to Nunes and Riyanto (2005), the success of 

certification and eco-labels depends on consumer awareness, 

firms’ incentives to endorse certification and eco-labeling 

policies, and the sensitivity of consumer demand to production 

costs. In order for an environmental certification or eco-label 

program to be efficient, consumers must be aware of biodiversity protection benefits so that they can make an informed 

choice about whether or not they want to purchase labeled 

products.

With an increase in voluntary eco-labels, consumers may 

face information overload (Horne, 2009). Horne reported on 

a survey of consumers in which 97 percent stated that there 

“was more stuff to read than I could ever dream of reading,” and 92 percent indicated that they felt ‘surrounded’ by 

information. Consumers not only face multiple labels, but the 

meaning and legitimacy of those labels can be difficult for 

consumers to discern.

A firm’s ability and willingness to implement certification 

and eco-labeling policies depends on changes in production 

costs necessary to accommodate the new technologies that 

accompany biodiversity-friendly practices. If these practices 

increase production costs, then firms may need to increase 

their prices. In turn, the success of certification and eco-label 

policies also depends on the sensitivity of consumer demand 

in the face of higher prices.

Although higher prices can lead to decreased demand, 

adopting certification and eco-labeling may actually present a 

great opportunity for some firms. Investment in green technologies and processes can benefit a firm that degrades the 

environment because it may improve public opinion and allow 

them to differentiate their product in the market (Amacher and 

others, 2004). It has been established that some consumers are 

willing to pay more for differentiated goods labeled as environmentally friendly (Clark and Russell, 2003). Studies that 

examined this phenomenon include Teisl and others (2002) 

that shows how the introduction of Dolphin-Safe labeling on 

canned tuna increased the market share of tuna in the United 

States after it was introduced; Loureiro and Hine (2002) that 

found Colorado consumers were willing to pay a higher price 

premium for locally grown potatoes; and Aguilar and Vlosky 

(2007) that shows consumers who thought certified wood 

products can lessen environmental impacts willingly paid a 

price premium.
Chapter E—Performance Measurement in Biodiversity and Habitat 

Markets

This chapter describes and analyzes selected factors that 

influence the performance of market-based mechanisms for 

biodiversity conservation in conservation banking and habitat 

exchanges. As defined here, performance factors include 

(1) the type of metric used to represent and measure conservation actions; (2) the type of credit generated by a conservation activity, and the linkage between the level of a credit and 

the type of metric employed; (3) the choice of a HQT for a 

given species or habitat type; (4) market support tools such as 

registries, crediting platforms, and financing mechanisms; and 

(5) the means by which conservation benefits are monitored 

and verified. The chapter ends with a discussion of how these 

performance factors influence the effectiveness and efficiency 

of market-based mechanisms.

Performance Measures

Two general types of metrics are used to estimate the 

impacts of species or habitat conservation mechanisms. The first 

is referred to as a practice-based metric, whereby an “expected” 

outcome is achieved by implementing a specific conservation 

practice. The second general category is a performance-based

metric, which measures actual conservation outcomes.

With respect to agricultural lands, USDA conservation programs primarily employ practice-based metrics. The 

assumption is that successful implementation of a specific conservation practice leads to an environmental goal, whether it is 

improved wildlife habitat, species conservation, water quality 

improvement, or carbon sequestration. Approved conservation practices typically undergo extensive validation through 

research and pilot testing to determine whether they will lead 

to desired environmental outcomes. In this sense, implementation of a vetted practice is a proxy for performance, although 

actual outcomes can depend on the biophysical characteristics 

of a particular farm or ranch.

Habitat conservation programs on agricultural lands—

as well as in water quality programs—are in the process of 

transitioning to outcome- or performance-based metrics to 

determine the success levels of targeted outcomes (Culliney, 

2014). Culliney (2014) observed that the 2014 Farm Bill 

refined conservation programs to allow eventual payment 

components that reward biophysical outcomes in addition to 

adopting specific conservation practices. Culliney argues that 

both practice-based and outcome-based payment mechanisms 

are necessary and complementary.

Recent efforts through the USDA Conservation Effects 

Assessment Project (CEAP) have attempted to report on the 

impacts of habitat conservation practices and whether conservation goals were met (for example, see Briske and others, 

2011). Because field-level research addressing the impact of 

conservation practices on improving habitat and biodiversity 

has been limited and dispersed geographically, a current focus 

at the USDA is the development of tools, models, and protocols to measure actual performance and outcomes from the 

implementation of conservation activities. In several wildlife 

habitat assessment projects sponsored by CEAP, this work is 

ongoing (Charles Rewa (USDA NRCS), written commun., 

September 2014).

Performance-based metrics for measuring biodiversity 

and wildlife habitat outcomes can be based on three methods: 

(1) use of validated and reliable habitat or species response 

models; (2) actual site inspections to verify that a species or 

habitat is recovering; or (3) area-based metrics that measure 

satisfactory conservation and stewardship of an ecologically compatible landscape for a particular species or suite 

of species. Species and habitat models are described later in 

this chapter. The U.S. Army Corps of Engineers (USACE) is 

developing an inventory of tools and models to estimate the 

impacts of conservation actions on various ecosystem services, including wildlife habitats or species (Elizabeth Murray 

(USACE), oral commun., May 28, 2015).

Area-based metrics reflect the physical level of habitat 

(as a proxy for species or biodiversity in general), defined as 

either a simple acre or a functional acre, whereby the area is 

deemed ecologically viable for the recovery of one or more 

species. Metrics related to species and simple and functional 

acres are briefly discussed below. Each of the three metrics 

can serve as the basis for determining the number of credits a 

conservation bank can generate and sell.

Species-based Indicators

One measure of performance in conservation banking 

is tracking the numbers for a species targeted for restoration. 

Species can be tracked either by the number of individuals or 

the number of breeding pairs. One example of a species-based 

performance measure is a prairie dog conservation bank in 

Utah. The Least Bell’s Vireo is an example of an indicator 

expressed in terms of breeding pairs (Fox and Nino-Murcia, 

2005); a similar approach was proposed for the Florida Scrub 
40 Biodiversity and Habitat Markets: Policy, Economic, and Ecological Implications of Market-Based Conservation

Jay (Chris Hartley (USDA Office of Environmental Markets), 

oral commun., April 30, 2014).

Species counts or breeding pair observations are options 

when the species of concern is on-site and supported by the 

habitat. These methods provide conservative estimates of the 

biodiversity benefits at a site. However, field observations can 

be costly depending on the species and the location. There 

may also be seasonal and annual influences that impact the 

presence or absence of a species. This constraint may become 

more severe in the future with the prospect of increasing 

climate variability.

Habitat-based Indicators

Habitat indicators are a second type of performance metric. Similar to practice-based metrics, there are assumptions 

that restoring or conserving habitat results in species recovery 

or protection rather than actual observations. As stated above, 

habitat-based metrics can be based on a simple acre or a functional acre.

A simple acre is exactly that, an acre of habitat restored 

or conserved to offset a converted acre. This approach does 

not require a high cost for data collection and analysis of habitat suitability. However, a simple acre is a proxy and may not 

be a robust indicator that the species exists at a mitigation site. 

The simple acre metric does not account for habitat quality, 

type of habitat, risks on the property, connectivity, or landscape features. Mills (2007) finds that retaining habitat alone is 

a necessary, but not sufficient, condition for species recovery.

A functional acre can have any number of meanings but 

is generally a unit of measure that accounts for both area and 

habitat quality, captured by a set of attributes that meet the 

ecological needs of the species. The criteria used to determine a functional acre vary with a species’ needs, but would 

be standardized within a given habitat exchange platform. 

These criteria address the ecology of a species and its habitat 

to determine site suitability and can include vegetation type, 

water availability, invasive species, habitat connectivity, and 

risks on or near the property. This information, along with 

landscape context, helps quantify biodiversity benefits and 

tradable credits.

The habitat exchanges, as described earlier, are focused 

on developing tools to quantify functional acres with standardized protocols. These efforts are described alongside other 

tools used to quantify tradable credits in the next section.

Credit Types and Ratios

Species or habitat credits represent the unit of exchange 

that allow trade to take place; the types of credits available can 

vary from bank to bank. There may also be ratios associated 

with credits. Ratios are used to account for quality differences between impact and benefit sites (Fox and Nino-Murcia, 

2005). The use of ratios is common in conservation banking 

to ensure mitigation is equivalent to adverse impacts across 

different sites (FWS, 2003). In other environmental markets, 

ratios are often used to incorporate uncertainty. For example, 

in Virginia’s water quality trading program, if point sources 

are to purchase credits from nonpoint sources they must do so 

at a 2:1 ratio (Virginia Department of Environmental Quality 

(VDEQ), 2008). Below, the types of species and habitat credits 

that can be generated, the biophysical basis of those credits, 

and crediting ratios are described.

Credit Type

Species or habitat credits are linked to the type of performance metric adopted by the particular bank (species, simple 

acre, or functional acre), and various types of credits are 

available depending on the status of the conservation activity 

undertaken. Table 5 shows various credit types and describes 

their structure and application. Highlight 20 describes a mixture of credits for a ranch in California.

The six types of credits are not mutually exclusive. A 

voluntary credit can also be classified as a creation or preservation credit. Similarly, pre-compliance and compensatory 

Table 5. Descriptions of credit types.

Credit type Description

Voluntary Purchased for reasons other than compensatory mitigation. May not meet compensatory standards. Not eligible to 

mitigate regulated activities.

Pre-compliance Purchased to insure against future compensatory action. A type of voluntary credit, these would require meeting 

compensatory standards and would have assurances. This type of credit is not yet supported by Federal policy.

Compensatory Purchased by regulated parties or by others. These credits meet standards determined by regulating authorities.

Creation Applicable for ‘new’ habitat. Depending on the species or habitat, specific activities would be implemented 

upfront to account for creation on a plot of land. Ongoing management activities required.

Restoration Applicable to existing habitat that is not otherwise protected and requires practices to restore function for species 

of concern. Ongoing management activities required.

Preservation Applicable to existing habitat that is not otherwise protected. Ongoing management activities required.
Chapter E—Performance Measurement in Biodiversity and Habitat Markets 41

credits can be based on habitat creation or preservation. Depending 

on the design of the species or habitat banking agreement, the types 

of conservation activities may result in different numbers of credits 

awarded.

Pre-compliance credits are a type of credit level envisioned for 

potential candidate species banking agreements; however, to date there 

have not been any credits of this type authorized. The FWS has released 

a draft policy for public comment on pre-compliance credits. Under 

this policy, all public and private landowners could generate credits that 

benefit declining wildlife or at-risk species (Barrett, 2014). Credits can 

be sold or traded, and if the species is listed, the credits can be applied 

to offset negative impacts from development (Barrett, 2014).

A creation credit is likely to require higher upfront costs for 

installing ‘habitat,’ but may also command a higher price in the market 

than preservation credits. Compensatory credits also have higher costs 

associated with meeting the conservation standards of the regulatory 

authority. Demand for these credits is driven by regulation and are 

likely to command a higher price in the market than a voluntary credit.

Credit Metrics and Ratios

Credits are associated with a type of performance metric: a simple 

acre, a functional acre, or the number of species. A simple acre is a 

quantification of credits that equates one acre of habitat to one credit. 

A functional acre factors in habitat area and quality in terms of the 

ecological needs of a species or a habitat of concern. Species credit value 

quantification is determined for some individual species or breeding 

pairs.

A sample of conservation banks was examined in the Regulatory 

In-lieu fee and Bank Information Tracking System (RIBITS) to determine how often different types of credits are used (see USACE, 2015). 

According to the Department of the Interior Office of Policy Analysis 

(2013b), the FWS approved 105 conservation banks by 2013 with the 

majority (76 percent) located in California. For the examined sample, 

eighteen banks were considered to illustrate credit metrics, types of 

credits, and various credit ratio quantification methods (see table 6). 

Within the sample, 15 used the simple acre metric, 2 used the functional acre, and only 1 was based on species.

Table 6 illustrates the variety of credit ratio quantification 

approaches used for different species. For example, with the Giant Garter Snake in Colusa, California, there are three types of credits that can 

be generated using the simple acre approach: seasonal wetland establishment, wetland enhancement, and habitat creation. Seasonal wetland 

establishment and habitat creation receive a 1:1 credit ratio (one credit 

for one established or created acre of habitat), and wetland enhancement receives one-half a credit for each acre enhanced. For the Deadman Creek bank in Merced, California, vernal pools and two separate 

species are all credited at a 1:1 ratio. Alternatively, certain practices and 

restrictions on land use can also generate credits, as shown in the case 

of the Carolina Heelsplitter in South Carolina. For this species, riparian buffers are credited at a 1.3:1 ratio, while restrictions on upland and 

timber development receive a 0.78:1 credit to acre ratio. While different 

crediting ratios are required given the unique ecological needs of each 

species, determining credit ratios for each unique species or habitat 

adds to the overall cost of developing mitigation markets and habitat 

exchanges.

Conservation Bank Credit Determination: 

Van Vleck Ranch Mitigation Bank

The Van Vleck Ranch Mitigation Bank is 

a plot of 765 acres in Sacramento County, 

California, that targets vernal pool fairy 

shrimp and Swainson’s hawk. The bank 

was established between the land owner, 

VVRR Corporation; the bank owner and 

operator, Westervelt Ecological Services; 

the U.S. Army Corps of Engineers, The 

Environmental Protection Agency, U.S. Fish 

and Wildlife Services, and the California 

Department of Fish and Game.

The Van Vleck bank has three types of 

credit generated through vernal pool 

preservation and creation, and through 

grassland preservation. The bank was 

awarded credits at a 1:1 credit to habitat 

ratio with 27.10 credits for preservation 

land management practices conducive to 

vernal pool fairy shrimp habitat extant in 

the land plot, 16.24 credits for land management practices that create vernal pool 

habitat, and 722.11 credits for preservation 

and land management practices that aid 

the grassland foraging habitat that benefits 

Swainson’s hawk.

Credits are released and available for sale 

based on certain milestones and performance events. For vernal pool and Swainson’s hawk preservation credits, certain 

percentages of the overall credits are 

released at the establishment of the bank 

and at specific funding milestones for the 

endowment fund. For vernal pool creation 

credits, certain percentages of credits are 

released at the establishment of the bank 

and at specific land management performance criteria.

Adapted from The Conservation Fund, 

2010b.

Highlight 20

Photograph by U.S. Fish and Wildlife Service
42 Biodiversity and Habitat Markets: Policy, Economic, and Ecological Implications of Market-Based Conservation

Table 6. Sample conservation bank projects from the Army Corps of Engineer’s Regulatory In-lieu fee and Bank Information Tracking 

System (RIBITS).

Project name Location 

(county, State) Species Credit type Credit quantification methodology

Colusa Basin Colusa, California Seasonal Wetlands, Giant 

Garter Snake

Simple acre Seasonal wetland establishment receives 1:1 credit ratio, 

enhancement 0.5:1, and giant garter snake habitat creation 

receives a 1:1 credit ratio.

Deadman Creek Merced, California Vernal pool, CA tiger 

salamander, San Joaquin 

kit fox

Simple acre All species/habitat credited at 1:1 ratio.

Fitzgerald Ranch San Joaquin, California Vernal pool fairy shrimp, 

CA tiger salamander

Functional acre Vernal pool habitat credits depend on preserve size, rare/

unique vernal pool type, listed species, rare species, site 

conditions, and defensibility of site. Upland habitat credits 

1:1 acre to credit ratio.

Ohlone Preserve Alameda, California CA red-legged frog, 

CA tiger salamander, 

Alameda whipsnake

Simple acre Credits for California tiger salamander and Alameda 

whipsnake are based on a 1:1 acre to credit ratio. California 

red-legged frog credits are based on a 1:1.667 acre-tocredit ratio.

Orchard Creek Placer, California Vernal pool fairy shrimp, 

CA tiger salamander

Simple acre Credits are generated through habitat preservation of 

contiguous parcels of land where each 30-acre parcel of 

land was allotted 2.755 habitat credits.

Santa Rosa Plain Sonoma, California Sonoma tiger 

salamander, Burke's 

goldfields, Sonoma 

sunshine, Sebastopol 

meadowfoam

Simple acre Credits are generated through habitat preservation and 

creation. Credits for the California tiger salamander and 

for plants are based on a 1:1 habitat acre-to-credit ratio, 

however, USFWS is considering revisions to the plant 

credit methodology.

Van Vleck Ranch Sacramento, California Vernal pool habitat, 

Swainson's Hawk

Simple acre Vernal pool creation, vernal pool preservation, and Swainson's 

Hawk habitat acreage are credited at a 1:1 ratio.

Agua Fria Merced, California San Joaquin kit fox, 

Burrowing Owl

Simple acre One acre equals one credit. Credits are "dual species," which 

can be applied to kit fox or burrowing owl but not both.

Florida Panther Hendry, Florida Florida panther Functional acre Dubbed Panther Habitat Units, credits based on a Habitat 

Suitability Value depending on habitat type (for example, 

basin swamp or mesic hammock).

Church Creek Dorchester, Maryland Delmarva fox squirrel Simple acre Credits generated through habitat preservation. One acre of 

habitat equals one credit.

American Burying 

Beetle

Pittsburg, Oklahoma American Burying Beetle Simple acre Credits generated from habitat preservation. Two acres of 

buffer equals one Buffer Credit. One preservation acre is 

equivalent to one Credit.

ODOT Vernal 

Pool

Jackson, Oregon Vernal pool fairy shrimp, 

Big-flowered wooly 

meadowfoam

Simple acre Credits generated through habitat preservation and restoration. 

Vernal pool preservation credits are a 5:1 ratio. Vernal pool 

restoration credits 2:1. 4 credits available for performance.

Rogue Valley Agate Desert, Oregon Vernal-pool associated 

sensitive species

Simple acre Ratio is 1 credit per 1.5 acres of wetted areas and 1 credit per 

10 acres of buffers. Additional credits for listed species 

generated through meeting land management criteria.

Carolina 

Heelsplitter

Lancaster, South 

Carolina

Carolina heelsplitter Simple acre Riparian buffers receive 1.3:1 acre-to-credit ratio and upland 

and timber development restrictions receive a 0.78:1 credit 

to acre ratio.

Griffith League 

Ranch

Bastrop, Texas Houston toad Simple acre Credits are generated through habitat preservation on a oneto-one basis.

SITLA and Little 

Horse Valley

Iron, Utah Utah prairie dog Species SITLA: 2 credits per prairie dog observed in 2 most recent 

spring counts; additional credits in increments of 50 for 

every additional 25 prairie dogs sustained for 2 years. 

Maximum credits equal to the number of acres preserved. 

Little Horse Valley: 1:1 ratio.

Blue Heron 

Slough

Snohomish, 

Washington

Chinook salmon, 

Steelhead, and Bull 

trout

Simple acre Credits based on 1:1 ratio. A credit methodology called 

Discounted Service Acre-Years (DSAY) is applied to 

customers in determining compensation for resource 

injuries.
Chapter E—Performance Measurement in Biodiversity and Habitat Markets 43

Tools to Support Biodiversity and Habitat Markets

Two general classes of tools support the establishment of biodiversity and habitat markets or exchanges: HQTs and market support tools. 

Habitat Quantification Tools (HQTs) provide protocols and platforms 

that assess/score the quality of a particular habitat’s ability to support 

wildlife species. These tools and scorecards can establish a baseline 

that can serve as a standard for calculating the number of credits that a 

potential conservation site could generate.

HQTs can contain varying levels of complexity. HQTs can be 

complex models used to assess habitat quality at multiple scales. 

Scorecards are simple HQTs that use a basic approach to assess quality, 

providing scores for the fundamental parameters that influence habitat 

quality. An example of an HQT is provided in highlight 21. Market 

support tools include facilitation mechanisms like crediting platforms, 

conservation registries, and financing mechanisms to increase efficiency and effectiveness by lowering transaction costs. Although these 

mechanisms can lead to costs savings over the long term, initial start-up 

investments can be high.

Market Facilitation Tools

Market facilitation tools provide platforms for sharing information 

about potential buyers and sellers of credits, potential funding mechanisms, registries of projects, and financing mechanisms to encourage 

market participation. The overall purpose of these tools is to encourage 

smoother, less costly market exchanges between buyers and sellers of 

habitat or species credits. Each type of tool is summarized below.

Crediting Platforms/Tracking Tools: Various crediting platforms 

were developed to ease the transfer of information between regulating 

authorities, credit developers, credit buyers, and the public. These tools 

are used to provide one-stop-shopping and reduce the administrative 

burden and transactions costs associated with setting up conservation 

banking projects. As indicated before, the U.S. Army Corp of Engineers 

uses a platform called RIBITS that houses information on all wetland 

mitigation and conservation banks in the United States. This Web-based 

portal allows FWS and conservation bank developers to upload information such as draft banking agreements, maps, and other scientific 

background information to ease the process of bank approval.

RIBITS provides snapshots of all conservation banks, including available credits and contact information. This information allows 

credit buyers to check for credits and contact banks with greater ease 

than if they contacted the local FWS office each time they considered 

making a purchase, and this reduces the burden on FWS offices. Drawbacks to the RIBITS platform include uncited price information and 

information that may not be regularly uploaded or updated depending 

on the capacity of the local FWS office.

An all-encompassing platform is the Ecosystem Credit Accounting 

System (ECAS), which is an information suite replete with protocols, 

standards, and credit quantification methods (see Willamette Partnership, 2013). The ECAS includes three tools: the Ecosystem Crediting 

Platform, Credit Calculators, and the Markit Environmental Registry 

(described below). The ECAS is currently designed for three credit 

types: aquatic habitat (salmon), upland habitat (sage-grouse, prairie), 

and water quality. The only place where ECAS is fully operational 

Highlight 21

An Approach to Landscape-Scale Conservation: 

Red Cockaded Woodpecker and Gopher Tortoise

Most HQTs take into account indicators of quality 

and site conditions when determining credits 

and debits. In addition to quality, there are larger 

landscape-scale issues that influence population 

viability including habitat extent and fragmentation.

A recent effort evaluated the influence of landscape factors on the red cockaded woodpecker 

and the gopher tortoise, species of interest due to 

their presence on and near military installations in 

the Southeast. Individual-based, spatially explicit 

population models were used to estimate credits 

to capture the influence of landscape dynamics on 

population viability.

A Decision Analysis approach was developed 

to examine the influence of model uncertainty 

on credits associated with landscape change. 

Decision Analysis was based on two techniques: 

Pattern Oriented Modeling (POM) and Landscape 

Equivalency Analysis (LEA). POM evaluates uncertainty in the population model while LEA incorporates abundance and genetic variation into credit 

and debit quantification.

This approach is designed to minimize habitat 

fragmentation effects on population viability across 

the landscape when management shifts habitat 

locations. The approach has been used to evaluate habitat trading decisions under the Recovery 

and Sustainment Program for the red-cockaded 

woodpecker. This type of analysis can potentially 

improve the recovery of a species by not only considering habitat quality factors that affect individuals, but also changes in reproduction, dispersal, 

and local extinction that occur across the landscape due to trading.

For a complete description see Bruggeman and 

Jones, 2014.

Photograph by U.S. Fish and Wildlife Service
44 Biodiversity and Habitat Markets: Policy, Economic, and Ecological Implications of Market-Based Conservation

Habitat Quantification Tools

With the development of metrics that can assess the 

potential benefits to a species or of a habitat conservation 

bank, tools that can provide information on the baseline and 

improved status of a species or habitat condition, otherwise 

described as “uplift,” are needed. Habitat Quantification Tools 

(HQTs) use ecological information about species and habitats 

of concern to identify outcome indicators and potential crediting mechanisms. Most of the tools developed to date require 

some ecological expertise in field evaluations, vegetation, and 

geospatial information systems. A significant benefit of establishing a tool for a selected species or habitat is that it provides 

greater transparency and standardization in the credit and debit 

quantification process.

Highlight 22 provides a snapshot of the Willamette 

Partnership’s Ecosystem Credit Accounting System, a comprehensive accounting protocol for biodiversity and water 

assessment. The description includes market support tools and 

recommended HQTs for use within the accounting system. 

The system suggests using previously developed tools that 

support analysis of floodplain, sagebrush/sage-grouse, and oak 

woodland habitat quality. Although these tools are not explicitly linked to the quantification of credits, they do provide an 

assessment of baseline habitat conditions that can be used to 

estimate the number of credits provided for habitat enhancement, restoration, or preservation.

As described earlier, the two habitat exchange efforts 

under development for the lesser prairie chicken and the 

sage-grouse are developing standardized HQTs tailored to the 

particular needs of the species and habitats of concern. The 

HQT is both a habitat assessment tool and method for developing credits. As described by the Environmental Defense 

Fund (2014), the lesser prairie chicken and greater sage-grouse 

HQTs are designed to assess habitat quality on a multi-scale 

basis. Habitat quality is assessed on four different ecological 

scales from the site level to the range of the species. Consideration is given to the impacts at each scale in the tool to 

determine actual biodiversity benefits and the credits to be 

assigned. The HQT is far more complex than a simple acre 

crediting scheme but is intended to provide a transparent and 

standardized process for determining credits and debits.

The HQT uses ecological performance curves and scoring curves based on how ecological attributes impact the lesser 

prairie chicken. Attributes assessed include habitat acreage, 

occupancy, species abundance, developed land, tree cover, 

anthropogenic features, nesting cover, and vegetation height. The 

Colorado Habitat Exchange HQT design uses the same principals for assessing credits by incorporating habitat quality and 

measuring effects at a landscape scale tailored to Greater Sagegrouse needs. Both the HQT and its basis as a crediting platform 

are under development and pending approval by the FWS.

The USDA NRCS has developed an approach to assess 

the feasibility of supporting Utah prairie dogs on a property – 

the Utah Prairie Dog Habitat Evaluation Model. This model 

is essentially a scorecard that assigns a value to different 

is in Oregon, where it is used for water quality crediting; 

the habitat-oriented programs are under review by the FWS 

(Bobby Cochran (Willamette Partnership), oral commun., 

March 25, 2014).

Credit Registries: Credit registries are databases that 

track information about credits, typically using a serial number 

to ensure credits are validated, retired, and not double counted 

(Bennett and Todd, 2011). Depending on the registry, information about each project can include property descriptions, acreage, practices, agreements, and prices. Often Web-based credit 

registries increase environmental market transparency for buyers, sellers, and the general public. RIBITS is a registry as well 

as a credit platform (See USACE, 2015). Markit is another 

registry, but it lists few conservation banks, reducing its ability 

to provide information to the public, especially for credit purchasers (Madsen and Percival, 2010). The habitat exchanges 

now being developed anticipate establishing registries for the 

sage grouse, lesser prairie chicken, and various species in the 

Central Valley floodplain. As indicated in one example of a 

prairie habitat assessment methodology (Willamette Partnership, 2013), there are several steps and components required 

to register a habitat or species credit. First, credits must be 

recorded in an FWS-approved database (or registry) with the 

title of the relevant properties. Additional components are 

required as well, including storage documents, geographic 

locations, credit quantities, and credit sales. Information on the 

general location of the impact and mitigation sites, as well as 

the quantities of credits being generated and sold, are required. 

While all of this information helps facilitate smoother market 

transactions, the absence of any price-per-credit information 

would tend to increase the negotiation costs of any chosen 

transaction.

Innovative Finance Mechanisms: A third category of 

market support tool involves developing innovative finance 

mechanisms. These mechanisms are designed to address the 

high cost of entry into conservation banking arrangements for 

individual landowners. For example, in Maryland, there are 

State regulations—the Chesapeake Bay Critical Area Protection Act and the Forest Conservation Act (Natural Resources 

Article 5-1601 – 1613) —that require mitigation for reduced 

forest cover. These regulations are administered at the county 

and local levels where crediting and trading are allowed. Residential, commercial, and industrial developers can purchase 

credits for forest cover from private landowners. Applying 

for mitigation credits requires a large capital outlay for site 

surveys and other administrative costs. The Alliance for the 

Chesapeake Bay—a nonprofit organization focused on Bay 

protection—is developing a finance mechanism to bring capital from investors to forest landowners. Similar to renewable 

energy loans, the investors would ‘loan’ capital to landowners 

who would pay back administrative expenditures as they sold 

off credits. While still under development, this approach could 

increase the supply by individual land owners of forest credits 

in the region and help provide large tracts of permanently protected forest (Eric Sprague (Alliance for the Chesapeake Bay), 

oral commun., August 9, 2014).
Chapter E—Performance Measurement in Biodiversity and Habitat Markets 45

attributes. The scorecard considers specific attributes: percentage of brush canopy cover, brush height, maximum height of 

vegetation, distance from existing prairie dog colony, access to 

moisture-rich vegetation in summer, tree invasion, grass cover 

in cool- and warm-season, grass species richness in cool- and 

warm-season, perennial forb cover and species richness, vegetation diversity, irrigation type, and potential for burrow flooding (Toombs, 2007). It is important to note that for scorecards, 

there may be doubt involved with some of the attribute conditions. For example, in the Utah Prairie Dog Habitat Evaluation 

Model, there is a degree of uncertainty about the probability of 

burrow flooding (low, medium, and high). The more objective 

an HQT (regarding quantitative versus qualitative metrics), 

the better it provides a standardized, objective assessment of 

conservation. It is important to note that all HQTs rely on the 

assessor’s ability to conduct field assessments.

Verification and Monitoring of Conservation 

Benefits

A critical feature of any conservation bank or habitat 

exchange activity success is the reality that sellers of habitat 

credits provide tangible conservation benefits, and credit buyers are confident their purchases have the requisite financial 

value. Monitoring and verification procedures must be in place 

to meet the needs of both buyers and sellers. Highlight 23 

underscores the types of problems that can occur if effective 

monitoring and verification are absent. One role that Government can play involves absorbing some of the startup costs, 

such as the development of monitoring and verification protocols to facilitate market development (Marc Ribaudo (USDA 

Economic Research Service), written commun., December 31, 

2014).

Within the scope of conservation banking, a few steps are 

required to verify the initial number of credits and ensure that 

those credits represent viable conservation outcomes. The first 

step is to determine responsibility for monitoring and verification, and this can vary from bank to bank, but usually includes 

oversight by FWS-approved third-party verifiers. Third-party 

verifiers can be consultants, restoration professionals, and others, and they all require accreditation.

The second step is to determine what is to be verified, and 

this can change over time. At the outset of a project (before 

any conservation action) a site visit is made and documentation that “confirms site eligibility, estimates of credits, and the 

adequacy of stewardship/monitoring plans” is reviewed (Willamette Partnership, 2013).

In addition to pre-project monitoring and verification, 

these activities must also take place on a scheduled, continuous basis. At any conservation bank site, the credit seller 

handles continued monitoring that documents how performance standards are being met on a timely basis. While 

performance standards vary according to habitats and species 

types, the standards represent what is necessary to sustain the 

habitat functions for which a credit is being sold. Measurable 

performance standards, and a regular monitoring schedule, are 

usually based on accepted methods and practices of habitat 

restoration, data on target species populations, and other 

important reference conditions (Willamette Partnership, 2013).

As noted at the outset of this chapter, buyer confidence 

in the robustness of conservation outcomes is essential for 

conservation bank or future habitat exchange operations. 

However, a reliable monitoring and verification system that 

determines and supports the value of a credit can be expensive 

for the credit supplier. Highlight 23 provides an example of 

the significance of monitoring and verification. The viability of a market-like approach to biodiversity conservation is 

determined by whether or not credit values are sufficient to 

cover monitoring and verification costs (and other transactions 

costs), and the level of certainty in attaining and maintaining 

conservation performance standards.

Discussion and Observations

This chapter discussed five selected factors that can 

influence the biophysical and economic performance of 

conservation banking and habitat exchanges in meeting species conservation goals: metrics, banking credit types and 

ratios, marketing facilitation tools, HQTs, and monitoring 

and verification requirements. Eco-labeling is not included in 

this section because of the lack of information about or need 

for credit types and ratios and HQTs. In recent years, there 

has been copious research, experimentation, and progress in 

developing measurement systems, habitat protocols, and banking programs designed to attract both supply and demand for 

various types of species or habitat credits. One basic trade-off 

has been the requirement for regulatory and buyer certainty in 

developing costly metrics and protocols that are viable predictors of credited ecological outcomes. The crafting and integration of market facilitation tools such as crediting platforms, 

tracking tools, credit registries, and new finance mechanisms 

have helped mitigate this trade-off between certainty and cost, 

but they may also entail high market start-up costs in the short 

term. Regardless, there appear to be enough buyers and sellers 

to make many of the conservation banking markets viable, 

which illustrates that the prices of some credits are enough to 

overcome the costs of bank establishment and management.

With respect to practice-based metrics for biodiversity 

and wildlife habitat, the current efforts under the CEAP could 

be expanded and documented to establish a suite of practices 

with known outcomes and varying levels of certainty, and can 

be adopted across different landscapes. Although performancebased metrics are more certain than practice-based metrics, 

they are also more expensive. There is enough experience in 

performance metric development to warrant an examination of 

which metrics generate greater predictability. All three types 

of performance metric categories would be included: models, 

species counts, and area-based.

The fact that a landowner can supply numerous credit 

types for a bank site (for example, pre-compliance, creation, 
Willamette Partnership’s Ecosystem Credit Accounting System

In 2008, the Willamette Partnership initiated an effort to 

develop a credit accounting system for ecosystems funded 

by an NRCS grant. In 2009, twenty-seven State and Federal 

natural resource management agencies and other important nonprofit stakeholders had agreed to the principals of 

the system. The Partnership’s vision is for a system used for 

both nongovernmental voluntary efforts and by agencies 

such as FWS and USDA. While agencies are currently using 

components of the system, it has not yet been implemented 

comprehensively.

The outcome of this effort, the Ecosystem Credit Accounting System (ECAS), is a suite of protocols, standards, and 

quantification methods. The ECAS consists of three tools: 

a platform to interact with landowners and credit developers, Credit Calculators, and a ledger to track credits and 

transactions.

The ECAS requires that independent, accredited verifiers 

confirm project eligibility, baseline and credit calculations, 

and that project implementation meets quality standards. 

Once verified, projects are assigned credits. The ECAS uses 

trading ratios to cover the risks associated with ecological 

metrics and encourage siting in high priority areas.

Verified projects are required to register credits for public 

review. This provides a tool that can track and monitor the 

availability of credits and volume of trade.

The ECAS currently organizes credits into three overarching types: aquatic habitat, upland habitat, and water quality. 

For biodiversity benefits, the first two are significant. Within 

aquatic habitat there are three subtypes: floodplain, salmon, 

and wetland habitat. Upland habitat also has three subtypes: oak woodland, sagebrush/sage-grouse, and upland 

prairie/fender’s blue butterfly habitat. Each of the credit 

types is associated with a HQT described below; these 

tools are specified for application in specific United States 

geographies.

Above text adapted from Willamette Partnership, 2013.

Highlight 22

Salmon Habitat Credit Calculation Method: An excel-based scoring tool, this method scores sites/projects based on six ecological 

functions that support salmonid species habitat. The biotic support 

groups and functions considered include cover/refuge, forage, 

nesting/spawning sites, connectivity, cover/refuge and nesting for 

insect/invertebrates. Other considerations include habitat formation, temperature regulation, spatial separation, variable velocity, 

and channel diversity (Willamette Partnership, 2009).

Columbia River Salmon

Prairie Credit Calculation Method: This method is an excel-based 

scoring tool used to determine functional acres of upland prairie 

habitat. A score between 0 and 10 is assessed, and that value is 

divided by 10 and applied to the number of acres to calculate the 

number of functional acres or credits. For example, a score of 5 

would be divided by 10 for .5 and multiplied by number of acres 

(10) to derive 5 functional acres or credits. Scoring tool criteria 

include connectivity, vegetation, rare species, and invasive species (Willamette Partnership, 2014).

Upland Prairie

Photograph by U.S. Fish and Wildlife Service Photograph by U.S. Fish and Wildlife Service

46 Biodiversity and Habitat Markets: Policy, Economic, and Ecological Implications of Market-Based Conservation
Oregon Rapid Wetland Assessment Protocol (ORWAP): This 

method is an excel-based scoring tool developed to assess 

wetlands of varying types in Oregon. Scores are generated for the 

following biodiversity relevant categories: Aquatic Invertebrate 

Habitat, Fish Habitat, Amphibian & Reptile Habitat, Waterbird 

Feeding Habitat, Waterbird Nesting Habitat, Songbird, Raptor and 

Mammal Habitat, Pollinator Habitat, and Native Plant Diversity. 

It is estimated that the tool takes from 3 to 6 hours to complete. 

The assessment requires aerial photography, topographic maps, 

wetland delineation, and a field survey to assess vegetation. This 

scoring method is based on the ecological needs of the species 

and is detailed in a manual (Adamus, 2009).

Wetlands

Floodplain Habitat Method: This method generates the Floodplain 

Habitat Quality Score, which is an assessment of the habitat quality of floodplains. The scoring considers a number of indicators 

of habitat quality and aggregates these into 6 composite indicators. These indicators are significance-weighted based on expert 

opinion. Landscape context, flooding regime, and risk/stressors 

receive a weight of 3; vegetation structure and distribution 

receives a weight of 2; and non-invasive species of vegetation and 

sensitive/rare species receive a weight of 1. Details on the metric 

are provided in a User’s Guide (Defenders of Wildlife, 2012a).

Eagle River Floodplain

Sagebrush/Sage Grouse Habitat Method: This method for assessing sagebrush is estimated to take 1 to 2 days including field data 

collection. Factors considered in the scoring include juniper 

invasion in the overstory, sagebrush cover, functional vegetative 

diversity, patch size, distance to sage grouse lek (mating area), 

proximity to dangers (maintained roads; inhabited human structures; and trees, buildings, or other raptor structures greater than 

5’ tall), and distance to persistent water. Metrics are aggregated 

into a weighted total score (Defenders of Wildlife, 2012c).

Greater Sage Grouse

Oak Woodland Habitat Method: This method for assessing oak 

woodland habitat is used to calculate functional acres, which are 

the unit of credit. An excel-based scoring tool is used to assess 

indicators of habitat quality. The indicators are categorized into 

6 weighted composite indicators: landscape context and invasive species of vegetation are weighted at 3; risks/stressors are 

weighted at 21; and management practices, vegetation structure, 

and sensitive/rare species are weighted as 1 (Defenders of Wildlife, 2012b).

Oak Savannah

Willamette Partnership’s Ecosystem Credit Accounting System—Continued

Highlight 22

Photograph by U.S. Fish and Wildlife Service

Photograph by U.S. Fish and Wildlife Service

Photograph by U.S. Fish and Wildlife Service

Photograph by U.S. Fish and Wildlife Service

Chapter E—Performance Measurement in Biodiversity and Habitat Markets 47
48 Biodiversity and Habitat Markets: Policy, Economic, and Ecological Implications of Market-Based Conservation

preservation) is a feature that encourages increased participation on the supply side and should be continued. A pilot test 

of the pre-compliance crediting system currently under public 

review and comment by the FWS would provide empirical 

evidence of whether this approach can increase market participation and prevent future listings of species. The strength 

of the current methods for determining credit/acreage ratios 

is that they are specific to particular habitats and ecological 

needs for individual species. However, determining these 

ratios can be time-consuming and expensive. There may be a 

possibility to decrease the effort and cost of developing future 

credit/acreage ratios by exploring a “benefits-transfer” method 

where previously developed credit/acreage ratios could be 

applied to a new but similar species.

A lot of progress has been made in developing, deploying, and testing HQTs for various species. Until now, these 

tools have been fairly site specific. It would be beneficial 

to standardize a national “conceptual framework” flexible enough to apply to different habitats and species across 

geographic scales. One multi-species HQT for floodplain 

ecosystems is being developed and tested by a partnership of 

conservation organizations (Environmental Defense Fund, 

Trout Unlimited, Point Blue Conservation Science, Stillwater 

Sciences and others) for the Central Valley Habitat Exchange. 

This tool would account for specific suites of habitat attributes needed by floodplain species within a single framework. 

Another avenue for further exploration is the application and 

field testing of an Ecological Integrity Index proposed by 

Defenders of Wildlife, Nature Serve, The Institute for Natural 

Resources, and several Federal natural resource management 

agencies (Vickerman and Kagan, 2014).

Regarding market registries, there are three major 

constraints. The first is that many, including RIBITS, are 

resource-constrained, and additional resources could increase 

its usability for potential buyers and sellers. The second constraint is the lack of price transparency. The third is that there 

is no comprehensive review of registries; it would be useful to 

have a separate and more focused review of how registries are 

working and what characteristics are most valued by buyers, 

sellers, and (or) regulators.

Finally—and similar to the needs for HQTs—it would 

be helpful to review monitoring and verification protocols 

to determine best practices and increase their reliability in 

measuring biophysical performance. Another goal might be 

to investigate the practicality of developing standardized 

monitoring and verification protocols to improve economic 

performance.

Highlight 23

U.S. Army Corps of Engineers and Compensatory Wetlands Mitigation

Wetlands provide benefits that are valuable to society and 

to fish and wildlife. These benefits include water quality 

improvement, floodwater storage, fish and wildlife habitat, 

aesthetics, and biological productivity (EPA, 2001). For that 

reason the government set a national goal for no net-loss of 

wetlands in the United States in 1989.

Under authority of the Clean Water Act, the USACE requires 

compensatory mitigation, an action that must be taken to 

replace a wetland, such as restoring a former wetland, 

to receive a permit for a project in which wetland loss is 

inevitable.

In 2005 the U.S. Government Accountability Office (GAO) 

performed an assessment of the USACE mitigation guidance, the extent to which the USACE oversees mitigation, 

and enforcement. The GAO found that USACE did not have 

an effective oversight process to ensure mitigation was 

actually obtained from permittees. For example, the GAO 

was able to find evidence for only 24 percent of permit files 

that required monitoring reports and only 15 percent of total 

permit files contained evidence that USACE conducted a 

compliance inspection. The GAO recommended that USACE 

establish an effective oversight approach that ensures permittees perform required wetland mitigation (GAO, 2005).

In response to the finding, the USACE and the EPA published regulations in 2008 that strengthen and clarify the 

requirements of monitoring and oversight for mitigation 

as well as state a preference for mitigation banks over 

permittee-responsible mitigation (Federal Register, 2008).Photograph by U.S. Fish and Wildlife Service
Chapter F—Future Outlook for Conservation Mechanisms

In the U.S., there are numerous threats to biodiversity 

and wildlife habitat. Threats include the transformation of land 

from habitat to agriculture; residential, commercial, and industrial development; energy and mineral production; and climate 

change. As a society, biodiversity and habitat are valued as 

evinced by the Endangered Species Act, National Forest 

Management Act, and others. However, these values are not 

inherently translated into the cost of production or the price 

of goods. This circular evaluates market-based mechanisms 

designed to address market failures in providing biodiversity 

benefits. There are ecological and economic trade-offs with 

each mechanism. This chapter highlights opportunities to 

improve the success of biodiversity and habitat markets.

Research for this circular uncovered issues that inhibit 

the wider adoption and success of biodiversity and habitat 

markets. The most significant are institutional barriers, administrative capacity, alternative mitigation, standardization of 

metrics, HQTs, and financing. Table 7 provides a high-level 

summary of the issues, opportunities, and future outlook for 

overcoming the barriers, followed by additional details in the 

subsequent sections.

Institutional Barriers

Issue

Institutional barriers (as noted throughout this circular); 

the rigidity of regulations that drive biodiversity and habitat 

markets (predominantly the Endangered Species Act); and the 

procedures for implementing those regulations all reduce the 

market’s ability to provide innovative approaches. Specifically, 

the requirement for conservation banks to provide conservation in perpetuity reduces the supply of landowners willing to 

participate in programs, reducing the potential market size and 

quantity of achievable biodiversity benefits.

Another major institutional barrier is that species and 

habitat are only protected once listed. The ability to sustain 

and recover species once they are listed as threatened or 

endangered is diminished. Pre-compliance markets require 

legal assurances to drive demand. Thus far, efforts to obtain 

these assurances have been unsuccessful.

Opportunity

To overcome the disincentive of perpetual conservation, 

habitat exchange developers suggested a Dynamic Mitigation Credit approach. By aggregating the benefits of multiple 

landowner conservation efforts over time, the impacts of a 

permanent land conversion may be mitigated, and a perpetual 

conservation may not be necessary in all cases. It would 

require a major institutional change to allow term mitigation 

for species that could be impacted on a site for a period but 

might be reintroduced with site reclamation. Under applicable 

conditions, this could increase species conservation at a much 

lower cost than permanent mitigation.

A significant detriment to biodiversity and habitat markets is the inability, or lack of confidence in the ability, of the 

government to provide legal assurances in the pre-listing environment that can persist in the post-listing environment. The 

opportunity to improve outcomes for species by implementing 

actions earlier is considerable. The potential that a listing decision could be avoided has multiple positive impacts, including the ecological benefits for conservation as well as the 

economic impacts avoided due to regulation. There is demand 

from polluters for pre-compliance credits as evidenced by the 

gopher tortoise effort, the Colorado Habitat Exchange, and 

similar efforts to develop pre-listing markets.

To institute acceptance of pre-listing credits in a postlisting environment, the FWS could take a bottom-up or 

top-down approach. FWS field offices could develop candidate conservation assurances for species that are candidates 

for listing. In some instances this has led to legal problems—a 

voluntary market for the dunes sagebrush lizard in Texas has 

led to environmental nonprofits suing the FWS—but individual offices continuing to try may find better acceptance of 

this approach. Alternatively, a new FWS rule for the addition 

of pre-listing species in the impending conservation banking 

guidance may realize greater success.

Outlook

It is difficult to predict whether or not these specific institutional barriers will be overcome. Over the past two decades, 

efforts to develop pre-listing markets were attempted but this 
50 Biodiversity and Habitat Markets: Policy, Economic, and Ecological Implications of Market-Based Conservation

has been met with caution on the part of FWS. The contentious 

legal environment in which the FWS has been sued for not 

listing species, sued for avoiding listing due to State programs 

(such as for the dunes sagebrush lizard), and sued for listing 

species (such as the lesser prairie chicken) reduces the likelihood that the FWS will be able to make institutional changes.

Administrative Capacity

Issue

The DOI PPA survey of FWS employees (2013a) and 

a survey of conservation bankers by Fox and Nino-Murcia 

(2005) both highlighted issues associated with FWS offices 

not having the capacity to process applications for conservation banks. Administrative capacity is a function of staff 

and resources and is a problem for both FWS and USDA 

administered PES programs. The surveys indicate that limited 

administrative capacity led to slow processing times, delays in 

banking document approval, and delays in solicitor approval. 

Lengthy banking documents also impede participation. The 

ability to review and approve documents is not only an upfront 

issue in the development of a bank or acceptance of a farm 

in a PES program. Agencies also need to approve trades for 

conservation banks and monitor and verify practices to ensure 

conservation is being achieved on the landscape. A lack of 

resources can lead to fewer landowners participating and 

increase transaction costs (in terms of time); lack of oversight 

might also reduce ecological outcomes.

Opportunity

Many opportunities exist for reducing the administrative burden on FWS and USDA offices while simultaneously 

improving their capacity to manage conservation bank and 

Table 7. Summary of biodiversity and habitat market issues, opportunities, and future outlook.

[HQT, habitat quantification tool]

Category Issues Opportunities Future outlook

Institutional barriers • Regulatory and procedural 

rigidity

• Requiring conservation in 

perpetuity

• Protects only listed species

• Dynamic Mitigation Credit 

and (or) term credits could 

increase conservation

• Pre-listing could avoid a listing 

decision and provide early 

conservation benefits

• Potential new regulation allowing 

for pre-compliance assurances

• Contentious, legally challenging 

environment

Administrative 

capacity

• Lack of administrative capacity 

leads to slow processing times

• Lack of resources reduces 

participation, increases 

transaction costs, and reduces 

oversight

• Development of standardized 

templates, HQTs, training, and 

third-party verification can 

streamline the process and allow 

proposals to be reviewed in less 

time

• Prospects for additional staff or 

resources are limited in near term

• Lessons learned in field offices 

should be shared to promote the 

benefits of streamlining

Alternative mitigation • In-lieu fee and permitteeresponsible mitigation compete 

with banks

• Standards not consistent

• Making standards consistent gives 

conservation banks a competitive 

edge due to economies of scale

• New FWS conservation 

banking guidance may include a 

preference for banking

Standardization of 

metrics

• Lack of standards within and 

across agencies increases 

administrative burden, reduces 

transparency, and hinders market

• Standardization of metrics 

increases transparency

• Can reduce administrative 

burden if the metrics are already 

established

• Efforts to develop standardized 

metrics

• Implementation may occur over 

the next few years

Habitat quantification 

tools

• Lack of wide-scale HQT 

development

• Development of tools to 

address administrative capacity, 

standardization of metrics, and 

provide ability to apply complex 

measures

• Efforts to develop tools for 

various habitats regionally

Financing • High upfront costs limit 

landowner participation

• Innovative financial mechanisms 

can provide ‘conservation bank 

loans’

• Limited thus far. One effort to 

develop a loan program providing 

capital to forest landowners 

and repaid as credits are sold 

(Eric Sprague (Alliance for the 

Chesapeake Bay) oral commun., 

August 9, 2014).
Chapter F—Future Outlook for Conservation Mechanisms 51

PES programs. Standardized templates, HQTs, training, and 

third-party verification can streamline the process and allow 

proposals to be reviewed in less time.

Outlook

The prospect of additional staffing or resources for 

agencies is limited in the near term. Opportunities do exist 

for improving efficiency through the use of templates, tools, 

and third party verifiers. Lessons learned in field offices can 

be shared to promote the benefits of these approaches. For 

example, the State of California instituted a template for 

conservation bank applicants (FWS, 2010); reporting on its 

effectiveness in reducing processing time would provide valuable information for other field offices.

Alternative Mitigation

Issue

Specific to conservation banks, the allowance for alternative mitigation including in-lieu fee programs and permitteeresponsible mitigation, serve as competition for banks and 

reduce bank viability. In itself, competition effectively reduces 

costs and provides efficient allocation of resources. However, 

these alternative approaches to conservation banking hold 

unfair competitive advantages over banking and often lack 

equivalent conservation benefits. For example, permitteeresponsible mitigation does not require polluters to provide 

financial assurances that conservation will remain in perpetuity. At the same time, the small plots of mitigation likely to be 

provided by permittee-responsible mitigation deliver less conservation than the large tracts provided by conservation banks. 

Alternative mitigation, therefore, may have a lower upfront 

cost, minimizing conservation banking’s role as a competitive 

option.

Opportunity

More stringently setting standards on alternative 

approaches so they fall in-line with conservation banking 

could improve the competitive edge of conservation banks, 

which could in turn attain economies of scale in contrast to 

small-scale permittee efforts. A preference for conservation 

banks can also be achieved by programmatic statement or by 

field offices giving higher ratios for conservation bank credits 

than permittee-responsible mitigation to account for differences in conservation yield.

Outlook

The FWS conservation banking guidance expected in 

2015 may include a preference for banking based on the ecological superiority of large tracts of land for species recovery.

Standardization of Metrics

Issue

Different field offices may use different metrics for 

the evaluation of credits and debits for a species. A lack of 

standard metrics to quantify biodiversity and habitat benefits 

within and across agencies increases administrative burden, 

reduces transparency, and hinders the market. Additionally, the 

current tendency towards practice- versus performance-based 

metrics reduces opportunities for innovative conservation 

approaches. For example, the emphasis on the installation of 

specific practices in most PES programs calculates cost-share 

for all acreage on the same basis rather than incentivizing better practices or better land participation for higher rewards.

Opportunity

The standardization of metrics can provide the opportunity for a more transparent process for credit and debit assignment. Standardization could reduce the administrative burden 

on agencies if the metrics are already established. A move 

towards performance-based metrics encourages the development of innovative approaches to increase conservation and 

participation by landowners with high biodiversity value land.

Outlook

Nonprofit environmental organizations have efforts in 

place to develop, and encourage the development of, performance-based and standardized metrics. In coordination with 

other organizations and government agencies, the implementation of these metrics could occur over the next few years. A 

presaging of this transition is the establishment of the CSP in 

2002, which resembles a performance-based PES program.

Habitat Quantification Tools

Issue

As mentioned earlier, there is a need for Habitat Quantification Tools (HQTs). The development of HQTs is necessary 

to measure complex, landscape-scale metrics that measure 

biodiversity benefits more accurately than simple acre proxies. 

There are limited, regional efforts to develop HQTs, but widescale development, deployment, and testing of more tools 

could greatly benefit biodiversity and habitat markets.

Opportunity

The development of HQTs has clear benefits. It addresses 

issues of administrative capacity and standardization of metrics and provides the ability to apply complex measures to the 

assignment of credits and debits. If valid HQTs are available, 
52 Biodiversity and Habitat Markets: Policy, Economic, and Ecological Implications of Market-Based Conservation

the upfront evaluation of conservation banks and PES applicants can be streamlined. The availability of these tools allows 

landowners to assess their property and encourages additional 

market participation. A HQT can reduce the subjectivity of 

credit and debit assignment and supports standardized metrics. 

Tools can theoretically reduce the need for approval of credit 

exchanges, which would reduce the transaction costs associated with conservation banks, allow for the auctioning of 

credits, and support a more robust market.

Outlook

There are extant efforts to develop HQTs for conservation efforts across the Nation. In particular, HQTs are central 

to habitat exchange efforts. Thus far, the wide-scale development and application of HQTs is underdeveloped, because 

it is an expensive, complex task to develop these tools and 

may require reprioritization from agencies (including FWS, 

USACE, and EPA) to institutionalize the development and use 

of HQTs.

Financing

Issue

The adoption of conservation banking by individual 

landowners is limited by the high upfront costs associated with 

applying and implementing the practices necessary to achieve 

conservation goals. PES programs provide annual payments 

during the period when practices are first installed, encouraging individual landowners to participate. However, for conservation banking many costs are incurred prior to credit assignment and the purchase of credits may not be immediate. The 

financial risks for individual landowners are also substantial.

Opportunity

Innovative financial mechanisms can provide ‘conservation bank loans’ that bridge the gap from when capital is first 

needed to when revenue from credits can be recouped. This 

structure is being evaluated in Maryland for forest landowners with assistance from the Chesapeake Bay Alliance. Simple 

loans may increase landowner participation and provide value 

for environmental investors.

Outlook

While one financing effort is cited, mechanisms to help 

bolster biodiversity and habitat markets have not received a lot 

of attention. It is possible that as the markets continue to grow, 

the investment community will recognize the opportunities 

and improve the financial mechanisms that support landowner 

entrance into these markets.

Conclusions

Some challenges face the growth and performance of 

biodiversity and habitat markets. These challenges include 

institutional barriers, administrative capacity, alternative 

mitigation, standardization of metrics, Habitat Quantification 

Tools, and financing. Each of these challenges presents an 

opportunity for increased adoption and success of biodiversity 

and habitat markets.

It is important to acknowledge the growing use of 

market-based mechanisms over the last few decades. This 

growth was achieved through the efforts of individuals in the 

U.S. Fish and Wildlife Service and the U.S. Department of 

Agriculture. From a nascent market in California, conservation 

banking has spread to States across the country with a documented record of delivering conservation benefits to many 

species. Attributable to the success of the program, is the fact 

that there are efforts to expand and employ similar tools for as 

yet unlisted species.

Payment for Ecosystem Services programs have a long 

history, but the move towards targeting high yield land, 

employing habitat quality metrics, and even employing performance-based metrics suggests the potential for these programs 

to adapt and meet the growing needs of society for biodiversity and habitat. Addressing the challenges and opportunities 

present to promote and grow biodiversity and habitat markets 

can help protect the Nation’s remarkable expanse of wildlife.
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For more information concerning this publication, contact:

Emily Pindilli, Economist

Science and Decisions Center

U.S. Geological Survey

913 National Center

12201 Sunrise Valley Drive

Reston, VA 20192

epindilli@usgs.gov

http://www.usgs.gov/sdc/

Publishing support provided by the USGS Science Publishing Network 

Publishing Service Centers (PSC)

Editing by Stokely Klasovsky, Raleigh PSC

Illustrations and layout by Jeannette M. Foltz, Reston PSC

Illustrations by Caryl Wipperfurth, Raleigh PSC

Web support by Angela E. Hall, Reston PSC
Pindilli and Casey—Biodiversity and Habitat Markets—Policy, Economic, and Ecological Implications of Market-Based Conservation—Circular 1414

ISSN 1067-084X (print)

ISSN 2330-5703 (online)

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