‘No Net Loss’ - Instrument Choice in Wetlands Protection

While not a high priority issue for most people, the public has long recognized the general importance of wetlands. Since President George H.W. Bush's campaign in 1988, successive administration have pledged to ensure there would be "no net loss" of wetlands. Despite these continuous presidential pledges to protect wetlands, in recent decades, as more and more people have moved to coastal and waterside properties, the economic benefits from developing wetlands (and political pressures on obstacles to development) have significantly increased. Seeking to mediate the conflict between no net loss of wetlands and development pressures, the U.S. Environmental Protection Agency (EPA) and Army Corps of Engineers (Corps) have employed a range of policy instruments to slow and reverse wetlands conversion. Through the 1970s and 1980s, the EPA and the Corps relied on prescriptive regulation that discouraged development of wetlands and, even if a permit for wetland filling were granted, required on-site mitigation of destroyed wetlands to ensure no net loss. To defuse the growing political pressure for substantial change to this "404 Permit" process for developing wetlands, however, since the 1990s the agencies and state governments have promoted a market mechanism that seeks to ensure wetlands conservation at minimum economic and political cost. This instrument is known as wetlands mitigation banking (WMB). In WMB, a "bank" of wetlands habitat is created, restored, or preserved and then made available to developers of wetlands habitat who must "buy" habitat mitigation as a condition of government approval for development. This mechanism has also provided a model for endangered species protection and is in the process of being extended to other settings including watershed protection. Given the shift in emphasis from prescriptive regulation to trading, the government's longstanding pursuit of no net loss of wetlands provides a particularly useful case study for comparing the use of regulatory and market instruments for environmental protection. Indeed, WMB provides a rare example of robust trading outside the air pollution context and the trading habitat-based goods raises very different concerns than seen in trading mobile pollutants. Examining the evolution of WMB also forces us to think carefully over how to assess the "success" of a trading program. The traditional measure would likely be efficiency. But one must also consider effectiveness. In this regards, WMB poses two different types of failures - failure of instrument design (a "front-end" problem) and failure of implementation through monitoring and enforcement (a "back-end" problem). As many of the case studies in this book illustrate, performance of WMB depends critically both on institutional design and implementation. Another important measure of success concerns distributional equity. Who wins and who loses from banking? Such concerns are far more difficult to assess as good or bad policy in habitat trading than the traditional "hot spots" of pollutant trading programs. The chapter ends by drawing out key lessons for market-based approaches to watershed protection.