incentives for biodiversity conservation:

Incentives for Biodiversity Conservation:An Ecological and Economic Assessment

DEFENDERS OF WILDLIFEDefenders of Wildlife is a national, nonprofit membership organization dedicated to

the protection of all native animals and plants in their natural communities.

AUTHORSfrank Casey, Director of Conservation economics

sara Vickerman, senior Director of Biodiversity PartnershipsCheryl Hummon, senior Conservation incentives specialist

Bruce Taylor, Director of oregon Biodiversity Program

© 2006 Defenders of Wildlife1130 17th street, nW

Washington, D.C. 20036(202) 682-9400

Cover Photos: Gray Wolf pups, U.s. fish and Wildlife service; farmers, natural resources Conservation service;

forest stream, natural resources Conservation services

Printed on 25% post consumer waste, process chlorine free recycled paper, creating the following environmental benefits: 5.2 trees not cut down; 2,210 gallons of water/waste flow saved; 482 pounds of solid waste not generated, atmospheric emissions eliminated; 3,686,025 BTUs of energy not consumed. Printed with linseed-oil based inks.

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SW-COC-1530

Incentives for Biodiversity Conservation:An Ecological and Economic Assessment

www.de fenders .o rg | �

Executive Summary ................................... 4

I. Introduction ................................................. 7 WhyIncentives?.............................................. 7

AMixofTools................................................ 8

DefiningaMoreSuccessfulApproach........... 10

II. The Importance of Biological Diversity: The Context for Conservation Incentives ............................11 ImportanceofBiologicalDiversity..................11

TheRationaleforIncentivesin

ConservingBiodiversity..................................12

FrameworkforBiodiversity

ConservationandIncentives...........................15

III. Methods for Evaluating Incentive Mechanisms: Taxonomy, Assessment and Recommendations ..............................18 ATaxonomyandDescription

ofIncentiveMechanisms................................18

CriteriaforAssessingEffectiveness

andEfficiencyofIncentiveMechanisms..........20

ImplementingandStructuring

ConservationIncentives..................................23

IV. Regulatory and Economic Disincentives ...............................................24 GovernmentalRegulations..............................24

ConservationCompliance...............................25

FinancialCharges............................................26

V. Legal/Statutory Incentives .......................27 SafeHarborAgreements.................................27

CandidateConservationAgreements

withAssurances...............................................29

RegulatoryRelief...........................................30

VI. Property Rights Innovations .....................�1 ConservationEasements........................ 31 CovenantsandDeedRestrictions........... 35 StewardshipExchangeAgreements......... 36

VII. Market-Oriented Institutions ...................�7 UserFees.........................................................37

Ecotourism....................................................38

EcolabelingandCertification..........................39

MitigationBanking.........................................43

ConservationBanking....................................45

TransferableDevelopmentRights...................46

EcosystemServiceMarkets..............................48VIII. Financial Incentives ...................................49 CompensationPrograms................................49

Insurance.......................................................51

Cost-ShareIncentives......................................52

ConservationStewardshipIncentives..............57

LandandWaterRentalandLeases..................57

ConservationContracts..................................61

DebtForgiveness.............................................61 IX. Public Tax Incentives .................................62 IncomeTaxIncentives.....................................62

PropertyTaxIncentives..................................64

EstateTaxIncentives......................................64

CapitalGainsTaxIncentives...........................65

GeneralAssessmentofTaxIncentives.............65

TaxIncentiveRecommendations....................66

X. Facilitative Incentives ...............................68 EducationandTechnicalAssistance................68

AdministrativeandOrganizational

Structures........................................................69

RecognitionIncentives....................................71

XI. Summary of Findings .................................72 and Recommendations OverallAssessment.........................................72

RecommendationsSummary..........................74

XII. Conclusions .................................................85

XIII. References ...................................................87

Table of Contents

4 | Incentives for Biodiversity Conservation

Thisreportisaneconomicandpolicyassessmentofthebiologi-caleffectivenessandeconomic

efficiencyofincentivemechanismsforprivatelandownerstoconserveU.S.biodiversity.Itsfocusisonrurallandsthattendtobeusedforforestry,agricultureandresidentialpurposes.Itsaudienceisthosework-ingtoamendthe2007FarmBilltoimproveitseffectivenessinconserv-ingnativehabitatandtoenhancethecapacityoftheEndangeredSpeciesActtoencouragevoluntaryactivitiesthatarebeneficialtolistedspecies.Theseincludepolicymakers,re-sourceprofessionalsandlandowners.

Thisreportrepresentsacontinu-ingcommitmentbyDefendersofWildlifetoworkwithlandownersandpolicymakerstodevelopincen-tivesforconservingbiodiversity.De-fenders’compensationfund,aimedatreimbursinglivestockoperatorsforlossescausedbycarnivores,hasalongandsuccessfulhistory.Inaddition,Defenders’staffhasgenerateddiscus-sionsandproposalsforimprovinglandownerincentivemeasures,withinthecontextofregulatoryframeworks

forprotectingendangeredspeciesandhabitats,formorethanadecade.

Muchofthisreportoutlinesmajorincentivemechanismsandassesseskeyincentivetoolsincaseswhereadequateinformationexists.Foreachincentivemechanism,thereisadescription,anassessmentofitsecologicaleffectivenessandeconomicefficiency,andrecommendationsforimprovingitsbiodiversityconserva-tion.Thefollowingtypesofincen-tivesareaddressed:regulatoryandeconomicdisincentives,legalandstatutoryincentives,propertyrightsinnovations,market-orientedinstitu-tions,financialincentives,publictax

incentives,andeducational,technicalassistance,administrativeandrecog-nitionincentives.Unfortunately,theliteratureonconservationincentivescontainsfewsystematicassessmentsofthesemechanismsorprograms,sofurtherresearchisneeded.

Thisreportalsoprovidesseveralgeneralobservationsandrecommen-dationsonincentivemechanisms.First,therearemanypublicandprivateincentivemechanismsandprogramsforbiodiversityconserva-

tionavailable,butthereisnocoordi-natinginstitutiontoguidelandown-ersintheselectionanduseofthesemeasures.Second,thereisnooneincentivemechanismthatmeetsallthecriteriaforbiologicaleffectivenessandeconomicefficiency.Therewillalwaysbetradeoffswhenemployingoneincentivemechanismoveranoth-er,andthesecompromisesneedtoberecognized.Whatmaybemoreusefulisimplementingasystemorprogramof“flexibleincentives,”wherebylandownerscanaccessacombinationofpublicandprivateincentivemea-suresthatbestfittheirecologicalandeconomiccircumstances.Third,itisusefultothinkaboutusingbothanopportunisticandtargetedapproachforapplyingincentivemechanisms,andtotakefulladvantageofcom-biningvariousprivateandpublicapproaches.Fourth,toimprovethefutureeffectivenessandefficiencyofincentivetools,incentiveprogramsneedamorerobustmonitoringandevaluationcomponent.

Incentivesarenecessarytosupple-mentotherconservationtools,suchasregulationandlandacquisition.Itisgenerallyacknowledgedthatalthoughtherearemanypublicandprivateincentiveprogramsdesignedtoencourageconservation,theytendtobeoverlyspecializedandprescrip-tive,fragmentedandunderfunded.Theseprogramsarealsogenerallyconstrainedbythefactthatthepri-marythreatstobiodiversity–habitatloss,degradationandfragmentation–operateacrosspublicandprivateownerships.Existingprogramsare

Executive Summary

“ Incentives are necessary to supplement other conservation tools, such as regulation and land acquisition.”

www.de fenders .o rg | 5

alsoimplementedtobenefitthegreatestnumberofconstituents.Targeted,strategicinvestmentsinconservationincentivesaretheexcep-tionratherthantherule.Therecentcompletionofstatewildlifeactionplansbyall50states,andecoregionalassessmentsprovidedbyTheNatureConservancy,canhelpguidemorestrategicinvestmentswithgreaterecologicalbenefits.

Sincelandownerneeds,objec-tives,attitudesandcapacitytoconservebiodiversityvarywidely,programflexibilityisneeded.Public-privatepartnershipsmayprovidethebestapproachtobiodiversityconservation,sincepublicfundingislimited.Theeliminationorrealloca-tionoffundingforprogramsthatcreateperverseincentives,likecropsubsidies,maysavetaxpayerdol-

larsandreduceecologicaldamage.Performance-basedprogramsmayproducebetterresults,buttheywillrequirethedevelopmentofspecificgoalsandanefficientandcost-effec-tivemonitoringsystem,whicharenotcurrentlyinplace.

DefendersofWildlifeandpartnersdevelopedthefollowingsetofcriteriaforevaluatingconserva-tionincentives:Effective programs focus on habitat and multiple species, rather than taking a single species approach. Implementation is strategic, based on clearly defined statewide or regional ecological goals. Program implementation is tracked, biological outcomes are monitored, and adaptive management allows for adjustments to improve achievement of program goals. Effective incentive programs are also administered well. Partnerships and

coordination leverage limited resources, fill gaps and prevent duplication. Adequate funding, research and tech-nical assistance are critical. Programs need to be accessible to landowners, including streamlined paperwork and realistic timelines.

Thereportconcludesthat,al-thoughincentiveswillbeanimpor-tantpartofstrategiestoconservebiodiversityonprivateland,therewillalwaysneedtoberegulationsthatsetaminimumorbaselevelofperformanceforalllandowners.Regulationsshouldpreventecologi-caldamage,whileincentivesmaybemosteffectiveatpromotingrestora-tionandmaintainingintacthabitats.Landownerswhohaveahistoryofgoodstewardshipshouldnotbepe-nalizedbylimitingassistancetothosewhoselandshavebeendamaged.

Stripcropping to prevent soil erosion, Maryland | Natural Resources Conservation Service


Oneimmediateneedistodecreasethepublicandprivatesectorcostsofaccessingandimplementingincentiveprograms.One-stopshop-pingthatofferslandownersaclearpictureofthefullrangeofoptions,incentives,permitrequirements,fundingsourcesandotherinforma-tioncouldresultinhigherlevelsofparticipationandimprovedadmin-istrativeeffectiveness.Buildingmoreflexibilityintoexistingpro-grams,whileminimizingadditionaltransactioncosts,maybringaboutimprovedeffectiveness.

Anincentivetoolthatdeservesfurtherexplorationisanecosystemservicesmarketplacethatpromotesbiologicalintegrityandeconomicefficiency.Thetoolisbeginningtobe

appliedintherealmofcompensatorymitigation,butthepotentialexistsforbroader,moreintegratedapplicationthatcouldmakeconservationprofit-ableforsavvylandowners.Regardlessofthemechanism,however,incen-tiveswillbemosteffectiveiftheyareimplementedwithinthecontextofspecificbiodiversityconservationgoalsoroutcomesthatallowustomeasureprogressagainstthegoalsandmakeadjustmentsasnecessaryovertime.Developinganefficientsystemtomeasureprogressandtodevelopaperformance-basedsystemwillnotbeeasyorinexpensive,butitshouldbeapartofanoverallconser-vationstrategy.

Althoughtherehasbeenalackofassessmentandcomparisonofincen-

tivemechanismsandprograms,thesemechanisms,overthemanydecadestheyhavebeenusedbyprivateland-owners,havenodoubtcontributedtohelpingconserveat-riskspeciesandtheirhabitats.Indicatorsofthisarethehighparticipationrateofapplicantstoaccesspublicincentiveprogramsandthededicationofmanyfederalandstateagentsinconservingat-riskspecies.Thisreportdoesnotconcludethatpastandcurrentincen-tivemeasureshavebeenineffectiveorinefficientinprotectingbiodiversityinthiscountry,onlythatweimple-mentrecommendedchangesandcontinuemonitoringandevaluationofincentivemeasuresinordertoimprovetheirbiologicaleffectivenessandeconomicefficiency.

Restored wetland, California | Natural Resources Conservation Service


technicalfoundationforitsworkontheseissues,Defendershiredanatu-ralresourceeconomistin2000,andin2002itcreateditsConservationEconomicsProgramtoapplysocio-economicscienceandprinciplestobiodiversityconservation.Economicanalysisofthebenefitsandcostsofbiodiversityconservationisamajorthrustoftheprogram.BecausethepurposeoftheConservationEconomicsprogramistoinformpolicychoices,theworkisbasedonateamapproachandaugmentedwithassistancefrombiologists,habitatconservationplannersandlegalexpertsfromotherDefendersprograms(forexample,seeGeorge(2002),HummonandCasey(2004)andHummon(2005)).

Thisreportisintendedtosummarizeandsynthesizecurrentthinkingabouttheroleofprivatelandownerincentivesinbiodiversityconservation,whatworks,what

doesn’tworkandhowincentivescouldbeusedmoreeffectively.Althoughthereportassesseskeyincentivemechanismsbasedonanextensiveliteraturereview,thesearchwasnotexhaustive.Nevertheless,anevaluationofexistingincentivemechanismsisparticularlytimelynow.Thebiggestsinglesourceoffundingforconservationincentives,theFarmBill,isupforreautho-rizationin2007,andimprovedconservationincentivesforprivatelandownersfigureprominentlyinthecontinuingdebateonpossiblechangestothefederalEndangeredSpeciesAct.

Why Incentives?Despitehavingperhapsthemostcomprehensivenationallegislationintheworldtoprotectendangeredspeciesandtheirhabitats,theUnitedStatescontinuestosuffersignificantbiodiversityloss.Thefederalagen-

Scope of This Report This report is applied in nature and does not delve into the economic or social theory related to an analysis of incentives.1 It describes current biodiversity conservation incentives mechanisms and programs and how they work, and it suggests improvements. Existing public and private incentive mechanisms are addressed and, to the extent possible, assessed in terms of their biological ef-fectiveness and economic efficiency. The emphasis of this report is on voluntary economic incentives (e.g., finan-cial assistance, market development, tax code changes, etc.) that have the po-tential to influence conservation behavior on private lands. The term “economic incentives” includes institutional arrangements that affect landowner conserva-tion choices. For example, although mitigation banking might be thought of as a private, quasi-market financial transaction, the actual establishment of the bank and its operational rules are institutional innovations (and therefore an incentive) that make private transactions possible. This report addresses both market-based and non-market incentives. The one exception to this is that fee-simple and donation land acquisition programs are not considered, because manage-ment responsibility is transferred from one landowner to another.

I. Introduction

Thisreportisapolicyandeco-nomicassessmentoftheeffec-tivenessofincentivesforprivate

landownerstoconservebiodiversityintheUnitedStates.Thefocusisonexistingincentives,whichtendtobeappliedonrurallandsthatarepri-marilyusedforagriculture,forestryorresidentialpurposes.Theprimaryaudiencesforthisreportarepolicymakers,publicconservationagents,theprivateconservationcommunity,legislativestaffandlandowners.

DefendersofWildlifehasbeeninvolvedinpromotingincentivesforprivatelandownerconserva-tioneffortsformorethanadecade.Someofitsworkhasfocusedonfinancialcompensationandproac-tivecost-sharefundsforlandownersdirectlyaffectedbyreintroductionandrecoveryoflargepredatorssuchaswolvesandgrizzlybears.Startingin1993,Defenders(seeHudson1993)hassponsoredworkshopsandprovidedpolicyguidanceontheuseoflandownerincentivemechanismsandprograms.Defenders’interestinapplyingincentivestobroaderbiodiversityconservationgoalsalsogrewoutofitsexperiencewiththeOregonBiodiversityProjectinthemid-1990s.Thatproject,whichconductedastatewideassessmentofOregon’sbiodiversityconservationneedsandopportunities,highlightedtheneedforconservationeffortsonprivatelandsandledDefenderstoundertakeitsfirstexaminationofincentivesavailabletoprivateland-owners(Vickerman1998).Recog-nizingtheimportanceofastronger

1. For examples of more theoretical approaches to the economic analysis of incentive mechanisms, see Casey et al. (1999).


cieschargedwithimplementingtheEndangeredSpeciesActarefrag-mented,under-fundedandsubjecttoconsiderablepoliticalpressurebythosewhoperceiveconservationtobeanimpedimenttoeconomicgrowth,pri-vatepropertyrightsand/orwell-being.Theseperceptionshavesloweddowntheprocessofbothlistingspeciesforprotectionandfordefiningthecriticalphysicalhabitatandlandmanagementpracticesrequiredforrecovery.Otherconservationprogramsareunder-fundedorlackclearbiodiversityconservationgoals.

Theneedforprivatelandownerin-centivesaspartofanoverallbiodiversityconservationstrategyhasbeenwidelyacceptedinrecentyears.Theprincipalthreatstobiodiversity–habitatloss,degradationandfragmentation–oper-ateacrosspublicandprivatelands,andweedsandotherinvasivenon-nativespeciesrecognizenoboundaries.Re-sourcemanagementonpubliclandsisclearlyamatterofpublicpolicy.Thereismuchlessconsensusonthedegreetowhichpublicpolicyshouldguidemanagementofprivatelands.Eveniftherewereaconsensusinsupportofa

strongerregulatoryapproach,itisdif-ficulttoenvisionalegalframeworkthatcouldadequatelyaddressthecomplexi-tiesinvolvedindevelopingaprescrip-tionforbiodiversitymanagementonprivatelands.

A Mix of ToolsThisreportproceedsfromtheassump-tionthatincentivesshouldsupplement,notreplace,existingregulationsandlandacquisitionprogramsdesignedtoconservehabitatsandspecies:

•Effectiveregulationscanpreventactivitiesthatcontributetobiodi-versitylosses.

•Landacquisitionprogramscansecurethemostimportantplacesandhelpensuretheirlong-termprotection.

•Economicincentivescanencour-ageandassistlandownersintakingactiontomaintainandenhancebiodiversityvaluesonprivatelands.

Organization of This Report Section II describes the importance of biodiversity conservation and the crucial role that incentives play in achieving this objective on private lands. It discusses the complementary conservation strategy of combining voluntary incentive mecha-nisms with land acquisition and a regulatory approach. Finally, it provides the framework for the successful implementation of incentive measures. Section III presents the methods used to evaluate different incentive mecha-nisms in the subsequent sections. Sections IV through X each deal with one related set of incentive mechanisms. Each section describes the mechanisms, gives a preliminary assessment of biological effectiveness and economic efficiency, and presents recommendations. Both public (federal and state) and private incentive mechanisms are considered. Examples of incentive programs are discussed. Section XI provides a summary of the descriptions, assessments and policy recommendations from Sections IV through X. Section XII presents conclusions about the future structure of conservation incen-tive mechanisms and programs and their application to biodiversity conservation.

Mountain stream, Maryland | Natural Resources Conservation Service


Creatingreservesonpublicorprivatelandsisunlikelytoconserveadequatelythefullrangeofbiodiver-sity.Althoughpublicreservesprovideimportantconservationbenefits,privatelandssupportnearly67percentofknownpopulationsoffederallylistedendangeredorthreatenedspecies.Itisneitherrealisticnordesirableforgovernmentstoacquireandmanageallofthelandnecessarytoconservethenation’sbiodiversitythroughfee-simplepurchaseorpermanenteasements.Ithasbeenestimatedthatitwouldcostapproximately$488billionover40yearstopurchaseenoughlandtoestablisharepresentativenetworkofbiodiversityareasintheUnitedStates(Shafferetal.2002).Althoughthisexpenditurelevelisequivalentorevenbelowothertypesofsocialinvestments,therearealsopoliticalandpracticalconstraintstosuchalargelandconser-vationprogram.Thus,workingwithprivatelandownersandmanagerstoconservenativespeciesandecosystemsoutsidethetraditionalreserve-basedmodelbecomesimperative.

Manylandsusedprimarilyforhu-manpurposes(includingagriculture,forestry,recreationandurbanuses)cansupportsomeelementsofbiodiversityandhelpsustainecosystemfunctions.Theseincludeextensiverangelandsthatretainnativevegetation,lightlyman-agedforestlands,intactnaturalareaswithinagriculturallandscapes,andevenruralresidentialandsuburbanar-easwithsignificantecologicalelementsretainedorrestored.

Land-useplanningandzoningareimportanttoolsformaintainingnativebiodiversityinselectedplaces.Inten-sivedevelopmentmaybeencouragedinsomeareasinordertosparehabitatsandspeciesinothers.However,increasedland-useintensitycanbeadouble-edgedsword.Forexample,maintenanceofadequatefarmincome

inthefaceofdecliningproductpricescanleadtomoreintensiveuseoffertilizersandchemicalsthatdegradewaterqualityanddamageaquaticecosystems.Similarly,recentlegislationtargetingconservationfundstowardslarge“confinedanimalfeedingopera-tions”todealwithmanuremanage-mentmayactuallysubsidizeexpansionoftheselargeoperationsandleadtoevenmoreenvironmentaldegradation.

Althoughmuchremainstobelearnedaboutecologicalrestorationtechniques,informationisavailabletoguidelandownersinconservingspeciesandtheirhabitats,andrestora-tioneffortsonprivatelandshavebeensuccessfulinmanyareas.However,itremainsdifficultandexpensivetomea-surethecontributionofanindividuallandownertobroaderenvironmental

benefits,especiallythosenotdirectlyobservableoreasilymonitored.With-outmulti-scale,coordinated,strategicmonitoringwithinthecontextoflandscape-scaleconservationplans,itwillbedifficulttodeterminetheeffectivenessofconservationeffortsonindividualsitesoracrossprograms.

Targeted,strategicinvestmentsinconservationincentivesaretheexceptionratherthantherulewithmostexistingincentiveprograms.Politicalconsiderationsoftenreinforcebureaucraticinclinationstospreadresourcesaswidelyaspossible,ratherthantargetinginvestmentstolocationsandactivitiesthatcangeneratethegreatestconservationbenefits.Until

recently,fewbroad-scaleassessmentswereavailabletohelpguideconserva-tionprioritiesingeneralandbiodiver-sityvaluesinparticular.TheNatureConservancy’secoregionalassessmentsandotherstatewideandregionalcon-servationplanningeffortsnowprovideusefulinformationformanyareas.Thestatewildlifeconservationstrategiesthatwerecompletednationwidein2005undertheStateWildlifeGrantsprogramcouldprovidethepublicpolicyfoundationformoreeffectivetargetingofincentivesinthefuture.

Whichtypeofincentiveormixofincentivesaremostappropriatetoad-dressanyparticularconservationneedwillvary,dependingonthetypeofland-useactivity(e.g.,agriculture,for-estry,suburban,etc.),landownershipandthemixofecologicalattributeson

theland.Inareaswherehigh-qualitynaturalhabitatsstillexist,incentivestoencouragecontinuedconservationwillbethemosteffectivemechanism.Thepotentialtorestorenativehabitatsormodifyproductionpracticeswillvarysignificantlybylanduseactivity.Therearealsosignificantdifferencesintheconservationvaluesandpreferredstrat-egiesindifferentpartsofthecountryandamongindividuals.

Programflexibilityisimportantinapplyingandcombiningindividualincentivemechanismsattheland-ownerlevel.Landownersvarywidelyinthephysicalcharacteristicsoftheirlands,theirfinancialneedsandtheirwillingnesstocooperatewithconserva-

“ Land-use planning and zoning are important tools for maintaining native biodiversity in selected places.”


tionpartners.Disparateconservationprograms,eachwithacomplexsetofincentivesandparticipationrules,arelesseffectiveandefficientthanaflexibleconservationprogramthatoffersseveralincentivemechanismstochoosefromandcombine(BatieandErvin1999).

Especiallyinthecurrentpoliti-calandfiscalclimate,publicfundingforlandownerincentiveprogramsislimited,sopublic-privatepartnershipstappingabroadrangeoffundingsourcesmaybethemostpracticalapproachtobiodiversityconservation.Stateandlocalprogramswillneedtocomplementfederalandprivateincentiveprograms.Some“perverseincentives”likesubsidizedcropsandexportsubsidiescaninadvertentlycausehabitatlossandmayneedtobereducedoreliminatedtosavetaxpayerdollarsandreduceecologicaldamage.

Ifsocietydemandsgreaterefficien-cyintheuseofconservationfunding,theremaybesupportformoreper-formance-basedincentiveprograms.

Publicfinancialassistancetoachievepublicbenefitswouldbebasedontheactualphysicaloutcomesthatlandownersaccomplish:improvedwaterqualityandaquatichabitat,restoredterrestrialwildlifehabitat,lesssoilerosionandotherecologicalbenefits.However,performance-basedsystemswillrequiredefiningspecificgoalsorperformancelevelstobeachieved,developingtheindicatorstomeasureprogresstowardsthosegoals,andimplementinganeffectiveandef-ficientmonitoringsystemtomeasureactualperformance.Thesetasks,whilenecessary,arenottechnicallyeasy–andareexpensive.

Defining a More Successful ApproachDefendersofWildlifehasestablishedinverygeneraltermscriteriaforef-fectivehabitatprograms(Hummon2005).Thesecriteriacanbesum-marizedasfollows:Effective incentive programs focus on habitat and multiple native species, rather than taking a

single species approach. Implementa-tion is strategic, based on clearly defined statewide or regional ecological goals. Program implementation is tracked, biological outcomes are monitored, and adaptive management allows for adjust-ments to improve achievement of pro-gram goals. Effective incentive programs are also administered well. Partnerships and coordination leverage limited resources, fill gaps and prevent duplica-tion. Adequate funding and technical assistance are critical. Programs need to be accessible to landowners, including more efficient application processes and realistic timelines.

Mostconservationincentiveprogramscurrentlyfallfarshortoftheseideals,butourexaminationofexistingincentivessuggestsapowerfulpotentialstillwaitingtobetapped.Wehopethisreportwillhelpbringsomeclaritytothiscomplexissueandprovideaframeworkformorecreativethinkingaboutthewaysincentivescanbeusedtoadvancebiodiversityconservationinthe21stCentury.

Federal conservation agent and farmer, Pennsylvania | Natural Resources Conservation Service


Thissectionlaysthegroundworkforadiscussionoflandownerincentivemechanismsandpro-

grams.ItdiscusseswhyconservingthebiologicalheritageoftheUnitedStatesisimportant;therationaleforusingacombinedapproachofregu-lation,acquisitionandincentivestoincreaseconservationeffort;andthephysical,institutionalandadminis-trativecontextinwhichstewardshipincentivesarelikelytobesuccess-ful.Thecontextincludesthescaleofconservationeffort,theuseofconservationplanning,flexibilityandadaptivemanagement,andthedesignofincentivemechanismsinrecognitionoflanduseintensities.

Importance of Biological DiversityAnessentialstepindescribingtheimportanceofbiologicaldiversityistofirstdefinewhatbiologicaldiver-sity,orbiodiversity,is.Thedefinitionofbiodiversityusedinthisreportis:“Thevarietyoflivingorganismsconsideredatalllevelsoforganiza-tion,includingthegenetic,speciesandhighertaxonomiclevels,andthevarietyofhabitatsandecosystems,aswellastheprocessesoccurringtherein”(MeffeandCarroll1997).Theinclusionof“ecosystems”inthedefinitionisespeciallyimportant,becauseitiswidelyrecognizedthatecosystemsprovide“services”thatbenefithumans–reflectingamutualinterdependenceoflifeatalllevels.

Biodiversitycanbedescribedatfourinteractivelevels:genetic,species,community/ecosystem

andlandscape/regional(WisconsinDepartmentofNaturalResources1995).Alloftheselevelsofbiodi-versityrequireconservationeffort.Becausetheapproachtowardsbio-diversityconservationinthisreportisappliedinthecontextoflanduse,wedefinebiodiversityconserva-tionasmaintainingnativeplantsandanimalsandthecommunitiesandecosystemsinwhichtheyoccur(Vickerman1998).

Twotypesofvaluesareassociatedwithconservingourbiodiversityheritage.Callicott(undated)hasdescribedthesevaluesasintrinsicandinstrumental.Thevalueofsomethinginandofitself,or,asanendinitself,isintrinsicvalue.Thevalueofsomethingasameanstoanendisinstrumentalorutilitarian,thatis,usefulforachievingsomeanthropocentricgoalsuchasfoodconsumption.

Intrinsicandinstrumentalvaluesarebothimportantreasonstoconserveourbiodiversityheritage.Instrumentalvaluesincludeenhance-mentofappreciationandaestheticenjoymentofnature,supportfortheintegrityofecologicalsystemsandservicesonwhichhumansdepend,theprovisionofresilienceinthefaceofenvironmentalstress,andthesupplyoffood,medicinesandothergoodsfromlivingplantsandani-mals.Speciesandhabitatsalsomakeeconomiccontributionstohumanlivelihoodsthroughtheprovisionofnaturalresources(e.g.,soils,forage,lumber,etc.)aswellasforecosystemservicesincludingfloodcontrol,

waterfiltration,carbonsequestra-tionandpollination,tonamejustafew.TheOrganizationforEconomicCooperationandDevelopment(1999)hasdescribedtheimportanceofbiodiversityininstrumentaltermsasanassetforpresentandfuturegenerations–asabasisforsustainabledevelopment,includingtheprovi-sionoffood,energy,rawmaterials,industrialchemicalsandmedicines,aswellasforimportantsocialandculturalbenefits.

Theliteratureanalyzingandquantifyingthebenefitsofspeciesandhabitat/ecosystemrestorationandprotectionislargeandgrowing.2Forexample,Costanzaetal.(1997)estimatedworldwideecosystemservicebenefitsatabout$16to$54trillionperyear,withanaverageestimateof$33trillionperyear.Otherstudiesrelatetoindividualspeciesorlocalareas.Inastudyofseaotterrecovery,Loomis(2004)es-timatedcombinedpublicandprivatebenefitstotheeconomiesofseveralCaliforniacountiestobeabout$172millionperyear.Usingconservativeestimates,researchbyDefendersofWildlife(2004)ondesignatingcriticalhabitatfortheCanadalynxshowedthatgrossbenefitsrangedfrom$2.5to$19.2millionperyearinlocalcommunitiesandfrom$34to$256millionperyearatthenationallevel.Kroeger(2005)hasestimatedthatecosystemservicebenefitsderivedfromprotectingnaturallandsinfourcountiesofnorthernFloridaamounttoabout$3.2billionperyear.

II. The Importance of Biological Diversity: The Context for Conservation Incentives

2 . An extensive reference list on resource valuation is available at Defenders’ website for conservation economics at www.biodiversitypartners.org/econ/pub.


The Rationale for Incentives in Conserving BiodiversityTheconservationofintrinsicandutilitarianvaluesassociatedwithbiodiversitywillrequirethecoop-erationofprivatelandowners,withparticipationenhancedthroughincentivemechanisms.Therearethreemajorreasonswhytheroleofprivatelandownersandincentivesareimportant:thelocationoflistedandat-riskspecies,theneedforcon-servationtoolsthatarecomplemen-tarytoregulationandthelackofmarketsforpublicgoodslikespeciesandhabitatconservation.

Listed Species Distribution and Land Ownership and Fragmentation Eighty-fivepercentofthespecieslistedasthreatenedorendangeredbythefederalgovernmentareinthatcondition,atleastinpart,becauseofthelossordegradationofthehabitatstheyneedtosurvive(Wilcoveetal.1998).Althoughthefederalgovernmentownsand/ormanagesmorethan30percentofthenation’slandarea,federallandssupportonlyabout33percentofknownpopulationsofthreatenedandendangeredspecies(Groves

etal.2000).Thus,67percentoftheknownpopulationsofthreat-enedandendangeredspeciesoccureitherinaquatichabitatsoronthe1.485billionacresofnon-federallands.Atthespecieslevel,Hudson(1993)notedthatabout50percentofthespecieslistedasthreatenedorendangered(728)werefoundexclusivelyonprivatelands.

Privateagricultural,forestryandotherrurallandsareanextremelyimportantcomponentofnon-fed-erallands,with92percentusedforprivatecrop,forestryand/orlivestockproduction.In2001,landinagriculturalproductionaccountedforalmost50percentofalllandinthecontiguous48statesandcomprised401millionacresofcropland,522millionacresofpastureandrangelandand405millionacresofforestland.About34millionacresofcroplandarecurrentlyidledbytheU.S.Depart-mentofAgriculture’sConservationReserveProgram.Withsomanythreatenedandendangeredspeciesoccurringsolelyonprivaterurallands,theidentificationofeffectiveandefficientincentivemechanismsandtheimplementationofeffective

landownerconservationincentiveprogramsarecrucial.

Privateagriculturallanduseandmanagementhavecontrib-utedsignificantlytothedeclineofbiodiversityconservationintheUnitedStates.Overtime,habitatlossassociatedwithmodernfarmingmethodsonmorethan400millionacresofcroplandbroughtaboutdramaticreductionsinmanywildlifespeciesinNorthAmerica(WildlifeManagementInstitute1995;Risleyetal.1995).In1995,nearly84percentof663plantandanimalspeciesinhabit-ingthecontiguous48stateswerelistedasthreatenedorendangeredbecauseofagriculturalactivities.Specifically,272species(41per-cent)werelistedexclusivelyduetoagriculturaldevelopment,115(17percent)becauseoffertilizerand/orpesticideuseand171(26percent)duetograzing(Lewand-rowskiandIngram1999).

ThereareincreasingthreatstobiodiversityconservationintheUnitedStates,primarilythroughuncontrolledconversionandfrag-mentationoflandtouses(mostlyurbanization)thathavelittleorno

Common egrets | U.S. Fish and Wildlife Service

www.de fenders .o rg | 1�

habitatvalue.Overthefive-yearperiodof1992to1997,therewasacombinedlossofnearly20millionacresofrurallands,asrepresentedbydiminishingcropland,grassland,range,pastureandforestedlandcategories.Thoselandsthatarethemostsuitableforthemaintenanceofnativebiodiversityandecosystems(grassland,rangeandforestland)accountedforthree-fourthsofthedecreaseorabout15millionacres.Partofthislosswasoffsetbytheincreaseinspecialrecreationandwildlifeuselands(federalandstateparks,wildernessareasandwildliferefuges)of9millionacres.Nonethe-less,from1992to1997,therewasanetlossofabout11millionacresofrurallands,posingasignificantrisktobiodiversityconservation.Mostofthislossmaybeattributedtoincreasingsprawlandurbaniza-tionandtheconversionoflandtousesthatareunsuitableforsupport-ingspeciesandtheirhabitats.Forexample,between1997and2001,almost9millionacresofrurallandsweredeveloped–46percentofwhichwereforestland,20percentcropland,15percentrangelandand16percentpastureland(NaturalResourcesConservationService2003needreference).Combined,forestlandandrangelandconversionaccountedforabouttwo-thirdsofthegrowthindevelopedlandfrom1997to2001.Thesetrendscontin-uedthrough2003.Animportantconditionforthesuccessfulapplica-tionofincentivemechanismsforbiodiversityconservationwillbetoimplementmoreeffectiveland-useanddevelopmentpolicies.

Complementing Regulation With IncentivesTheEndangeredSpeciesActof1973istheUnitedStates’principalregula-

torymechanismtohaltbiodiversityloss.Thelawprohibitsthetakingofnativeplantsandanimalsthreatenedwithextinctionandprotectstheirhabitats.Oneofitsfundamentaltasksistobringabouttherecoveryofspecies,whichisachievedinmanycasesbytheprotectionandresto-rationofhabitatonprivatelands(GoldsteinandHeintz1993).Inthenameofapublicgood(e.g.,health,safety),certaintypesoflanduseandpracticeshavebeenbanned(Claassenetal.2001).Regulationcanbeaveryeffectivetool,providedthereisenforcement.Unlikepolicychoicesinwhichlandownerpartici-pationmaybeuncertain,regulations

requireparticipation.Themajordis-advantageofregulatoryrequirementsisthattheyhavetheleastamountofflexibility,oftenrequiringlandownerstoadoptspecificpracticesortechnol-ogies.Thisapproachislessefficientthansettingconservationgoalsandperformancestandards,becauseitdoesn’ttargetlow-costproducersofenvironmentalbenefits.3

ConflictsoverlanduseandeconomicactivityhaveoccurredwithimplementationoftheEndangeredSpeciesAct,andrelyingsolelyontheregulatoryapproachmayonlyin-creasetheseconflicts(GoldsteinandHeintz1993).Undertheact,somelandownersfeeltheyarebeingaskedtocarrytheprimaryresponsibility

forendangeredspeciesrecoverywhilethepublicatlargeenjoysthebenefits.Althoughlandownersshareinthebenefitsfromspeciesconservation,theycannotrealizepotentialeco-nomicbenefitsfromdoingsounlessinstitutionalarrangementsarecreatedtodoso(Hudson1993).

Apurelyregulatoryapproachmaymissconservationopportunitiesandcanengenderunnecessaryopposi-tiontospeciesandhabitatprotection(Brown1999).GoldsteinandHeintz(1993)pointout,“Thereisgrowingevidencethattheapproachadoptedintheactismakingtheachievementoftheseconservationgoalsmorecostlyandmorecontroversialthan

needbe.Theactreliesonregulatoryauthorityandcivilpenaltiestopre-ventthedegradationordestructionofthehabitatoflistedspecies,makinglittleifanyuseofpositiveeconomicincentivestoinduceconservation.Sinceregulatoryconstraintscanpreventprivatelandownersfromreal-izingcommercialusesoftheirland,itisnotsurprisingthattheyfrequentlyresisttheimpositionofhabitatconservationmeasuresneededtosupportlistedspecies”(p.51).Withinthecontextoftheact’sregulatoryframework,therearenowvoluntaryinstitutionalincentivesthatprovidelandownerswithalevelofregulatorycertaintyinexchangefortheconser-vationofwildlifehabitatandspecies.4

3. A performance standard sets a benchmark or outcome level and allows those who are required to achieve this outcome to do so in the best, least-cost way they can. One of the challenges for biodiversity or wildlife habitat “outcomes” is the difficulty in defining what a suitable outcome is and developing the indicators to measure those outcomes. These issues are discussed in more detail in Section XI.

“ An important condition for the successful application of incentive mechanisms for biodiversity conservation will be to implement more effective land-use and development policies.”


Whileeconomicactivitiescanresultinhabitatandspecieslossordegradation,McKinneyetal.(1993)observethat“economicandmarketforcesdonothavetoactcountertoournationalgoalofendangeredspeciespreservation.Theseforcescancomplementtheregulatoryapproachtoconserveandrestoreendangeredspeciesandbiodiversity.Asystemofeco-nomicincentives,bothpositiveandnegative,canbegintotranslatethebroadervaluesofbiologicalconser-vationintoprices.Economicactivi-tiesthatconserveorrestorevaluablehabitatsorspeciescanbeencour-agedthroughlowercostsorhigherreturns....Thosewithvaluablebiologicalresourcesontheirlandcanberewardedforconservationorrestorationeffortsandintegratinghabitatprotectionwithsustainableeconomicactivities....Thereisaneedtotranslatethepublicsocialvalueofconservationintofinancialincentivesforprivatelandownerstoinvestinandmanagelandsforbiodiversity”(p.1).

Inlightoftheconflictaris-ingfromland-useregulation,thecertaintythatpopulationgrowthandeconomicdevelopmentwillexac-erbatethepressuresonspeciesandhabitat,andthegrowingeconomiccostsofspeciespreservation,itseemsusefultodiscussthemeanstouseincentivestopromoteprivateconservationefforts.AccordingtoGoldsteinandHeintz(1993,p.52),“Twoprincipalobjectivesareimpor-tantintheapplicationofincentivestoconservebiodiversity:(1)Induc-ingprivatelandownerstoparticipatevoluntarilyinconservationefforts,and(2)reducingthecostsofspeciesandhabitatconservation.”

Asystemofflexibleincentives,inthecontextofwell-defined

environmentalgoalsorperformancestandards,isthemostpromisingapproach(Caseyetal.1999).Vol-untaryflexibleincentivescanhavethreecomplementaryadvantages:theyreduceresistancetoregulation,theyprovidevaluetolandownersforsupplyingimportantnon-market

socialbenefitsassociatedwithbiodi-versityconservation(Brown1999),andtheyencourageincreasesincon-servationeffort.Therightincentivemechanismscanencouragechangesinland-usepatternsthatachievehabitatobjectivesatlowercost.In-centivesmayalsoinduceinnovationsinhabitatconservationandinthetechniquesemployedinmanaginglandforcommercialusesthatallowsomehabitatobjectivestobemet(GoldsteinandHeintz1993).

Regulation,acquisitionandincentivesarenecessaryin-gredientsinasuccessfulstrategyofbalancingbiologicaleffective-nesswitheconomicefficiencytoconservebiodiversity.SectionIIIprovidessomebasicdescriptionsofregulatoryprogramsthatdefinetheinstitutionalboundarieswithinwhichvoluntaryincentivescanbeeffective.5

Private Lands and Public GoodsFromtheperspectivesofeconomicsandlaw,wildlifespecies,biodiver-sityandecosystemservicesarepub-

“ The right incentive mechanisms can encourage changes in land-use patterns that achieve habitat objectives at lower cost.”

4. These voluntary institutional incentives are Safe Harbor and Candidate Conservation Agreements with Assurances. Both are described and analyzed in Section V. 5. Although critically important for the success of conservation efforts, “perverse” incentives or policies that encourage destruction of wildlife habitat, either directly or indirectly (e.g., logging and mining policies on

federal lands, mortgage deductions, absence of taxes on new infrastructure, etc.), are not treated in this report. Brown (1999) has noted that eliminating perverse subsidies that encourage environmental degradation would have a significantly positive impact on the environment and be fiscally prudent ( p. 480).

licgoods.Publicgoodsaredefinedviatwopredominantcharacteristics:non-exclusivenessandnon-rivalry.Non-exclusivenessistheinabilitytoexcludethosewhobenefitanddonotcontribute,orthosewhoim-posecosts,butdonotpay(Randall1999).Non-rivalrymeansthatthere

arenoadditionalcostsforprovid-ingagoodtoadditionalusersonceaparticularamountofthegoodhasbeenprovided(Randall1999).Classicalexamplesofnon-exclusive-nessandnon-rivalryarethebenefitsprovidedbyanationalarmyandthewarningservicesprovidedbylight-houses.Thenon-rivalryandnon-exclusivenatureofpublicgoodsresultinwhatiscommonlytermed“marketfailure.”Marketfailureexistswhenthereisaninabilityofprivatemarketstoprovidecertaingoods,eitheratallorin“optimallevels”(Pearce1989).Inlegalterms,wildlifespeciesandtheecosystemsinwhichtheyexistarecharacterizedbyres nullis,“aresourceownedbynoone.”Thecombinationofnoownershipandmarketfailureforenvironmentalgoodshasresultedinasituationwhere,exceptforanindividuallandowner’sownprivatevaluation,therearefewperceivedeconomicbenefitsfromrestoringorconservingspeciesandtheirhabitatsthatarecommensuratewithotherlanduses(e.g.,cropagriculture,


ranching,forestryordevelopment)thathavereadilyavailableprivatemarkets.Thefactthatthesesamepublicgoodsareprovidedfromaphysicalbase(land)thatisprivatelyownedandvaluedforattributesunsupportiveofbiodiversityfurthercomplicatesmatters.

Althoughprivatemarketshavearole,itisnotfeasible,nordesir-able,torelyprimarilyonthemforthepreservationofbiodiversityandspecieshabitat(GoldsteinandHeintz1993).First,biodiversityisapublicgoodthatisintrinsicallyvaluableandrequiresprotection.Second,manycriticalconditionsnecessaryformarketstofunctionproperlycan’talwaysbefulfilledforbiodiversityorecosystemserviceresources.However,thisdoesnotmeanthatprivatemarketincentivemechanismscannotbeselectivelyemployedandstructuredtoachievesustainablebiodiversityconserva-tion.Privatemarketincentivemechanismsforlandownerscanbeusedtoachievebiodiversityprotec-tionortoenhanceecosystemser-vicesthroughreducedcompliancecostsand/ornewprofitopportu-nities(e.g.,ecotourism,ecolabel-ing,tradabledevelopmentrights,etc.).Undersomecircumstances,quasi-privatemarketinstitutionscanbedevelopedforlandownerstocapturesomeeconomicvalueofthepublicconservationbenefitstheyprovide.

Thepublicgoodsofbiodiversityandhabitatconservationmustberecognizedinordertodevelopandapplyincentivemechanisms.Sinceecosystemservicescomprise,forthemostpart,non-marketpublicgoods,itbecomesincumbentuponpolicymakerstoprovideconserva-tionincentivestoprivatelandown-ersto“supply”theseservices.

Framework for Biodiversity Conservation and IncentivesAframeworkoffourcomponentsisessentialtosuccessfullyunderstand-ingtheimportanceofbiodiversityconservationandusingincentivestoachieveconservationgoals:scaleandcontext,conservationplanning,flexibleimplementationandadaptivemanagement,andmultipleconserva-tionstrategiesacrossvariouslanduses(Vickerman1998).Theseareneces-saryconditionsfortheidentificationofappropriateincentivemechanismsandeffectiveandefficientimplemen-tationofincentiveprograms.

Scale and ContextVickerman(1998,p.7)saysthat“Effectivelyconservingbiodiversityrequiresanapproachthatconsidersbothscaleandcontext.Scalereferstobothtimeandspace.…Contextreferstothebioticcompositionofthesurroundingregionandtheactivitiestakingplaceonadjacentlands.”Spatialscaleisimportantbecausetheremaybeaminimumgeographicalareainwhichaspeciesorecosystemcanfunctioneffec-

tively.Thetemporalscaleisequallyimportantbecausesomeecologicalprocessesmayrequirelong-termtimeframesinordertoremainbiologicallyfunctional.Boththetimeandgeographicalscaleandthecontextrequirementsfacilitatewhatecologistsrefertoasthe“threeR’s”formaintainingsustainable,healthyecosystems:representation,resiliencyandredundancy(Shafferetal.2002)

Conservation PlanningBiodiversityconservationplanningaddressestheneedtopreventthelossofnativespeciesandhabitatandtosustaintheconditionsthatallowdi-verseplantandanimalcommunitiestosurviveandthriveovertime.Targetinghabitatsforprotectionandrestorationrequiresthatthesehabitatsfirstbeiden-tified,mappedandprioritized.Severalnationalandstateplanninginitiativestoachievethisobjectivehavebeenimplementedoverthepastfewyears.Forexample,initialplanningeffortshavetakenplaceinFlorida(Coxetal.1994),Oregon(DefendersofWildlife1998)andMassachusetts(Common-wealthofMassachusetts2001).

Cypress bay, Georgia | Natural Resources Conservation Service


OregonandFloridahaveidenti-fiedlandareas,includingthoseinagriculturalproductionorowner-ship,necessarytomaintainnaturalcommunitytypes.TheFloridaGameandFreshwaterFishCommissionpublishedacomprehensivehabi-tatconservationplanforthestate(Coxetal.1994).Thecommissiondocumentedthatsome4.82millionacresofprivatelands(13percentofthestate’slandarea),muchofitinagriculturalproduction,wouldneedtobekeptintheircurrentnaturalorsemi-naturalconditiontoachievecomprehensiveconservationofthestate’sat-risknativespecies.AsimilarplanningexerciseinOregonidentified25percentofthestate’slandareaasimportantforhabitatconservation(DefendersofWildlife1998).Thislandareaincludestheexistingnetworkofpublicandpri-vatelandsdedicatedtoconservation(e.g.,wildernessareas,parks,refuges,etc.)and42new“ConservationOp-portunityAreas.”Thenewareaswereselectedbyevaluatingtheoveralldistributionandstatusofvegetationtypes,speciesatrisk,aquaticdiver-sityandotherfactors.AsinFlorida,

theOregonprojectfoundthatselectedprivatelandswillbeessentialtoachievingcomprehensiveconser-vationgoals.Morethan31percentofthelandinOregon’sConserva-tionOpportunityAreasisinprivateownership,muchofitinsomeformofagriculturalproduction.

Federalfundingforstate-basedwildlifeconservationplans(nowreferredtoinmanystatesasstatewildlifeactionplans)wasauthorizedthroughTitleVIIIofthe2001Inte-riorAppropriationsActandTitleIXofthe2001Commerce,JusticeandStateAppropriationsAct.Thean-nuallyappropriatedStateandTribalWildlifeGrantsprogramisdesignedtoassiststatesandtribesinconserv-ingwildlifespeciesnotcoveredbyhuntingandfishingfeesorbyen-dangeredspeciesappropriations.Inordertoreceivefunding,eachstatewasrequiredtodevelopacompre-hensivewildlifeconservationplanbyOctober2005.Theobjectiveoftheseplansistoidentifyandaddressthebroadrangeofstatewildlifeandassociatedhabitatsinacomprehen-sivefashion.Specialemphasisisplacedon“speciesofgreatestconser-

vationneed”topreventtheneedforfurtherlistingsundertheEndan-geredSpeciesAct(TheBiodiversityPartnership2005).Allstateshavenowcompletedtheirwildlifeactionplans,whichcanserveasastrategicframeworkforconservationprojectsandinvestmentsthroughouteachstate.AllstateplanswerereviewedbyDefenders’staff(Lerneret.al.2006)andfoundtobegenerallyadequate(withafewexcellentex-amples),butfurtherworkisneededintheareasofsettingconcervationgoals,producingfocalareamaps,prioritizingconservationactions,agencyandpolicycoordination,anddevelopingmonitoringsystems.

Underconditionsofscarcepublicresources,planningbecomesessentialinordertoefficientlytargetthosespeciesandhabitatsthatneedtobeconserved.Furthermore,planningthatappropriatelyconsidersscaleandcontextcanbenefitlandownersinavarietyofways.Justknowingwhereconservationneedstotakeplaceprovidesaninformationalbenefittolandownersandlendssomecertaintytotheirland-usedecisions(Vicker-man1998).Therearepotentially

Prairie pothole wetlands, South Dakota | Natural Resources Conservation Service


significantcostsavingsindesigningincentivemechanismsandprogramstoprotectorenhancehabitatsiftheytargetlandsbasedonidentifiedneedforprotection.Theabilitytotargetvaluablehabitatareasforprotectionrequiresthatconservationprogramsbeflexibleenoughtoaccountfordifferentspecies,habitatsandactivi-tiesindifferentpartsofthecountry(LewandrowskiandIngram1999).Theconservationareasorhabitatsidentifiedinthestatewildlifeactionplanscanserveastheexplicitgoalstowhichincentivescanbetargeted.

Insummary,conservationplan-ningcanincreasethebiologicaleffectivenessandeconomiceffi-ciencyofpublicandprivatefinancialresourcesandincentivemechanisms.Onecounter-balancingissueisthatplanningexercisescanalsoaddtothecostsforprivatelandowners.Inthepublicrealm,planningandtargetingmayresultinchangesinthedistributionofincentivebenefitsandwillthusraisesocialequityissues.ThisisespeciallyaconcernforU.S.DepartmentofAgricultureFarmBillconservationincentiveprogramsthatarevoluntaryinnatureandwheresubstantialfundingisallocatedmoreorlessevenlyacrossthestates.

Flexibility and Adaptive ManagementTheconditionofindividualspecies,andthehabitatsandecosystemsofwhichtheyareapart,aredynamicandstochasticinnature.Forbiodi-versityconservationtobesuccess-ful,thechallengeistoimplementflexibleanddynamicmanagementapproachesthatintegrateconserva-tiongoalsthrougheconomicandsocialinterests(Vickerman1998).Itisthereforeimportantthathabitatrestorationandconservationplans,andtheincentivemechanismsto

achieveplanobjectives,haveadegreeofflexibilityinordertorespondtounforeseenphysical,economicorlegaleventsthatcouldharmconser-vationefforts.Theprocessofadaptivemanagementisonemeanstodealwithdynamicenvironmentalchangesandtheuncertaintiesthatspeciesandtheirhabitatsaresubjecttoovertime.BrunnerandClark(1997)defineadaptivemanagementasapractice-basedapproachbywhichactionsareimplemented,monitoredandrefinedasnewinformationbecomesavail-able.Theprincipleofadaptiveman-agementrecognizestheimportanceofincorporatingnewinformation,thatourknowledgeabouthowecosystemsfunctionisincomplete,andthatwemustmonitoractionstodeterminewhetherconservationgoalsarebeingmet(Vickerman1998).

Itisnotonlyimportanttohaveagencyflexibilityintheimplementa-tionofconservationandrestorationplans,itisalsonecessarythatland-ownershaveflexibilitywithrespecttothetypesofincentivemeasurestheycanaccessandmanagementpracticestheyemployinmeetingthegoalsofconservationplans.Becauselandisusedinvaryingdegreesofintensity,thereisneedforavarietyofincentivestopromotehabitatprotectionandrestorationeitherpermanentlyoraspartofthework-ingagriculturallandscape.Aflexibleapproachtoincentivesrecognizesthatthesocialandeconomicfactorsthatinfluencehabitat-conserva-tiondecisionsarenotthesameforallproducers,orinallpartsofthecountry.Rather,anarrayofpublicandprivateincentivemechanismsisrequiredtoprovidealevelofflexibil-itywithinwhichmanyindividualsmayfindacombinationoffeaturesthatsuitthephysicalandeconomicconditionsoftheiroperation.With

respecttoconservationmanagementpractices,landownersneedflexibilitytodesign,testandimplementnewagro-environmentaltechnologiesandmanagementpracticesthatareap-propriatetolocalenvironmentalandeconomicconditions.

Incentives and Multiple Land-Use CategoriesTheincentivemechanismsdiscussedinmoredetailinthefollowingsec-tionscanbeselectivelyappliedviaathree-partstrategycorrespondingtoland-useintensityandalternativeproductionsystems.

First,someprivatelandsmayberelativelyuntouchedandstillmain-tainalargeportionofnativebiodi-versityandecosystemfunctions.Ac-cordingly,oneconservationstrategywouldselectincentivemechanismstomaintainintactremnanthabitatssuchasconservationeasementsorlong-termstewardshipagreements.

Second,theintensityofuseonotherprivatelandsmaybefairlylowovertime,allowingforthepossibilityofrestoringsomespeciesandeco-systems.Thistypeoflandscapemayrequirecost-shareincentivemecha-nismsforrestorationandsometypeofpermanentprotectiontofollowup.

Lastly,privatelandsmayhavebeensubstantiallymodifiedtosup-portthecurrentproductionsystem.Thus,athirdstrategywouldfocusonminimizingproductionimpactsonnativespeciesandhabitats.Eachofthesestrategieswillnecessitateadif-ferentmixofincentivemechanismsrequiringabalancebetweenlandconservationprogramsandincentivesforalternativeproductionpractices.Themosteffectivemixofincentivemeasureswilldependonthetypesoflanduseandownershippatternsandtheviabilityoftheeconomicenter-prisespracticed(Vickerman1998).


Thissectionpresentsthemethodsusedinevaluatingindividualincentivemechanisms.First,we

developedataxonomyofconserva-tionincentivestoserveasaframe-workfordescribingandassessingindividualincentivemechanismsinalogicalandcomprehensivemanner.Thetaxonomyisstructuredwithasocio-economicperspective,becauseitprovidesacomprehensiveapproachtoexaminingchoicebehavior.Thetaxonomydevelopedinthissectionservesastheorganizingtoolforthemorein-depthassessmentofindi-vidualincentivecategoriesinSectionsIVthroughX.Afterpresentingthetaxonomyofincentivemechanisms,welayoutsomegeneralcriteriaforassessingandprovidingrecommenda-tionsforthevariousincentivesinthesectionsthatfollow.

A Taxonomy and Description of Incentive MechanismsAnincentivemechanismisdefinedasanytypeofinstrumentthatisdesignedtoencourageachangeinbehavior.Inthiscase,itisbehavior(inducedorvoluntary)thatisassoci-atedwithbiodiversityconservation.Incentivesprovideaseriesofeconom-icmessagestoprivatelandownersthatconveythevalueofthebiologicalhabitattheymayown(McKinneyet.al1993).Therightcombinationofregulatoryprohibitionsandincentivescouldmoreeffectivelyguideprivatelandownerstomakesociallyben-eficialdecisionsaboutthewaytheyusetheirlandstosupporthabitatforendangeredandimperiledspecies.

Abroaderdefinitionofincentiveusedforthepurposesthisreportisanypolicy,program,institutionoreconomicinstrumentthatmotivateslandownerstoconserveand/orrestorenativespeciesandhabitat/ecosystemfunctionsontheirland.Behaviormaybeinducedthroughregulatory“disincentives”thatdiscourageharmtoat-riskspeciesandtheirhabitatsandthroughtheimpositionofsometypeofpenaltyfordoingso.Land-ownersmayalsochoosetovolun-tarilyparticipateinpublicorprivateeconomicincentiveprogramsthatsupportconservationandrestoration

activities.Bothtypesofincentivesarerequiredtoeffectivelypreventat-riskspeciesfrombecomingextinctandtoensuretheirrecovery(BatieandErvin1999;Segerson1999;SwintonandCasey1999).

Thereisawidearrayofvolun-taryincentivemechanismscurrentlyinusetoachieve,eitherdirectlyorindirectly,biodiversityconservationonprivatelands.Althoughthissec-tiondescribesindividualincentivemechanisms,manyconservationprogramsemployseveralincentivemeasuressimultaneouslytoattainconservationgoals.Forexample,

III. Methods For Evaluating Incentive Mechanisms: Taxonomy, Assessment and Recommendations

Testing water quality | U.S. Fish and Wildlife Service


easementprogramsincludethreetypesofincentivemechanisms:thecreationorredistributionofapropertyright(legalinnovation)thatdefinesaneasement,theactualfinancialpaymentassociatedwithaneasementcontract,andfrequentlysometypeofpublictaxadvantageincreatingtheeasement.Becauseeachofthesemechanismsmayhavedif-ferentimplementationrequirementsanddistributionalconsequences,theyareconsideredseparately.

Anincentivestaxonomytocon-servewildlifehabitatcanbedefinedbyanynumberofcategories.Incen-tivemeasuresrangefromregulatoryapproachesandenvironmentaltaxestovoluntarymechanismsthatincludetechnicalassistance,publicsubsidyorcost-shareprograms,orprivate-mar-ketapproaches.

Claassenetal.(2001)describeavarietyofincentivestoencouragecon-servationbehaviorthatareavailabletopolicymakers.Thesearebroadlycategorizedasinformationdissemina-tiontools,economicincentivesandregulatoryrequirements.Importantdifferencesamongthesecategoriesaredefinedbythedegreetowhichlandownerparticipationisvoluntary,theroleofgovernmentandthenatureoftheland-managementdecisiontargeted.Apolicycanbedesignedtoinfluencelandownerchoicesabouthowmuchandwhichlandtofarmforeconomicpurposes.Or,itcantargetdecisionsabouthowthelandisman-agedusingconservationpractices.

Incentive-basedpoliciescanpro-videpositiveinducementsdesignedtoencouragebeneficialactivitiesforspeciesandtheirhabitatsornega-tiveinducements(e.g.,taxes,fees,etc.)designedtodiscourageactivitiesharmfultospeciesortheirhabitats.Positiveincentivescomeintheformoflandownerpayments,risk

reductionorthecreationofprivatemarketopportunities.

HeimlichandClaassen(1998)de-fineataxonomyofincentivemecha-nismsconsistingoffourcategories:involuntaryregulatorydisincentives;voluntary,non-regulatoryeconomicincentives;institutionalinnovationsthatprovidethemarket,legalandplanningauthoritiestoenhanceresourceconservation;andfacilitativeincentivesthateasetheimplementa-tionofeconomicincentivesand/ornewinstitutions(e.g.,administrativecoordination,educationalprograms,technicalassistance,etc.).

Brown(1999)utilizesanexpand-edtaxonomyofincentive“tools”thatiscomprisedofsixcategories:propertyrightstools,taxpolicies,incentive-basedtools,private-publicpartnerships,governmentprogramsandvoluntaryinitiatives.Property

rightstoolsrefertoconservationeasements,covenants,deedrestric-tions,conservationagreements,andlandexchangesandtrusts.Taxpoliciesincludeproperty,incomeandestatetaxallowances.Incentive-basedtoolsareinclusiveofalltypesof“market”mechanismstoallowlandownerstocapturethebenefitsofprovidingapublicenvironmen-talgood.Thesemechanismsarerepresentedbyuserfees,ecolabeling,greeninvestmentsandenvironmen-talcontracts.Notalloftheseareaimedattheindividuallandowner,

however.Public-privatepartnershipscoverinstitutionalarrangementslikesafeharboragreements.Market-ori-entedtoolsincludetradabledevelop-mentrights,mitigationbankingandconservationbanking.

Finally,BatieandErvin(1999)havedevelopedatypologyofflexibleincentivesthatdefinescategoriesofbothvoluntaryincentivesandeconomicdisincentives.Flexibleincentivesaredefinedasenviron-mentalmanagementtoolsthatspecifyobjectivesbutdonotdictatehowtheenvironmentalobjectiveistobeachieved.Inorderforflexibleincentivestobeeffective,aperfor-mancestandardoroutcome(forexample,achievingaspecificlevelofwaterqualityorhabitatorspeciesrestoration)needstobedefined.Aperformancestandardspecifieswhat needstobeaccomplished,butnot

theexactmeans(technologiesormanagementpractices)tobeutilizedinattainingthestandard.TheBa-tie/Ervintypologyusesthefollowingclassificationofincentives/disincen-tives:charges/financialpenalties(effluent,ambient,inputorhabi-tat/speciesmodification),subsidies,educationalandtechnicalassistance,compliancerewards,depositrefunds,marketablepermits,ecolabeling,performancebonds,contractsandassignedliability.Subsidiesincludetaxallowances,costsharing,lowinterestloansandgrants.

“ Positive incentives come in the form of landowner payments, risk reduction or the creation of private market opportunities.”

2 0 | Incentives for Biodiversity Conservation

Thetaxonomydevelopedinthisreportoffersanewperspectivebutalsodrawsonsomeelementsoftheapproachesdescribedabove.Theprimarydifferenceisthatourbroaddefinitionofinstitutional incen-tivemechanismscoversmarketandnon-marketinstitutionalinnovations.Wealsoincludebothpublicandprivateincentivemechanisms.Publicincentivesarecomprisedofregulatoryandeconomicdisincentives,institu-tionalinnovations,financialpayments(includingtaxallowances),educationandtechnicalassistance,administra-tiveandorganizationalstructures,and

recognitionprograms.Forthepur-posesofthisreport,taxallowancesaretreatedasafinancialincentive,eventhoughtheyarefrequentlyapplicableonlytospecifictypesofeasements.6Privatemarketincentivesoverlapwithpublicincentivesandincludeeasements,userfees,ecotourism,ecolabeling,habitatpermittrading,andcompensation,insuranceandrecognitionprograms.

Themajorcategoriesofvoluntarystewardshipincentivesincludeinsti-tutionalinnovations,financialpay-ments,facilitativeincentivesrelatedtoeducation,technicalassistance,conservationprogramadministrationandlandownerrecognitionprograms.Withtheexceptionofsomeinstitu-tionalinnovations,taxincentivesandselectedkindsoffinancialinstru-

ments,theseincentivesaregenerallyavailablethroughboththepublicandprivatesectors.Someconservationincentiveprogramsdiscouragetheuseofenvironmentallysensitivelandinproduction.Otherprogramsfocusonfinancialassistancetochangeproduc-tionpracticesorrestorehabitats.Educationandtechnicalassistancehelplandownersimproveenviron-mentalperformance,withorwithoutfinancialincentives.Tobeeligiblefortheseandotherconservationprogrampayments,however,landownersintheagriculturalsectormustfrequentlymeetminimumstandardssetout

throughthecompliancemeasurespreviouslydescribed.Mostoftheseincentivesareavailabletointerestedlandownerswhomeetminimumstandardsratherthanbeingtargetedtothehighestconservationpriorities.

Eachofthemajorincentivecatego-riesisdiscussedinthesectionsthatfol-low(seeTable1,p.21forasummary).RegulatoryandeconomicdisincentivesarecoveredinSectionIV.Institutionalinnovations,propertyrightsandmar-ket-orientedinstitutionsareassessedinSectionsV,VIandVII,respectively.FinancialincentivesarediscussedinSectionVIII,andsectionIXcoverstaxincentives.SectionXisdedicatedto“facilitativeincentives,”whichincludesthetopicsofeducation,information,technicalassistance,administrativereformandrecognitionprograms.

Criteria for Assessing the Effectiveness and Efficiency of Incentive Mechanisms Thissectiondiscussestwomaincriteriaforevaluatingincentivemechanismsinthesectionsthatfollow:biologicaleffectivenessandeconomicefficiency.7Thisisan“initial”assessmentinthesensethatecologicalmonitoringandevalua-tioninformationforassessingmostincentivemechanismsdoesnotexist.Thisisclearlyagapinourknowl-edgethatneedstoberemedied.AsWilcoveandLee(2004)haveobservedinthespecificcaseofsafeharboragreements,amajorcon-strainttoafullassessmentisthelackofadatabaseonendangeredspeciesmanagementactionsandassociatedincentivetypes.

Withrespecttobiologicalgoals,thereareseveralcriteriathatdeter-minewhetherornotaparticularincentivemechanismiseffective.Firstandforemostiswhetheranincentivemechanismhascontributedtothelong-term,sustainableconservationofwildlifeorhabitat.Thesecondcriterioniswhetherthemechanismistargetedtoindividualspeciesormorebroadlytoprotectpriorityhabitats.Bothspeciesandhabitatapproacheshavearoletoplay.Thethirdcrite-rionistheextenttowhichincentivemechanismstargetlargeorsmalllandowners,andlandsinagricul-turalproductionorintactnaturalareas.Dependingonthespeciesorhabitatstobeconserved,flexibilityrequiresthatbothtypesoflandown-ersbeeligibleforincentives.Afourthcriterioniswhetherornotthereisahabitatorbiodiversitymanagementplanthatstipulatesconservationgoalsandguideslandownerconservationdecisions.Fifth,biologicaleffective-nessisalsodeterminedbythecapac-ityoftechnicalassistancetodeliver

6. Deposit refunds, assigned liability and performance bonds incentives have not yet been developed or utilized for the conservation of wildlife habitat or species and are not included in this report. 7. Equity, or the way that costs and benefits associated with particular incentive measures are distributed among affected groups, is extremely important from a public policy perspective. Relevant conditions include

whether incentives are targeted or open to all landowners and whether they should be delivered to primarily small or large landholders. Although some examples of equity impacts are illustrated in this section, a lack of prior analysis prevents us from fully investigating the equity dimension in this report.

“ ...to ensure that an incentive mechanism continues to be biologically effective, there must be outcome- or performance-based evaluation and adaptive management systems in place.”

www.de fenders .o rg | 2 1

Table 1. A Taxonomy of Conservation Incentive Mechanisms

Type of Incentive Public Private Section in Report

Regulatory & Economic Disincentives IV

GovernmentRegulation X

ConservationCompliance X X

FinancialCharge/Penalty X X

Voluntary Incentives

Institutional Innovation V

Legal/Statutory X

SafeHarbor X

CandidateAgreements X

RegulatoryRelief X

Property Rights VI

ConservationEasements X X

CovenantandDeedRestrictions X

StewardshipExchangeAgreements X

Market Oriented Institutions VII

UserFees X

Eco-Tourism X X

EcolabelingandCertification X

MitigationBanking X X

ConservationBanking X X

TradableDevelopmentRights X X

Financial Incentives VIII

CompensationPrograms X X

Cost-shareIncentives X X

LandandWaterLeases X X

ConservationContracts X

DebtForgiveness X

Insurance X X

Public Tax Incentives IX

IncomeTaxIncentives

PropertyTaxIncentives

EstateTaxIncentives

Facilitative Incentives

Education,InformationandTechnicalAssistance

X X X

AdministrationandOrganization X X

Recognition X X X

incentiveprogramsandoutreachtolandowners.Last,toensurethatanincentivemechanismcontinuestobebiologicallyeffective,theremustbeoutcome-orperformance-basedevalu-ationandadaptivemanagementsys-temsinplace.Furthermore,biological(technical)indicatorsonwhichtobaseaperformance-basedincentivesystemmustbedefinedandmeasured.

Broadlyspeaking,thecriteriaforeconomicefficiencyincludecost-ef-fectivenessandtheleveloftransac-tioncosts.Costeffectivenessreferstotheattainmentofthegreatestecologicalbenefit(biologicaleffec-tiveness)attheleastcost.Transac-tioncostsoccurattwolevels.Theyoccurattheindividuallandownerlevelforinformationsearchandaccessing,implementing,orevaluat-ingincentivemechanisms.Atthepublicorprogramlevel,transac-tioncostscomprisetheexpensestoadministeraparticularincentivemechanism.Theconditionsthataffectwhetheranincentivemecha-nismisefficientincludethecostofmanagementpractices,thecostofdeliveryofincentivemechanismstolandowners,thedegreeofcoor-dinationamongincentives,howincentivetoolsarefinancedandwhatsecondaryeconomicimpactsstewardshipincentivesmayresultin.Fromthestandpointofefficien-cy,economicincentivesmayallowlandownersgreaterflexibilitythanregulatoryapproaches,aslongasconservationgoalsareclearlystated.Landownerscanweighthecostsandbenefitsofparticularincentivemechanismsinachievingatargetconservationgoalorotherfinancialgoals.Whetheraspecificincen-tivemechanismisefficientwillalsodependontheagro-environmentalsettinganddetailsofprogramde-sign(Claassenetal.2001).


Therewillalwaysbetradeoffsbe-tweenattemptingtosimultaneouslymaximizebiologicaleffectivenessandeconomicefficiency.Forexample,conservationsubsidieslikecost-shareagreementsmayencouragelandown-erstoexpandproductionintoareasawayfromcriticalhabitatforonespeciesbutmayresultinthreatstootherspeciesinexpansionareas.Conservationeasementsencouragelandownerstoreduceproductionarea,whichmayonlybepossibleforlargelandowners.

Despitetradeoffs,therearesomegeneralcharacteristicsofincentivemechanismsthatwillfacilitatethejointachievementofeffectivenessandefficiency.Onecharacteristicisthatanincentivemechanismshouldprovidegreaterrewardstolandownerswhoconservemoreorhigherqualityhabitat.Inother

words,incentivesshouldbegearedtorewardbetterperformance.Second,anincentivemechanismshouldbecontinuousandresponsive(i.e.,flexible)tothequantityandqualityofhabitatovertime.Third,incen-tivemechanismsforagivenecologi-calareaandlandownershippatternshouldencourageactivitiesthatwillreducethetotalcostofprovidingthehabitatneededtosupportviablepopulations.Lastly,incentivemecha-nismsthatprovidelandownersnewtechniquestoprovidehighqualityhabitatatlesscostshouldbepro-moted.Toachievetheseobjectives,thereisaneedforon-goingresearchandadaptivemanagement.

OtherconditionsforachievingconservationeffectivenessthroughincentivemechanismshavebeenidentifiedbyWilcoveandLee(2004,p.644).“First,thehabitatrequire-

mentsofspeciestobeprotectedmustbereasonablywellknown;second,thehabitatitselfmustberestor-ablewithoutexcessivecostofeffort;third,thehabitatmustberestorablerelativelyquickly.”Thislastcondi-tionisparticularlyrelevanttosafeharborincentivesbecausealthoughtheparticipatinglandownerisnotobligatedtoprotectrestoredhabi-tatpermanently,theU.S.FishandWildlifeServicemustbesatisfiedthattemporaryprotectionwillresultinanetbenefittothespecies(Wil-coveandLee2004).

Themostfrequentevaluationcriteriathatareemployedbyboththepublicandprivatesectorstoindirectlydeterminetheeffectivenessorefficiencyofincentivemechanismsarelandownerparticipationratesandagencyallocationoffunding.Thesedataincludethenumberofpartici-

Federal conservation agent and rancher, Hawaii | Natural Resources Conservation Service


pantsoracresinvariousconservationprogramsandthesurplusdemandforaparticularconservationprogramasmeasuredbythebacklogofquali-fiedapplicationsthatexceedavail-ablefunding.However,actualandpotentialprogramparticipationmayhavelesstodowitheffectivenessandefficiencyofaparticularincentivemechanismandmoretodowithfi-nancialorenvironmentalcompliancerequirementsofindividuallandown-ers,oreffectivenessofoutreachortechnicalassistance.

Publicincentivemechanismsforwildlifeorhabitatrestorationandconservationarenumerousandhavebeendescribedinpreviousdocu-mentspreparedbyDefendersofWildlife.8Nearlyallfinancial(cost-share,landrentals,taxbenefits)andeducational/technicalassistanceincentivesforecosystemrestora-tionareofferedbystateandfederalagencies.Mostoftheseprogramsarenotdirectlyaimedatbiodiver-sityconservationbutcananddohavepositiveimpactsonhabitatsinparticularecosystems.

Thereishardlyanyresearchavailablethatassessestheeffective-nessorefficiencydimensionsofpublicorprivateconservationincen-tivemechanisms.Forexample,atthepubliclevel,mostoftheassessmentworkthatexistshasbeendonefortheU.S.DepartmentofAgriculture’sConservationReserveandWet-landReserveprograms.9However,asstatedearlier,successhasbeenmostlydefinedbythenumberofacresandlandownersenrolledinaspecificconservationprogramandthetypeandnumberofmanage-mentpracticesbeingimplemented.Therehavethusfarbeennodirectmeasuresofbiologicalperformancewithrespecttospecificincentivemechanismsorprograms.

Implementing and Structuring Conservation IncentivesThissectionprovidesgeneralstruc-turalrecommendationsthatwillfacilitatetheachievementofthecriteriadiscussedabove.Recom-mendationsareprovidedattwolevels.Weprovidespecificrecom-mendationswithrespecttoim-provingthetechnicaleffectivenessandeconomicefficiencyofselectedindividualincentivemechanisms. Thesecondlevelismoregeneralanddefinesthestructuralorpro-grammatic conditionsunderwhichspecificincentivemechanismscanbemoreeffective.

Structuralprogram conditionsforsuccessarebroaderinnature

andrefertothedeliveryapparatusandstructureofaparticularincen-tive,orpackageofincentives.Thesestructuralprogramconditionsincludegoalsetting,planningandtargetingtoprioritybiodiversityandwildlifehabitats,technicalandadministrativecapacity,scaleoflandownership,incentivefund-inglevels,meetinggeographicandtemporalrequirements,incentivepolicyconsistency,andmonitoringandevaluation.10ThesestructuralrecommendationsarediscussedinSectionXI.

Therecommendationsprovidedhereapplytothreehabi-tatconservationapproachesthatcombinelanduseandconservationpotential:protectingremainingintactnativewildlifehabitats;restoringandconservingnativehabitatsalteredbypastorcurrentlanduse;andimprovingwildlifehabitat,waterqualityandsoilqualityonlandsthatremaininproduction.

Thefirstpermanentlyconservesintactnativehabitatsonprivatelands.Thesecondrestoresandthenprotectsnativehabitats.Thethirdremediestheadverseimpactsonwildlifeandtheirhabitatfromproductionpracticesandencour-agesmoresustainableconservation

ofwildlife,waterandsoilresourcesonlandsthatremaininproduc-tion.Thethirdapproachrecog-nizesthattherearelandusesandmanagementstrategiesthatcancontributetotheconservationofbiodiversity,achievingwaterqual-itystandardsandmaintaininglowratesofsoilerosion.

Thethreeapproachesarecomplementaryandimplicitlyrequirethatamenuofconserva-tionmanagementpracticesandeconomicincentivesbeavailabletolandowners.

“ There is hardly any research available that assesses the effectiveness or efficiency dimensions of public or private conservation incentive mechanisms.”

8. Two recent reports that describe in detail federal and state incentive mechanisms are Status and Trends in Federal Resource Conservation Programs: 1996-2001. (Hummon and Casey 2004) and Conservation in America: State Government Incentives for Habitat Conservation (George 2002). Both reports can be found at Defenders’ website at www.biodiversitypartners.org.

9. See Heard et al. (2000) and Haufler (2005). 10. The programatic recommendations in this section are based on Casey, Boody, and Cox (2004) , and C. Hummon (2005). Both references are available at www.biodiversitypartners.org/incentives/workshop.shtml.


Regulatoryandeconomicdisincentivesarelaws,policiesandeconomicinstruments

thatdefinerequiredenvironmentalperformancestandardsandprescribetheformofeconomicpenaltyfornon-compliance.Regulatorypolicyhasalsooftenprescribedspecifictech-nologiestoaccomplishconservationgoals.Itisbelievedthatthepres-enceandenforcementofregulatorystandardsandpenaltiesarewhatdrivelandownerstocomplywithenviron-mentallawsthroughparticipationinincentiveprograms.Thissectionwillprovideadescriptionofeachregulatorymechanismfollowedbyanassessmentandrecommendations.

Developingvoluntaryincentivesforbiodiversityorhabitatconserva-tiondoesnotmeanaretreatfromnationallawstopreventspeciesextinction.Resultsofpublicopinionpollsindicatethatamajorityofcitizenspreferexistingorhigherstandardsforendangeredspeciesandotherwildlifeprotection(BatieandErvin1999).Furthermore,incen-tivesmustoperatewithinaregula-toryframework“toensurethataminimumhabitatismaintained,contractsareenforcedandpromisesarekept”(Brown1999,p.464).

Therearethreegeneraltypesofpolicyinstrumentsthatconstitutedisincentivemechanisms:govern-

mentalregulation,conservationcomplianceandfinancialcharges.

Governmental RegulationTheprimarypurposeofenviron-mentalregulationsistoprotectpublicgoodssuchascleanair,cleanwaterandourbiodiversityheri-tage.Governmentalregulationstoconserveand/orrestoreindividualspeciesandtheirhabitatsarebothdirectandindirectinnatureandareconceivedandenforcedatthefederal,stateandlocallevels.Thepreeminentformofgovernmentreg-ulationwithrespecttobiodiversityandhabitatconservationisthefed-eralEndangeredSpeciesAct,which

IV. Regulatory and Economic Disincentives

Stream restoration project, California | Natural Resources Conservation Service


prohibitsany“take”ofaspeciesthathasbeenlistedasthreatenedorendangered.Theactmayconstraintheuseofprivatelandsfromcertainuses,dependingonthehabitatneedsofparticularspecies.SomeotherfederallawsthatinvokeregulationsthatimpactthequalityofhabitatincludetheCleanWaterAct,CleanAirActandCoastalZoneManage-mentAct.Manystategovernmentshavetheirown(andsometimesmorerestrictive)regulationsthatimpactthesesameresources.

Itisgenerallyrecognizedthatregulatorymechanismsthat“settherulesofthegame”arebothneededanddesirabletoachievespecificenvironmentalgoalsandtoprotectthepublicinterest(BatieandErvin1999).WithrespecttothebiologicaleffectivenessoftheEndangeredSpe-ciesAct,onlyninespecieshavebeenlostsinceitsinception.

Regulatorymechanismsareanimportantcomplementtoincentives.Fromthestandpointofthepublicandthepolicymaker,regulationsarerelativelycheapertoadministerthanincentiveprograms,especiallyifthereisminimalcompliancemonitoring.However,ifthereisaneedtomoni-torlandownerbehavior,thencostscanbecomequitehigh.Meetingregulatoryrequirementsonthepartoftheprivatelandownercanbesub-stantialintheabsenceofincentives.

Fromaneconomicstandpoint,thereisampleevidencethatitismoreefficienttosetenvironmentalgoalsandlettheregulatedcommunitychoosethemeanstoreachthosegoals(BatieandErvin1999).Settingtech-nologystandardsbyspecifyingwhichphysicaltechnologiesandmanage-mentpracticesaretobeemployedtomeetanenvironmentalobjectivegenerallyconstrainscost-effectivesolutionsandinnovation.

Thereiscurrentlymuchdiscus-sionaboutchangestotheEndan-geredSpeciesAct.Thesediscussionsarecenteredonthreemajorpoints:makingthelawmoreeffectiveatrecoveringspeciesandprotectingandrestoringhabitats,decreasingthecostsoflandownercompliance,anddevelopingincentivemechanismstoassistlandownersinconservingat-riskspeciesandtheirhabitats.Webelievethatpartofthisdiscussionshouldincludetherecognitionthattheactcanalsogeneratebothpublicandprivateeconomicbenefitsrelatedtospeciesandhabitatconservation.

Conservation ComplianceCompliancemechanismsrequireabasiclevelofenvironmentalperfor-manceasaconditionofeligibilityforincomesupportprograms(Claassenetal.2001).CompliancehasbeenprimarilyassociatedwithfederalFarmBilllegislationthatpenalizesproducerswhocultivateonhighlyerodiblesoilsorwhodestroywetlands.Thepenal-tiesconsistoftakingawaygovernmentsubsidyorincomepayments.Underthe“Sodbuster”and“Swampbuster”provisionsofthe1985FarmAct,pay-mentsarewithheldfromfarmerswhocultivatehighlyerodiblelandwithoutanapprovedconservationplanorwhodrainwetlands,respectively(Classsenetal.2001).ViolationofSwamp-busterregulationscanmeanthelossof

eligibilityforallfarmprogrambenefits—includingpricesupportsandloans,commodityanddisasterpayments–untiltheviolationisremedied(Claas-senetal.2001).

Amajorcharacteristicthatallowsforfederallandrentalincentivestobemorebiologicallyeffectiveisconserva-tioncompliance.Thatis,inordertoreceivecommodityorrentalpayments,recipientsmustbeincompliancewithsoilandwaterconservationregulationsontheirwholefarm.Conservationcomplianceasarequirementforlandrentalpaymentshasbeencitedasoneofthemajorreasonsforachievements

inreducingsoilerosionandimprovingwaterquality(Heimlichetal.1998;Brady2005).Between1992and1997,totalerosiononU.S.croplandfellfromabout3to1.9tonsperyear,adeclineofabout40percent.Conservationcompliancerequiredconservationplanson91millionacresofhighlyerod-iblecropland.However,thereissomeevidencethatbecausetheConservationReserveProgramhelpedraisecroppric-esthroughsupplycontrol,landownerseventuallyreactedbyputtingadditionalmarginallandsintoproduction,thusactuallyincreasingerosiontothedetri-mentofaquatichabitats.Inaddition,the1996FarmBillsignificantlyweak-enedcross-compliancerequirementsbydecreasingthenumberoffarmsupportprogramsthatcouldbepenalized.

“ Meeting regulatory requirements on the part of the private land-owner can be substantial in the absence of incentives.”


Compliancemechanismssharecharacteristicswithbothgovern-mentstandardsforprivategoods/actionsandeconomicincentives.Becauseexistingprogramsareusedforleverage,compliancemecha-nismsrequirenobudgetoutlayforproducerpayments,althoughconsiderabletechnicalassistanceisneededtodevelopconservationcomplianceplansandtoactuallymonitorcompliance.Wewouldrecommendthattheenforcementofconservationcompliancebelefttoathirdpartygovernmentoffice,perhapsoutsideoftheU.S.Depart-mentofAgriculture,andnotbeimplementedbyagriculturalexten-sionandtechnicalagentswhoarechargedwithassistinglandownerstobeincompliance.

Conservationcross-complianceneedstobestrengthenedintermsofthepenaltiesthatlandownerswouldfaceforproducingonhighlyerod-iblelandsand/orbreakingoutnewlandsforproduction.Inaddition

tothesignificant,butnon-quanti-fied,contributionofconservationcompliancetotheconservationofspecificspeciesandhabitats(Brady2005),weneedtohavebetterestimatesoftherelativeprivateandpubliceconomiccostsandbenefitsofvariouscompliancemeasures.

Financial ChargesFinancialchargesrefertoanypay-mentsthatlandownersmakeascompensationforhabitatdegra-dation.ThesepaymentsincludefeesorfinesassociatedwiththeEndangeredSpeciesAct,effluentorambientwaterqualitycharges,taxesoninputssuchasfertilizersandpesticidestoinducelessuse,taxpaymentsforconversionofhabi-tat,andrealestatetransferfeestodiscouragelandconversiontomoreintensiveuses.

Environmentaltaxesareper-unitchargesforactionscontribut-ingtoenvironmentaldegradation.Chargesmayalsobeassociatedwith

exceedingemissionlevelsortheuseofcertaininputs.

Twoconditionsmustbemettomakechargeseffective:theyhavetobesethighenoughtodiscouragedegradationorconversionofat-riskhabitatsandtheprobabilityofen-forcementmustbefairlyhigh.

Statesalsolevyenvironmentaltaxes.Forexample,MinnesotaandIowataxagriculturalpesticidesandfertilizerstoinducelessuseandimprovegroundwaterqualityandaquatichabitat.Generallyspeaking,however,salestaxrateshavebeentoolowtohaveasignificantimpactontheuselevelsoftheseinputs.

Nodatacouldbelocatedontherelativeeffectivenessorefficiencyofenvironmentalchargesandtaxesonbiodiversityconservationactivities.Wewouldrecommendtakingasampleofsuchprogramsandanalyzingthemfortheirimpactsonresourceconservationandtheircost-effectivenessfrombothapublicandprivateperspective.

American wigeon brood | U.S. Fish and Wildlife Service

Institutionsareprinciples,laws,conventions,codesandsocialnormsthatstructurebehavior

betweenindividualsandsociety.Inthecontextofourincentivestaxonomy,institutionalinnovationscomprisethreemajorsubcategories:legal/statutory,propertyrightsandmarketinnovations.Thissectionaddresseslegal/statutoryincentives,andSectionsVIandVIIaddresspropertyrightsandmarketinstitu-tionalincentives,respectively.

Legal/statutoryinnovationsrefertonewrulesorregulationsthatinsomewaylimitliabilityorissuesometypeofpermitforhabitatmodifica-tion.Legal/statutoryinnovationsinclude“assurances,”usuallycom-binedwithliabilitylimitationand/orregulatoryrelief.

Legal/statutoryandpropertyrightsincentivesareoftenreferredtoasnon-marketinstitutionalmecha-nisms.However,theyareofequalimportancerelativetomarketinnova-tionsintheirapplicationtowildlife

habitatconservation.Non-marketinstitutionssettheconditionsformarketbehaviorandthelegalactionsthatalterthedefinitionsofpropertyuseorownership.Therightsanddutiesassociatedwiththeowner-shipofwildlifehabitatandthelegalenvironmentaffectingownershipandmanagementconstituteimportantdeterminantsofeconomicbehaviorandtheeffectivenessofvariousfinan-cialincentives.

Therearethreemajortypes

ofvoluntarylegalarrangementsthathavebeenusedtoencouragelandownerstoprotectspeciesandhabitatsandtorelievesomeoftheperceivedregulatoryburden.Safeharboragreements12andconser-vationagreementsaregenerallyreferredtoas“assurances.”Theseagreementsarepurelyvoluntary.Thethirdtypeoflegalinstrumentisclas-sifiedas“regulatoryrelief.”

ThestateofWashingtonoffersseverallegalincentives.Inadditiontoprovidinglandownerswithsafe

harboragreements,liabilitylimita-tionforpublicaccessandno-takecooperativeagreements,thestatealsoallowscertainlandownersanexemp-tionfromnewregulationsifalong-termhabitatmanagementplanisadoptedunderitsHabitatIncentivesProgram.Theprogram,establishedin1998,allowslandownerstoenterintoanagreementtoenhancehabitatforfoodfish,gamefishorotherwildlifespeciesinexchangeforstateregula-torycertaintywithregardtofutureapplicationsforirrigationprojectap-provaloraforestpracticespermit.

Safe Harbor AgreementsDescription

Safeharboragreementsconstitutealegalinnovationtoassistlandownerswiththeuncertaintiesofmanagingtheirlandsthatarehabitattolistedspecies.Thepurposeofanagree-mentistopromotethemanagementandconservationoftargetedspecies.Participationisvoluntaryandmayincludeprovisionsforproposedorcandidatespeciesifaparticipantchooses.Undersafeharboragree-ments,participantsareguaranteedareductioninliabilityandareensuredthattheywillbeexemptfromanyfutureregulationsnotincludedintheiragreement.Allnon-federallandownersareeligibletoparticipateintheprogram,buttheirlandmustcontain,orbepotentiallysuitablehabitatfor,listedthreatenedandendangeredspecies.

•

V. LEGAL/STATUTORY INCENTIVES11

11. Within this section and others that follow, there are some incentive mechanisms for which no assessment literature could be found. In these cases, we combine the assessment and recommendation sub-sections for these mechanisms.

12. Habitat Conservation Plans (plans), as defined under the Endangered Species Act, are not considered a “voluntary incentive” for purposes of this report because they are a purely regulatory requirement. These plans are a mechanism to reconcile development and land use on private lands subject to Endangered Species Act regulations (Brown 1999). The act was amended in 1982 to allow “incidental taking” (killing, harming or disrupting essential habitat of an endangered or threatened species incidental to otherwise lawful activities such as land development or logging) provided the landowner submits and funds an approved plan. The plan must be submitted along with an application for an incidental take permit and should provide strategies that minimize and mitigate the impact of the proposed development or land use on endangered or threatened species (Bean and Wilcove 1997).

“ Legal/statutory innovations refer to new rules or regulations that in some way limit liability or issue some type of permit for habitat modification.”


Safeharboragreementsaredesignedtoencouragelandownerstovoluntarilymaintainorenhancehabi-tatontheirpropertytoattractthreat-enedorendangeredspecieswithoutfearoffutureland-userestrictions.Alandownermaynotfacepenaltiesifhe/sheengagesinvoluntarywildlifesurveyandmonitoringactivities.

Asafeharboragreementcontainstwomainelements.Firstisthedelin-eationofasetofbaselineconditionsthatdescribetheinitialnumberandlocationofindividualsofthelistedspeciesandameasurementofthehabitatsizeandquality.Thesecondconsistsofestablishingamonitoringprogramdesignedtoassessthesuccessofarecoveryeffort.Attheconclusionoftheagreementterm,landownersareallowedtoreturnthepropertytothebaselineconditionandstillbecoveredbytheassurancesoftheagreement.Theagreementmaybeamendedtoaddanon-coveredlistedspecies,forwhichtherelevantagencyandtheparticipantwouldagreeonproperenhancementormaintenanceactions.Attheendofasafeharboragree-mentalandownermaydevelopthecoveredpropertyorundertakeotheractivitiesthatresultinalegal“tak-

ing”ofthethreatenedorendangeredspecies(MinetteandCullianan1997),providedthatthereareprotectionsfortheminimumandpreviouslydefined“baselinepopulation.”

Therearetwotypesofsafeharboragreements.Oneisanindividualagreementbetweenalandownerandtherelevantfederalagency(U.S.FishandWildlifeServiceorNationalMarineFisheriesService),depend-ingonthespeciesaddressed.Theotherisanumbrellaagreementunderwhichastatefishandgameagency,agriculturalagency,localgovernmentorprivateconservationorganizationcanactasanintermediarybetweentherelevantfederalagencyandseveralindividuallandowners.Theinterme-diarydevelopsasafeharborprogramforadefinedareaandspeciesandworkswithlandownerstodevelopindividualagreementsthatareconsis-tentwiththeintermediary’sumbrellaagreement.Forexample,severalstateshavesignedanintermediaryagree-mentwiththeU.S.FishandWild-lifeServicefortherestorationandconservationofKarnerbluebutterflyhabitatintheNortheastandupperMidwest.Thereare16stateswithsafeharboragreementsforfederallylisted

species,butafewofthesewerestillindraftformasof2004(EnvironmentalDefense2005).

Elevenstatesprovidesafeharboragreements(George2002).Forexample,Kansashasastate“SafeHarborLaw”whichoffersownersoflandoraquatichabitatdeemednecessaryfortheconservationofnon-gameorstate-designatedthreatenedandendangeredspeciestheopportunitytoenterintoanagreementwiththestate,allowingthelandownertocarryoutactivitiesspecifiedintheagreementwithoutfearofliabilityorpenalties.

Assessment Legaland/orstatutoryincentivesincludeengaginginsafeharboragree-mentsandcandidateconservationagreementswithassurances,asdefinedundertheEndangeredSpeciesAct.Onlysafeharboragreementshavebeenassessedinanydetail.

Asdopublicagencies,WilcoveandLee(2004)basetheirassessmentofthesafeharborincentivemechanismonthenumberofenrolledlandown-ers,thenumberofspeciestargetedforassistanceandthecumulativeacreageenrolledundersafeharboragreements.

•

San Joaquin kit foxes | U.S. Fish and Wildlife Service



Theauthorsconcludethatsafeharborhasbeen“remarkablysuccessful”(p.639),becauseitremovesregulatoryburdensassociatedwithattractingendangeredspeciestopropertyasaresultofengaginginconservationactivities.WilcoveandLee(2004)alsofoundthattechnicalassistancetorestorehabitatsforendangeredspecies,andcost-shareincentivesforendangeredspecies,werealsoveryimportantcomplementaryincentivesthatenhancedtheeffectivenessofsafeharboragreements.

Therehasbeenasteadyincreaseinthenumberofprivatelandownersparticipatinginsafeharboragreementssincetheprogrambeganin1995.In2002,189landownershadenrollednearly2millionacresoflandandwererestoringhabitatsfor21endangeredspecies,andnolandownerhadwith-drawnorexercisedtherighttoaltertherestoredhabitats(WilcoveandLee2004).By2005,participationhadin-creasedto325landowners,protecting36speciesoverabout3millionacres(EnvironmentalDefense2005).Thisgrowthinparticipationandthenum-berofspeciesandacrescoveredisoneindicatorofitseconomicbenefits,asdemonstratedbythegrowthinprivatelandownerswillingtoparticipate.

WilcoveandLee(2004)statethatalthoughthesafeharbormechanismistoonewtodetermineitsbiologi-caleffectiveness,theynotethattherehavebeensomenotablesuccesseswithrespecttotherecoveryofthenorthernaplomadofalconintheSouthwest,thenenegooseinHawaiiandthered-cockadedwoodpeckerinNorthCarolina.Forthered-cockadedwoodpecker,about35percentofthetotalpopulationlivesonsafeharborlands(EnvironmentalDefense2005).Inaddition,safeharboragreementshavebeensignedthatrunfor30to80years,indicatingthatsafeharbor

maybeaneffectiveconservationtoolbecauseitmeetstherequirementforasufficienttemporalscale.

Therearetwoissuesrelatedtothebiologicaleffectivenessofthesafehar-borincentivemechanism.Thefirstisthatsafe-harboragreementsareprimar-ilysingle-speciesoriented,nothabitatoriented.Second,ifabaselinepopula-tionissetatzeroandthelandownerattractsspeciestohisorherproperty,thenthelandownercouldpotentiallyreturntozeroattheendoftheagree-ment,andanyrestorationgainswouldbelost.Althoughnolandownershavereturnedtoazerobaseline,thepotentialforthemtodosounderscorestheneedtocombinesafeharborwithotherincentives.13Oneofthemainbenefitsofsafeharboragreementsisthattheyhavereducedlandownerfearandhaveallowedlandownerstobeinmorecontrol.14Intermsofbiologicaleffectiveness,safeharboragreementswerenotintendedtobealong-termsolutionbutwereinsteaddesignedtobuytimeforspeciesrecovery.15

Thereisnoevidencethusfarthatsafeharboragreementsareamoreorlesscost-effectivemeanstomain-tainwildlifehabitatcomparedtootherincentivemechanisms.However,WilcoveandLee(2004)notethatthesafeharborprogramhasgrownrapidlynationwide,which“suggeststhatmanylandownersarewillingtoassistendangeredspeciesifdoingsodoesnotcarrytheriskofaddedregula-toryburden”(p.643).Nonetheless,ithasbeenobservedthatlandowners’enthusiasmforsafeharboragreementshavedimmedsomewhatduetothehightransactioncostsassociatedwithbureaucraticdelaysinprocessingtheagreements.ZhangandHehmood(2002)foundthatthelackoffinancialincentiveswasashortcomingofthered-cockadedwoodpeckersafeharborprogramintermsofgarneringmore

landownersupport.Fromapublicfinanceperspective,somesafeharboragreementshavenotbeencost-effectivebecausetheyhavebeenimplementedatsiteswhereaparticularspeciesmaynotactuallybeusingthehabitat.

Recommendations Recommendationsforsafeharborincentivespertaintoincreasingtheirbiologicaleffectivenessandloweringcurrenttransactioncosts.Safeharboragreementscanbemorebiologicallyeffectiveandeconomicallyefficientbyallowinglandownerstoengageinmultiplecompatiblelandusesthatdonotnegativelyimpactaspeciesoritshabitat.Themoreflexibletheagree-mentis,themoreefficientitisfromthelandowner’sperspective.

Decreasingtheamountoftimeandfinancialresourcesfornegotiationandentryintosafeharborprogramscouldexpandparticipation.Thereareseveralwaysthiscouldhappen.First,theper-mitfeeforlandownersapplyingforsafeharboragreementsshouldbeeliminated(EnvironmentalDefense2005).Second,apackageofadditionalfinancialandtechnicalassistanceincentivesshouldbeofferedinconjunctionwithasafeharboragreement,possiblythroughagriculturalresourceconservationincen-tiveprograms.Third,regionalprogram-maticsafeharboragreementscouldlowertransactioncostsforindividuallandownersandincreasetheirparticipa-tionrates.Inaddition,designingsafeharboragreementsthataddressmultiplespecieswouldbeanimportantimprove-mentforprotectingbiodiversity.

Candidate Conservation Agreements with Assurances Description

ThepurposeofCandidateConser-vationAgreementswithAssurances(“ConservationAssurances”)isto

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13. Watchman, L. Personal communication. August 24th, 2005. Defenders of Wildlife. 14. Clark, J. Personal communication. August 24th, 2005. Defenders of Wildlife. 15. Senatore, M. Personal communication. August 24th, 2005. Defenders of Wildlife.

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facilitateactionfortheconserva-tionneedsoffederalproposedandcandidateplantandanimalspeciesandspecieslikelytobecomeacandi-dateorproposedinthenearfuture.ConservationAssurancesoffertwoincentiveinstruments.ThefirstallowsanexchangeofconservationmeasuresforareductioninliabilityundertheEndangeredSpeciesAct.Landownersareissuedan“enhance-mentofsurvival”permitthatallowsforthemodificationofhabitat,andtheincidentaltakeofindividuals,accordingtotechnicalprovisionsofeachagreement.

Thesecondincentiveisanexemptionfromfutureregulations.Participantsareprovidedassur-ancesthat,intheeventthatthecoveredspeciesbecomeslisted,theirconservationeffortswillnotresultinfutureregulatoryobligationsinadditiontothosedescribedintheoriginalagreement.

Privateandothernon-federalpropertyownersareeligibleforconservationassurances,buttheirlandmustcontain,orbepoten-tiallysuitablehabitatfor,proposedorcandidatespeciesorspeciesofconcern.Theremustalsobeareasonableexpectationthataspecieswillreceiveasufficientconservationbenefit,definedasremovaloftheneedtolistthespecies.Anagree-mentmustincludeadescriptionoftheexistingpopulationlevelsandhabitatcharacteristicsontheland,adescriptionoftheconservationmeasuresthattheparticipantwillundertakeandanestimateoftheexpectedconservationbenefits.

Assessment Todate,onlyabout10candidatecon-servationagreementsareinoperation,

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andnoevaluationoftheseagreementswithrespecttotheireffectivenessoref-ficiencyhastakenplace.ThisismostlyduetothefactthattheseConservationAssurancesarerelativelynew.

Recommendations Eventhoughthenumberofagree-mentswithconservationassurancesissmall,werecommendthatanassessmentbecarriedouttostarttrackingprogressandtosignalanyunforeseentechnicaloreconomicproblems.Basedonthefactthattheseagreementsarepreventativeinthesenseofkeepingspeciesfrombeingfederallylistedasthreatenedorendangered,weseetwomajorpotentialbenefitsthatConserva-tionAssurancescanprovide.First,dependingonthebiologicalandmanagementcharacteristicsofaformalagreement,ConservationAssurancescanleadtotechnicallysoundrecoveryofspeciesandtheirhabitats.Second,bypreventingspe-ciesfrombeinglisted,substantialtransactioncostscanbeavoided.Thereissomeanecdotalevidence,however,thatlongplanningandne-gotiationtimeframesforagreementscanleadtonotinsignificantpublicandprivatecosts. Regulatory ReliefDescription

Regulatoryreliefallowsaland-owneranexemptionfromlegalobligationscontainedinpublicenvironmentalregulations.Reliefissometimesaccompaniedbyaliabilitylimitation.Inadditiontofederalsafeharborandassur-ancesprograms,somestatesalsoofferregulatoryrelief.Georgia,forexample,providesaliabilitylimita-tionforallowingpublicaccesson

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conservationeasements.Washing-tonstateallowscertainlandownersanexemptionfromnewregulationsifalong-termhabitatmanagementplanisadoptedunderitsHabitatIncentivesProgram.Theprogram,establishedin1998,allowsland-ownerstoenhancehabitatforfoodfish,gamefishorotherwildlifespe-ciesinexchangeforstateregulatorycertaintyonfutureapplicationsforirrigationprojectapprovalorafor-estpracticespermit.

Assessment SimilartoConservationAssur-ances,noinformationwasfoundthatdirectlyassessedtheimpactsofregulatoryreliefonthebiologi-calandeconomiccharacteristicsofthisparticularincentivemecha-nism.Certainly,benefitingfromregulatoryreliefasaconsequenceofenteringintoaSafeHarbororCandidateConservationAgree-mentwithAssuranceswouldnotnecessarilyentailanyadditionalfinancialresources,andthereforeonecouldsaythatitiscost-effec-tive.However,ifregulatoryreliefinsomewaycompromisedthestatusofadditionalspecies,thenitmaybelesstechnicallyeffectivethanothermechanisms.

Recommendations Becauseregulatoryreliefcanhavethebenefitofaddressingtheriskanduncertaintythatlandownersperceivewithrespecttothepresenceofendangeredspeciesorhabitatscompromisinglanduse,itcanaddtobothmorebiologicallyeffectivesolutionsandleastcostlysolutionsifanagreementismonitoredandenforced.Wedobelievethatmoreresearchonthistopicisrequired.

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www.de fenders .o rg | � 1

Propertyrightsincentivesareassociatedwithchangesinthedistributionofhabitatowner-

shiporuserights.Propertyrightstoolsprovideopportunitiesforland-ownerstoaltertheirlegalrightsuseorownershipoftheirproperty.Thesetoolsincludeconservationeasements,covenantsanddeedrestrictions,andstewardshipexchangeagreements.

Propertyrightsinnovationsarebasedonthelegalconceptthatsuchrightsareessentiallya“bundleofsticks”thataredivisiblefromeachother(Bowlesetal.1996).Atoneendofthespectrumisthesaleordonationofland,whichamountstosurrenderingtheentire“bundle”oflandrights.Otherpropertyrightstransfermechanismsinclud-

ingcovenants,deedrestrictionsandeasementsseparateoutsomerightsfromothers.Thepurposeofthesemechanismsistorestrictthede-velopmentand/orintensityoflanduseortoencouragespecifictypesoflanduse(Brown1999).Taxincen-tivesareanimportantcomplementformakingpropertyrightstoolsmoreattractive.Transferringsomeorallofthepropertyrightsmayyieldtaxbenefits,becauserestrict-ingthepropertytocertainusesmaydecreaseitsoverallvalue.

Atthestatelevel,propertyrightstoolsarelikewiseoftenpartofalargerprogramthatofferssometypeoftaxbenefitorfinancialpayment.Allstatesprovideopportunitiesforlandownerstovoluntarilyaltertheir

propertyrightsforconservationpur-poses.Themostcommonmethodistheauthorizationforplacementofaconservationeasementonprivateproperty,whichisavailablein48states(George2002).

Conservation EasementsDescription

Aconservationeasementtransfersaportionoftherightsassociatedwithapieceofproperty,whileal-lowinglandownerstomaintainownershipandtousethelandinwaysthatdonotconflictwiththetermsoftheeasement(KuslerandOpheim1996).Alandownercreatesaconservationeasementbydonatingorsellingthedevelopmentrightstoanotherparty.Theeasementholder

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VI. PROPERTY RIGHTS INNOVATIONS

Restored wetland, Wyoming | Natural Resources Conservation Service

�2 | Incentives for Biodiversity Conservation

(buyer)isprohibitedfromusingrestricteddevelopmentrightsandisresponsibleformonitoringtheease-ment(Brown1999).Conservationeasementsbindcurrentandfutureownersofthelandintheeventofatitletransfer.Easementsmaybeeither“perpetual”or“term.”Landtrustsandothernon-profitsuseperpetualeasementsalmostexclu-sively,whilegovernmentalagenciesofferbothtermandperpetualease-ments.Federalandstategovern-mentagencieshaveconservationeasementprograms.

Thereareusuallytaxbenefitsassociatedwithperpetualeasements,includingincometaxreductions,propertytaxexemptionsorestatetaxreductions(seesectionbelowontaxincentives).However,toreceivefederaltaxbenefits,theeasementholdermustbe“aqualifiedconserva-tionorganization”asdefinedbytheInternalRevenueService.Therearealsosomestatetaxlawsthatallowforreductionsorexemptionsassoci-atedwitheasements.

Thefederalgovernmenthasincreasinglybecomeinvolvedinpri-vatelandownereasementprogramswhereitistheeasementholder.Therearecurrentlysevenfederaleasementprograms.Fiveareadmin-isteredthroughtheU.S.DepartmentofAgriculture:theFarmandRanchLandProtectionProgram,theWet-landReserveProgram,theGrass-landReserveProgram,theHealthyForestsReserveProgramandtheForestLegacyProgram.TheCoastalWetlandsConservationGrantPro-gramandawesternregionGrasslandEasementProgramaremanagedbytheU.S.FishandWildlifeService.

Thescopeandstructureoffeder-aleasementprogramsdiffer16.First,theactualphysicalresourcetobeprotectedvariesbetweenprograms:

activefarmandranchland,wetlands,grasslandsandforests.Second,theeasementoptionsvary.Forinstance,thewetlandsprogramofferstwodifferenttermeasementoptionsandapermanentoption.Alternatively,thegrasslandsprogramofferstermandpermanenteasements,butalsolandrentals.Third,easementsdifferinwhopaysthecosts.Whilethewetlandandgrasslandprogramspaythefullcostofaneasement,thefarmandrancheasementprogramrequirescontributionsbyeitherstateorprivateentities.Lastly,programsizeandtheamountoffundingreceiveddifferamongtheprograms,withthemajorityoffederalresourc-esthusfargoingtotheWetlandReserveProgram.

Fifteenstateshaveeasementpro-grams.Inoneexample,Massachu-setts’openspacebondprovides$5to10millionannuallyforacquisi-tionsoffeesimpletitleoreasementsonlandsthatcontainnativespeciesorimportantnaturalcommunities.Theprogram,whichhasbeeninexistencesince1990,hadacquiredapproximately10,000acresby2002.

Inadditiontoeasementpro-gramsadministeredbyfederalandstateagencies,thereisasignificanteffortbytheprivatenon-profitsec-tortoholdconservationeasements,althoughforavarietyofpurposesotherthanfortheprotectionofbiodiversityandwildlife(e.g.,rec-reation,openspace,historicalsites,scenery,etc.).Landtrustsareprivate

Grazing cows, California | Natural Resources Conservation Service

16. For detailed description of the various federal easement programs, see Hummon and Casey (2004).

www.de fenders .o rg | ��

non-profitconservationorganiza-tionsthatprotectlandfrominten-siveusesthroughdirectinvolve-mentinvoluntarylandtransactionactivities.In2003,morethan1,500privatelandtrustsoperatedatthelocal,stateorregionallevels,pro-

tecting9.4millionacres,including5.1millionacresinabout18,000conservationeasements(TrustforPublicLandandLandTrustAlliance2004).Between1998and2003,vot-ersacrossthenationapprovedmorethan500ballotmeasurestoprovideover$20billiontoprotectfarmland,openspacesandenvironmentalqual-ity(TrustforPublicLandandLandTrustAlliance2003).However,itisunknownwhatpercentageofthisfundingisdedicatedeitherwhollyorpartiallytobiodiversityorwildlifehabitatconservation.

Themajorprivategroupswhobuyandholdconservationease-mentsincludeTheNatureCon-servancy,TrustforPublicLand,AmericanFarmlandTrust,andallofthelocallandtrusts,mostofwhichareassociatedwiththeLandTrustAlliance.Recently,severalprivateorganizationshaveemergedwhosepurposeistocoordinatetheactivi-tiesofseveralindividuallandtrusts(Albersetal.2004).

Assessment Conservationeasementsaretheonlytypeofpropertyrightstoolthathasbeenadequatelyassessedintermsofbiologicaleffectivenessandeconomicefficiency.Specificconditionshavebeenidentifiedascontributingtothe

biologicaleffectivenessofanease-mentprogram.Oneconditionisthatthevalueofaneasementcannotbedestroyedthroughpunitivetaxlaws17thatdevalueuseofeasementsforhabitatconservation.Forexample,agriculturalorforestrylandonwhichaconservationeasementisplaced,andthatcanpotentiallygeneraterec-reationalincome,istaxedatahigherrateinWisconsin.Thus,therecanactuallybedisincentivesforrestoringandconservingnaturalhabitat.Inaddition,theeffectivenessofpublicagenciesandprivateorganizationsinusingeasementstoprotectenviron-mentallysensitiveareasdependsonthespecificland-userestrictionsthateachindividualeasementcontains(Wiebeetal.1996).Theserestric-tionsmayvarywidelyfromoneagreementtothenext.

Thesuccessofeasementsasanincentivemechanismalsodependsonthestringencywithwhichland-userestrictionsaremonitoredandenforced.Useofeasementscanresult

• inpassivemanagementbytheland-ownerratherthanactivemanagementbyapublicagency.Passivemanage-mentmeansthatlandownersusuallydonotmaintainthebiodiversityvaluesofthelandareacoveredbyaneasement.Themanagementrequire-mentsofaconservationeasementneedtobeclearlyidentified,includ-ingwhatneedstobedoneandwhoisresponsiblefordoingit.Intimesofdwindlingstateandlocalbudgets,takingonmanagementcoststhrougheasementsmaybeeconomicallyinef-ficientforthelandownercomparedtoothertypesoflanduseinvestments(RokaandMain1999).

Conservationeasementsinasso-ciationwithwetlandrestorationhavebeensuccessfulintheprotectionofwildlifehabitatandwaterqualityandintheretentionoffloodwaters.Ease-mentshaveprotectedimportantwild-lifehabitat,openspacesandforestsaswellasranchandfarmlandsonmorethan17,000propertiestotalingmorethan5millionacres(AndersonandChristensen2005).Asmeasuredbyapplicationbacklogsfor30-yearandpermanenteasementsofferedbytheU.S.DepartmentofAgriculture’sWetlandReserveProgram,thereweremorethan3,000landownerswaitingtoenrollalmost536,000acresthatdidnotgetfundedin2004.Heimlichetal.(1998)indicatethatthisprogramhasbecomethesinglelargestnationalprogramforwetlandrestorationandhasreducedtherateofwetlandlossonagriculturalland-scapes.TheWetlandReserveProgramhasalsoincreasedtheavailabilityofauniquehabitatusedbyagreatdiversityofwildlifespecies(MitschandGosselink1993).

Thesuccessofeasementincen-tivesintheWetlandReserveProgramhasnottakenplaceinavacuum.Complimentarypolicychanges

“ The management requirements of a conservation easement need to be clearly identified, including what needs to be done and who is responsible for doing it.”

17. Haglund, Brent. March 2005. Personal communication. Madison, Wisconsin.

�4 | Incentives for Biodiversity Conservation

relatingtotheinstitutionalframe-workhavealsobeenabigfactor.Forexample,Section404oftheCleanWaterActof1972regulatesdischargeofdredgeandfillmaterialintowetlands,andtheTaxReformActof1996eliminatedtaxprefer-encesthatencouragedwetlanddrainage.Lastly,swampbusterregulationsdenyawiderangeoffarmprogrambenefitstolandown-erswhoconvertwetlandsforcropproduction.Claassenetal.(2001)

estimatethatbetween1.5and3.3millionacresofwetlandsarebe-ingpreservedwithswampbustercompliance,dependingonproducerexpectationsofcropandlivestockprices.Thus,legaldisincentiveshaveplayedanimportantroleinaugmentingtheeffectivenessoftheWetlandReserveProgram’svolun-taryeasementmechanism.

Asissimilartothecaseforsafeharboragreements,easementshavebeenfoundtobemoreeffectivewhencombinedwithcomple-mentaryfinancialandtechnicalincentives.Still,thereisastrongneedformoreeducationofprivatelandtrustsonthestrategicuseofeasementsforbiodiversityconserva-tion.Assomeauthorshavenoted,“Byusingeasements,landtrustsacrosstheUnitedStateshavedonearemarkablejobconservinglandoverthepast30years.However,muchofthisefforthasfocusedon

preventingdevelopmentoffarm-landandforestlandandprotect-ingscenicvalues.Existingwildlifehabitathasbeenconserved,buteasementsrarelyincludespe-cificmanagementrequirementstoprotectorenhancehabitatvalues.Asaresult,clear-cuttingandotherintensivesilvi-culturalandagricul-turalpracticesoftenendupbeingpreserved,tothecontinueddetri-mentofwildlifeandwaterquality.Althoughthislimitedconservation

maybeconsistentwiththewishesofsomelandowners,itmayalsoresultfromsomelandtrustsnotbeingwellequippedtoprovideadviceandexpertisetolandownersregardingallconservationoptions”(Biophilia2005,p.1).

Fromaneconomicperspec-tive,easementshavebeenoneofthemostcost-effectiveincentivesforconservingland.AccordingtoAndersonandChristensen(2005,p.11),“Thebeautyofconserva-tioneasementsisthattheyprovideawayforthepublictohelppayforenvironmental-protectioneffortsbylandownersonprivatelands.”Parker(2004)studiedconservationeasementsheldby1,250landtrustsaroundthecountry.Hisresultssuggestthatmostlandtrustsmakeeconomicallyefficientchoicesaboutwhethertoacquireconservationeasementsonpropertiesorpurchasethelandoutright.Landtruststend

toacquireeasementsonpropertiesforwhichthecostsofenforcingsucheasementsagainstviolationsarefairlylow.Propertiesthatlandtruststendtobuy,orseektogetdonatedoutright,requiremoreintensivehands-onmanagementtoachieveconservationgoals.Suchpropertiesincludelandwherehabi-tatforrareandendangeredspeciesneedstoberestored.Becauseease-mentsformanagementpurposesonlycanbedifficultandcostlytoenforce,itismoreefficienttoownandmanagelandwithsignificantrestorationormanagementneeds.

DespiteParker’sfindings,thereareeconomicefficiencyissuesas-sociatedwitheasements.Thefirstisthatforsomelandowners,theopportunitycostsassociatedwithnotextractingmarketableresourcesorconvertinglandtocommercialorresidentialusescanbesubstan-tial.Thismaylimittheamountoflandthatisavailableorafford-ablethrougheasementprotec-tion.Second,therearethehightransactioncostsassociatedwithdevelopingguidelinesandmonitor-ingwhetherlandisbeingmanagedeffectively.Third,theeasementtoolhasoccasionallybeenabused,therebycausinglegalandpublicfinancingproblems.AndersonandChristensen(2005)indicatethatsomelandownershavemadeaprofitbyusinginflatedapprais-alstotakeadvantageofhugetaxwrite-offsattheexpenseoftaxpay-ers.Anotherproblemisthatsomelandownershaveusedeasementstoprotectswampsandmountainsidesthatcouldneverbedeveloped,orgolfcoursesandprivatelotsthathavelittleornoconservationvalue.Theseabusescanweakenpoliticalsupportforeasementincentivesandtheirpublicfunding.

“ From an economic perspective, easements have been one of the most cost-effective incentives for conserving land.”


RecommendationsForeasementincentivestobemoreeffectiveinconservingwildlifehabitatwehaveafewrecommen-dations.First,thereneedstobemorecoordinationbetweenpubliceasementprogramsatthestateandfederallevels,andalsobe-tweenpublicandprivateeasementprograms.Inaddition,recommen-dationsshouldbedevelopedandimplementedthatwoulddecreasethetimeandfinancialresourcesneededtoestablishandmaintainconservationeasementagreements.

Therehavebeensomerecentproposalstoreducethefederaltaxde-ductionthatalandownercantakefordonatingaconservationeasement,fromthefullvalueofthedonationtojust33percentofthatvalue.However,reducingdeductionswoulddiscouragesomelandownerswiththemosteconomicallyvaluableconserva-

• tioneasements,suchasforgrazinglands.Thefulldeductionneedstobemaintained(AndersonandChris-tensen2005).Ifthegoalistostopinflatedeasementvaluations,thentheInternalRevenueService,statetaxdepartments,landtrusts,countytaxassessorsandappraisersneedtopolicetheappraisalprocess,andspecificstandardsareneededforappraisingconservationeasements.Theremaybealimitedroleforself-regulationamongconservationistlandtrusts,tocurbanyabuses(Parker2004).However,self-regulationwillrequirerigorousaccreditedstandardsthatareperiodicallymonitoredwithpublicoversight.TheLandTrustAlliancehasdevelopednewguidelinesthatmemberlandtrustsarerequiredtohaveappraisersuse,ifthelandtrustswantaccreditation.Thealliancere-quireslandtruststoinformpotentialeasementdonorsabouttheInternal

RevenueCodeappraisalrequire-ments,thatthedonorshoulduseaqualifiedappraiserwhofollowstheUniformStandardsofProfessionalAppraisalPractice,andthatthelandtrustwillnotparticipateinadona-tionwhereithasconcernsaboutthevalueofthededuction.18

Intheprivatesector,thereisaneedtodevelopthecapacityoflandtruststoeffectivelyenhance,restoreandprotectwildlifehabitatandbiodiversityvalues.Therigorofconservationeasementsheldbylandtruststoencompasshabitatrestora-tionandlong-termstewardshipgoalsneedtobeexpanded.Existingstateandfederalconservationprogramscanprovideassistanceforrestorationandenhancementofconservedhabi-tats,andlandtrustscanprovideaservicebyactivelyguidinglandown-ersthroughtheseprograms.Ensur-ingappropriatelong-termmanage-menttomaintainthesehabitatsandprotectthepublic’sconservationinvestmentswillalsorequirelandtruststoadoptappropriatemanage-mentlanguagewithineasementlanguage.Landtrustswillneedtrain-ing,technicalassistanceandfinancialsupporttoaddressalloftheseissues.

Covenants and Deed RestrictionsDescription

Acovenantisacontractbetweenalandownerandasecondpartythatmaystipulatecertainlandusesorpractices.Likeeasements,acovenantcanbeusedtorestrictcertainlanduses,anditmayfollowthepropertytosubsequentowners(Brown1999).Acovenantcanalsobeplacedinalanddeeditself,whichthenbe-comesadeedrestriction(KuslerandOpheim1996).Covenantsarelesssecurethanconservationeasementsbecausetheydonotfollowauniform

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Lehmi River restoration project, Idaho | Natural Resources Conservation Service

18. Hummon, C. January 17, 2005. Personal communication. See www.lta.org/sp/land_trust_standards_and_practices.pdf.


federalstatute,lackclearenforce-mentprovisionsandmaybechal-lengedbyfuturelandowners.

Minnesotaemployscovenantsforthepreservationofwetlands.Thisstatutoryauthorizationallowslandownerstoenterintoacov-enantwhereprivatelandbecomesa“wetlandpreservationarea.”Thisentitleslandownerstoapropertytaxexemption.Pennsylvaniaalsoallowsforthecreationofcovenantsfordesignatedusessuchasfarm,forestoropenspace.Landownersenteringintocovenantsreceiveapropertytaxreductionthroughalowerassessedvalue.

Deedrestrictionsaresimilartocovenantsinthattheycanbeusedtorestrict,forexample,theconver-sionofwetlandsorforeststomoreintensiveuses.Theproblemwithadeedrestrictionisthatitisgener-allynotenforceableortransferable(KuslerandOpheim1996).

Assessment Wewereunabletolocateanyinformationthatassessedeitherthebiologicaleffectivenessoreconom-

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icefficiencyofcovenantsanddeedrestrictionsasincentivemecha-nismstoconservebiodiversityorwildlifehabitat.

RecommendationsBecausethesemechanismsarein-stitutedataverylocallevelandcanvarybystateorcounty,wewouldrecommendthatasampleoftheseinstrumentsbeevaluatedtoseehoweffectiveorefficienttheyhavebeen.Clearly,therelativelyshort-termnatureofthesemechanisms,andthefactthattheycanchangewithownership,wouldseemtocom-promisetheirbiologicaleffective-ness.Althoughthereisanissueonnon-permanence,covenantsanddeedrestrictionscouldbelookeduponasabridgingdevicebetweennoprotec-tionandapermanenteasement.Webelieve,however,thatmonitoringcouldbeimprovedandthatspecificbiologicaloutcomesshouldbestipu-latedinthesetypesofagreements.Withrespecttoeconomicefficiency,therewouldbeenforcementcosts,butthesewouldprobablybelessthanthecostsincurredthrougheasements.

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Stewardship Exchange AgreementsDescription

Stewardshipexchangeagreementsin-volvelandownersimplementingcon-servationmeasuresontheirprivatelandinexchangeforuseprivilegesonpubliclands.Anexampleofsuchanagreementisalandowner’sactiontoprotectprivatelyownedripar-ianareasinexchangeforforageorgrazingrightsonpubliclands(Otley199819).Arizonaemploystheuseofastewardshipagreementtoencourageprivatelandconservationbyprovid-ingimprovementstoalandowner’spropertyinexchangeforguaranteedpublicaccessto,orthrough,thatsameproperty.

Assessment Thereisnoinformationforsteward-shipexchangeagreementscurrentlyavailablethatassessestheirbiologicaleffectivenessortechnicalefficiency.

RecommendationsThereisaneedtodoaninventoryofstewardshipexchangeagreementsandnotonlyevaluatetheircon-tributiontobiodiversityconserva-tionbutalsoestablishtherelativeadvantagestoboththeprivateandpublicsectors.Forexample,intheaboveexampleoftheexchangeofpublicgrazingrightsforconserva-tionofprivateriparianareas,itisnecessarytoassesstherelativecostsandbenefitstoboththepublicandprivatepartiesinvolved.Thebasicquestioniswhetherprivateriparianrestorationismoreorlessvaluablecomparedtograzingonpubliclands.Ifthedamagetopublicgrazinglandsexceedsthepublicbenefitsthatcomefromriparianrestoration,thenthestewardshipagreementwouldresultinanetcosttothepublicbutanetbenefittotheprivateparty.

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Evaluating rangelands, Arkansas | Natural Resources Conservation Service

19. Otley, M. Personal communication as referenced in Vickerman (1998).

www.de fenders .o rg | �7

VII. MARKET-ORIENTED INSTITUTIONS

Marketinnovationsareincen-tivesthataffectthevalueofaresource(includingwildlife

habitat),orproductderivedfromaresource,throughthecreationofneweconomicopportunities.Forexam-ple,increasedmarketopportunitiesandhabitatvaluescanbeachievedthroughthecreationofecolabelingand/orcertificationinformation,benefitssharingmechanismssuchasecotourism,mitigationorconserva-tionbanking,andthetransferofdevelopmentrights.

Insomecasesitispossibletocre-ateprivatemarketinstitutionstoad-dresswhatwasdescribedinSectionIIasmarketfailure.Publicinstitu-tionscancreatemarketsthroughtheestablishmentofatradingstructureandtherulesandregulationsoftradingactivitybetweenprivatepar-ties.Agoalofcreatingquasi-marketinstitutionsistoprovideanefficientwaytoincorporatepublicenviron-mentalconcernsintoprivatemarketstructures.Oneexampleofsuchaquasi-marketisthecurrent“cap-and-trade”programadministeredbytheEnvironmentalProtectionAgencytoimproveairquality.

Privatemarketincentivesexistwherelandownershaveanop-portunitytoturnspeciesandtheirhabitatsintoassetsthatconsum-ers(privateorpublic)willbuy.Inordertocreatetheseopportunities,itisoftennecessarytocreateaninstitutionalstructurethatallowsamarkettoevolveandfunction.Creating,developingandauthoriz-ingeffectivemarketstructuresandrulesareprerequisitesforpublicgoodsforwhichpurelyprivatemarketsdonotexist.

Thereareseveraltypesofmar-ketmechanismsthatarerelevanttowildlifehabitatconservation,includingtheallowanceforuserfees,certificationandecolabelingprograms,mitigationandconser-vationbanking,andtransferabledevelopmentrights.Tovaryingdegrees,eachofthesemechanismsrequirescooperationbetweenprivateandpublicentities.Seven-teenstateshavecreatedsomeformofmarketinstitutiontoencourageconservationonprivatelands.Themostcommonarethosethatfacilitatethepurchaseortransferofdevelopmentrights,foundin10states(George2002).

Assessmentshavebeenmadeformechanismssuchasuserfees,ecotourism,ecolabeling,mitiga-tionbanking,conservationbankingandtradabledevelopmentrights.Theseassessmentstendtofocusontheconditionsfortheimprovedeconomicefficiencyandlessontheirbiologicaleffectiveness.

User FeesDescription

Userfeesarestate-authorized“feeschargedtothirdparties(byprivatelandowners)fortheuseofnaturalresources,whichmaybeconsumptiveornon-consumptive,onpublicorprivateland”(Brown1999,p.471).Feesinvolveanagreementbetweenalandownerwhoengagesinconserva-tionactivityandapublicagencythatregulatesaparticularnaturalresource.Compatibleconsumptiveandnon-consumptiveusesareusuallydefinedashunting,fishing,wildlifeviewing,etc.Somefederalagenciesgranttherighttolandownerstocollectuserfeesinexchangeforaminimumlevelofconservationactivity.Atthestatelevel,Colorado’sRanchingforWildlifeprogramallowslandown-erstomarketaguaranteednumberofhuntinglicensesinexchangeforallowingaccesstoprivateland.

Assessment Financialassessmentsofuserfeeshavebeenlimitedtothosesitua-tionswherelandownersaregiventheauthoritytochargeindividualhuntersorfishermenafeeforaccesstolandandwaterresourcesonprivate

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“ Seventeen states have created some form of market institution to encourage conservation on private lands.”


propertyinexchangeforpublicassis-tancewithhabitatimprovement.Nodatawasfoundthathasassessedthebiologicaleffectivenessofuserfeesasanincentivemeasureforbiodiversityconservation.Althoughuserfeeshavebeenattractivefromtheprivatelandownerperspective,intheinitialyearsofuser-feeimplementation,whenprivatehunting,fishingorbird-ingpreservesarebeingestablished,start-upcostsassociatedwithhabitatmaintenancecanbehigh(Robles2000),andsomeeconomiclossescanoccur.Otherpotentialeconomicis-suesrelatetothecostsofsupervisionandschedulingandthepotentialformarketsaturation.

RecommendationsResearchneedstobedoneonthebiologicaleffectivenessofuserfees.Onemeansofachievingbiologicaleffectivenesswouldbetoencouragecooperationbetweenseveralcon-tiguouslandownersincaseswhereindividualdispersedholdingsaretoosmalltosupportviablehuntingorfishinghabitat.Becauseofpotentialthreatsfromover-useanddamagetopotentialbiologicalresources,wewouldalsorecommendthatvisitationtoconservedlandsbecontrolledtooptimizebiodiversityconservation.

EcotourismDescription

Inmostcases,establishinganeco-tourismenterpriseissimplydrivenbythemarketforcesofdemandandsupply.However,insomecasessuchenterprisesmayneedlegalpermissionorstart-upassistancefrompublicentities.Thedevelopmentandrulesofconductforanecotourismmarketforat-riskspeciesisusuallytheroleofafederalorstateagency.

Somestatesandprivatepartieshaveprovidedfundingtoinvesti-

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gatetourismmarketsandtourismassistanceprojects.Forexample,DefendersofWildlifecommissionedastudytoinvestigatetheecotourismpotentialinNorthCarolinaassoci-atedwithreintroductionoftheredwolf.20EcotourismisbelievedtobeespeciallylucrativeasaresultofreintroductionofgraywolvesinYel-lowstoneNationalPark.

Anexampleofaprivatewildlife-basedecotourismactivityisMooseCreekAdventuresinIdaho,whichofferswolftoursaswellashorsebackriding,hunting,cattledrivesandbisonviewingonprivateranches.

Birdingfestivalstakeplaceonprivatelandsthroughoutthestates.Onanindividuallevel,ecosystemtourismprovideslandownersanopportunitytocommunicatewiththepublicabouttheirstewardshipefforts(Robles2000).

Assessment PrivatemarketecotourismincentivesareincreasinglyimportantintheUnitedStatesandofferapotentialeconomicopportunitytoencourageprivatelandownerstorestoreandconservewildlifehabitat.Worldwideindicatorsshowthegrowingeco-nomicimportanceofnaturetourismandecotourism,whichnowmakeupabout20percentofallinterna-tionaltouristtravel.Suchtravelisgrowing10percentto30percentperyear.Theannualdirecteco-

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nomicimpactofnaturetravelandecotourismrunsintothehundredsofbillionsofdollars,andtheUnitedStatesmaintainsanimportantshareofthesedirectbenefits.

Theeconomicpotentialforwild-life-basedecotourismintheUnitedStatesissubstantial.Nationalsurveysshowthat50percentofAmericantouristsnowseekoutnature-basedactivities,includingwildlifeandbirdviewing(Claudill2003).Passiveusesuchaswildlifewatchingwasesti-matedtohavegeneratednearly$38billioninexpendituresbyalmost66millionpersonsin2001(Claudill

2003).Birdwatchersaloneaccount-edforalmost$32billioninretailsalesbyalmost46millionpartici-pantsin2001(LaRouche2003).

Intermsofbiologicaleffective-ness,badlyplannedandimplement-edecotourismcanbeadetrimenttoconservation.Forexample,excessiveecotourismactivitycanputincreasedpressureonhabitatsandspeciesthatcanresultindegradationorloss(Clayton2004).Althoughecotour-ismhasdonemoregoodthanharm,therearegrowingsignsthatprivatetouroperationscanemphasizeprofitmarginsoverspeciesconservation(Clayton2004).

Animportantconditionforecotourismtobeeconomicallyat-tractiveisthatprivatelandownersmustdevelopanunderstandingofwhattheirlandcanofferinterms

“ ...ecosystem tourism provides landowners an opportunity to communicate with the public about their stewardship efforts.”

20. See Lash and Black (2005).


ofwildlifeopportunities(Robles2000).Thismaymeanfinancinganinventoryofwildlifepresentintheirarea.Itisalsoimportantforland-ownerstoidentifyandselectthetimesoftheyearthatofferthebestopportunitiesforviewingspeciesandtoorganizetourismactivities.Ecotourismmaybeamoreviableincentiveforprivatelandownersifitisalsotiedtoruraldevelopmentactivitiesthatbringmultipleben-efitstolocalcommunities(LashandBlack2005).

Inordertoincreasetheeco-nomicefficiencyofecotourismincentives,itisnecessarytoestimate

whatthepotentialdemandwillbeforawildlife-basedexperience.Marketstudiestoestimatehowmuchpeoplewouldbewillingtopayandwhattheyareinterestedinviewing(LashandBlack2005;Rosen1996)areessential.

Animportantconsiderationwithrespecttothelong-termeco-nomicviabilityofecotourismisthattheproceedsaregeneratedinandstayinthelocalcommunity.LashandBlack(2005)haveestimatedthatthepotentialbenefitstolocalcommunitiesthatsupportredwolfecotourismcouldbeasmuchas$1millionperseason.

Recommendations VerylittleinformationisavailablerelatingtothebiologicaleffectivenessofecotourismintheUnitedStatesasanincentivetooltopromotespeciesorhabitatconservation.Ourfirstrec-ommendationthereforeistosupportmoreresearchinthisarea,especiallyintheareasofimpactstotargetedspeciesandhabitats.

Ontheeconomicefficiencyside,severalrecommendationscanbeputforward.Toprovideanyeconomicbenefittotheprivatelandownersthatmaysupportas-riskhabitatsorspecies,marketresearchanddevelop-mentarecrucialandmoreofthisshouldtakeplacebeforesettingupanecotourismactivity.Justasimpor-tant,thereisaneedformoreworkindeterminingthefiscalmechanisms(e.g.,salestax,revenuesharing,etc.)bywhichtotranslateecotourismincomeintomaintainingtheruralcharacterofthearea(andhenceitsvalueaswildlifehabitat)andlinkingthetourismactivitytoruralcom-munitydevelopment.Thereisalsoaneedtodevelopprogramsthatminimizeliabilityrisktolandown-ers.Finally,establishingecotourismactivitiescanhavesubstantialstart-upcosts.Therefore,werecommendthatmorepublic-privatepartnershipsbedevelopedtoinitiateandmanageecotourismprogramsthroughvariouscost-sharingagreements.

Ecolabeling and CertificationDescription

Ecolabelingprovidesconsumerswithinformationregardingtheenviron-mentalimpactofagoodorservice.Basically,eco-labelsuseinformationtochangeproducerandconsumerbe-haviorandtoimproveenvironmentalperformancebylinkingmanagementpracticestoconsumerdemandforenvironmentalgoods(Brown1999).

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Red wolf, North Carolina | U.S. Fish and Wildlife Service


Ecolabelingforprivategoodshasthepotentialtocreateorexpandmarketsforproductsproducedwithenviron-mentallysoundpractices.

Agovernmentagencyorprivatecertificationorganizationsetstechni-calstandardswhichmustbemettoallowforaproducttobecertifiedascontributingtospecificenvironmen-talgoals.Byinformingconsumersoftheenvironmentalbenefitsofaparticularproductorproductionsys-tem,itispossibletocreateamarketforapublicgoodlikebiodiversityorhabitatconservation.

Certificationisanintegralandcrucialcomponentofecolabelinginthatitverifiestheenvironmentalclaimbeingmadebytheproductortheproducer.Forexample,forproductslabeledorganicbytheU.S.DepartmentofAgriculture,thedepartmentestablishescertificationstandardsassociatedwiththeuseofpesticides,fertilizersandotherinputs.Certificationinspection,carriedouteitherbyagovernmentagencyorathirdparty,canreassuretheconsumerthattheclaimsoftheeco-labelarereliable.

Consumersofecolabeledgoodswanttopurchaseaproductnotjustbecauseitisgoodfortheirhealth,butalsobecauseitisgoodforthehealthoftheenvironment,forfami-lyfarms,orforthelocalcommunityandeconomy.Ecolabelinginitia-tivesthatdistinguishproductsaswildlife-friendlyarerelativelynew.However,thesetypesofeco-labelshavethepotentialofattractingasubstantialamountofconsumerinterestandmarketshare,ifviablemarketsareavailable.

Therearetwotypesoflabelingprograms.First-partylabelingin-volvesclaimsmadebyaproducerthathisorheroutputiswildlifefriendly.Aproducersignsanaffidavitpro-

claimingthatlanduseisbeneficialtowildlifeornotharmfultopredators.Or,alandownerstipulateshe/shemanagesanoperationinaccordancewithbestmanagementpracticesoraconservationplan.Third-partylabelingorcertificationprovidesanindependentinspectionthatverifiesthatapropertyismanagedonasetofagreeduponandscientificallysoundcriteria.Effortsbyprivate,non-profitenvironmentalorganizationshaveledtocertificationforforestprod-ucts(e.g.“SmartWood”),marine

andfreshwaterproducts(Turtle-safeShrimp,Dolphin-SafeTuna).OtherexamplesofecolabelsforspeciesorhabitatconservationactivitiesincludePredator-FriendlyWoolandSalmon-Safe.FortheSalmon-Safelabel,ThePacificRiversCouncilhasdevelopedaprograminwhichanindependentthirdpartycertifiesgrowersasbeingsalmon-safeiftheyadoptspecificagriculturalpracticestoimprovewaterqualityandsalmonhabitat.FoodAlliancestandardsaddressfishandwildlifehabitat,soilandwaterresources,andworkingconditions.

PredatorfriendlywoolinMon-tanaiscertifiedbyPredator-Friendly,Inc.,anon-profitorganizationmadeupofbiologists,environmentalists

andranchers.Thegrouphasdevel-opeda“certificationmark”oreco-labelforwoolproducedonranchesthatusenon-lethalcontrolofpredators(Robles2000).Aspartofthecertificationprocess,theranchermustsignanaffidavitcommittingtheranchtonon-lethalpredatorcontrol.TheGrowers’WoolCo-operativeisaseparateorganizationofrancherswhocarrythePredatorFriendlylabel.MarketingstrategiesincludealineofPredatorFriendlywoolproductssuchassweatersand

hatssoldlocallyandthroughTheNatureConservancycatalogue.

TheWisconsinVegetableandPotatoGrowersAssociationhasdevelopedathird-partycertificationprocessandecolabelfortheirfreshpotatoharvestcalled“WisconsinHealthyGrown.”Certificationiscarriedoutonanannualbasisbyathirdpartynon-profitcalled“Pro-tectedHarvest.”Thelabelcertifiesthatmembergrowersareachievingtargetedreductionsintheuseofpesticidesthatareconsideredtoxictoarangeoffishandbirdspecies.SomeofthesesamegrowersarerestoringhabitatsnativetotheirareaandarebeingcertifiedbyProtectedHarvestfortheirrestorationactivities

“ Consumers of ecolabeled goods want to purchase a product not just because it is good for their health, but also because it is good for the health of the environment...”


in2006.Thegrowerswantthisad-ditionalbenefittoincreasetheprivatemarketpremiumormarketsharetheyreceivefortheirproduct.

Therearefewstatesthatsponsorecolabelingprograms.OneexampleisOklahoma’sWild-ScapeCertifi-cationProgram,whichrecognizesindividualsandbusinessesthathavelandscapedtheirpropertywiththegoalofwildlifeconservation.Certi-fied“wild-scapes”becomeapartofastatewidenetworkofnaturalareassetasideforwildlife.Whethercertifica-tionthroughthisprogramhasledtoanykindofeconomicadvantagethroughincreasedmarketingoppor-tunitiesisunknown.

Assessment Althoughcertificationandecolabel-ingcanprovidemarketpremiumsorincreasedmarketsharetoproduc-ersandlandownerswhoengageinhabitatconservation,thereareseveralconditionsthatmustbemetforecolabelingincentivestowork.Aparticularadvantageofcertifica-tionstandardsisthattheyassureconsumersofthevalueofaspecial-izedproduct,makingiteasierforproducerstocapturepricepremiums

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ormarketshareforspeciesorhabitatfriendlypractices.

Theeffectivenessofcertificationandecolabelingincentivesispartlyconditionedbywhethercertificationiscarried-outbya“firstparty”or“thirdparty.”Firstpartycertificationreferstoalandownerorresourceuserwhoatteststhathisorhermanagementpracticesarehabitatorspeciescompatible.Thirdpartycertificationrequiresanoutsideentitytomeasureandverifywhethertheenvironmentalgoalsoftheland-ownerareachieved.

Thedownsideoffirst-partycer-tificationandlabelingisthatthereislittleornoregulation,anditishardfortheconsumertotellwhichlabelsarelegitimate.Manyconsumersarereluctanttobuyproductscertifiedandlabeledasenvironmentallyben-eficialbytheproducersthemselves(Robles2000).

Third-partycertificationandlabelingarenotwithoutissues,either.Themajorchallengefortheseprogramsisconsumerrecogni-tionanddemand(Robles2000).Recognitionleadstodevelopingamarketnichewhereconsumerswillpayapremiumforproductsthey

trust—oratleastbuymoreofthem.Thereisalsotheissueofcompetingforshelf-spacewithconventionalcounterparts(Robles2000).Agoodexampleoftheseconstraintsisthehabitat-friendlyWisconsinHealthyGrownlabelforfreshpotatoespro-ducedinmid-stateWisconsin.SomegrowersfortheWisconsinPotatoandVegetableProducersAssocia-tionareintheprocessofcuttingbackontoxicpesticideuseandarerestoringnativeecosystemsinordertorecoverandconservesomelistedplantandanimalspecies.Althoughtheirgoalhasbeentoreceiveapricepremiumfortheircertifiedproduce,todatesuchapremiumhasnotbeenattained.However,marketsharehasgraduallyincreasedovertheyears,eventhoughtheefforttodevelopandsecurenewmarketshasbeenexpensive.Becauseofthehighdegreeofpricecompetitionandthestructureofthefreshpotatomarket,theassociationhasbeeninvestinginmarketdevelopmentfortheir“eco-potato.”However,marketdevelopmentcostscanbequitehighandaddtothetransactioncostsofcapturingthepublicbenefitsofres-torationworkintheprivatemarket.

Wisconsin farmer with “Healthy Grown” potatoes | Wisconsin Potato and Vegetable Producers Association


Anexampleofanunsuccessfulthird-partycertificationwastheTallGrassBeefeco-labelthatwasbasedonthepreservationoftallgrassprairiehabitat.Inadditiontotheconstraintsofself-certification,issuesarosewhentheU.S.DepartmentofAgriculture’scertificationofgrass-fedbeefasbeingleanandlow-fatwassought.Thetransactioncostsinattainingthedepartmentcertificationwerehighduetothelongtimeperiodittooktoadheretoprogramrulesandassoci-atedhighcostsofproductionanddistribution.Inaddition,thedepart-ment’sapprovalprocesswaslengthyandtheoutcomeremaineduncertain,causingincreasedtransactioncostsandeconomicrisks.

Inordertoincreaseeffectivesales(andthereforeconservation),thereisanimportantrolefornon-govern-mentalorganizationstoplayintermsofsupportingecolabeledproductsthroughadvertisingtotheirmember-shipandcontactingdistributorsandretailersofeco-friendlyproducts.Oneimportantfactorinthiseffortwillbetodeterminetheprocessesformonitoringandevaluatingwhetherimprovementsareactuallybeingmadewithrespecttobiodiversityrecoveryandconservation.

TwowildlifehabitatandspeciesecolabelsthathavemetwithlimitedsuccessaretheSalmon-SafelabelandthePredatory-Friendlylabelsforsheepwool.OneadvantageofSalmon-Safeisthatitistiedtoahigh-profilespeciesthatconsumersatthemarketplacecanidentifywithandwanttoprotect(Robles2000).Be-tween2000and2004,theareaunderimproved,Salmon-Safeproductionpracticesincreasedfrom10,000to40,000acres.Althoughthereisnopricepremium,thelabelhasledtoincreasedmarketshareforproducersusingimprovedpractices.

ThePredatorFriendlyeco-labelforwoolinMontanahasreceivedquiteabitofmediaattention,andotherranchesaroundtheUnitedStateshaveinquiredaboutthelabel.However,marketsaturationmaybeapotentialproblem.Mostoftheranchersusingpredator-friendlymanagementtechniquesoperatesmallranchesandadmitthatnon-lethalmethodsaremoredifficulttoimplementonlargeroperations(Robles2000).

Intheprivatemarketcontext,certificationstandardswillgenerallybeeffectiveonlywhereprivategainsfromprovidingpublicgoodscanbecapturedinamarketsetting.Oneofthemostimportantissuestoaddress

isthedifficultyinlinkingprogramparticipationtomeasurableenviron-mentalbenefits.Torespondtothisproblemitisnecessarytohavecon-servationobjectivesspelled-outandamonitoringandevaluationprogramestablishedtodeterminethelink-agesbetweenactionsandresults.Forecolabelstobeeconomicallyefficient,theymustbebasedontransparentstandardsthatclearlydefineproduc-tionpracticesandwhole-farmman-agementstandardsthatlinkeconomicandenvironmentalsustainability.Insum,whilecertificationandecolabel-ingincentivesfacesignificanthurdlesintermsofpriceandcostdifferen-

tials,monitoring,marketing,adop-tionlevelsandpotentialtradeissues,theyrepresentonemarketapproachforprivatelandownerstopartiallycapturethedemandforpublicgoodssuchaswildlifehabitatconservation.

Recommendations Inordertoincreasethebiologicaleffectivenessofecolabelingasaviableincentiveforecosystemrestoration,itisnecessarytodevelopspecificcon-servationgoalsandtosetupmonitor-ingprotocolstomeasureachievementtowardsthosegoals.TheWisconsinPotatoandVegetableGrowersAs-sociationandtheFoodAllianceareintheprocessofdevelopingdesiredoutcomesandindicatorsformeasur-

ingthoseoutcomes.Theseactivitiesareakeyinputforgainingconsumerconfidenceintheecosystemrestora-tionclaimsoftheeco-labelandneedtobeexpanded.Acomplementaryrequirementistoincreasethetechni-calcapacityofthird-partycertifierstoevaluateecosystemandspeciesrestorationactivities.

Inordertomakeecolabelingafinanciallyviablemeansforland-owners,thereneedstobebetteridentificationandverificationofpotentialmarketoutletsand/orpricepremiums.Marketresearchanddevelopmentisaconstant,on-go-ingrequirementinordertofind

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“ One of the most important issues to address is the difficulty in linking program participation to measurable environmental benefits.”


newconsumersandmarketniches.Marketingstructuresshouldbeemployedthatcreatealinkbetweenproducersandconsumersthatisasdirectaspossible.

Mitigation Banking Description

Mitigationbankingisanexampleofastate-establishedquasi-marketfortheconservationofhabitatsandspe-cies.Marketstructureandconduct(rules)aredesignedbypublicagen-cies,andmarkettransactionsareusu-allyrestrictedtocertainparticipantsandconditions.

Mitigationbankingwasoriginal-lyappliedtowetlandhabitats.Thefederalgovernmentdefinedmitiga-tionbankingas“therestoration,creation,enhancementorpreserva-tionofawetlandandotheraquaticresourcesforpurposesofprovidingcompensatorymitigationinadvanceofauthorizedimpactstosimilarresourcesatanothersite(FederalRegister1995).MitigationbankingisauthorizedbytheCleanWaterActSection404permitprogramandtheSwamp-Busterprovisionsofthe1985FarmBill.Itisoverseenbyseveralfederalagenciesandrequiresdevelopersoragriculturalproducerstoreplace,inanequalamount—measuredbychemical,physicalandbiologicalfunctions—thewetlandstheydestroy.Itallowsforoutsidepartiestoestablishwetlandsanddesignatetheirecologicalvalueas“credits”inawetlandsbankingsys-tem.A“credit”ismeasuredinacreunits.Developersandfarmerswhoneedtomitigatewetlandconver-sionontheirlandscangotothesebanksandpurchasecreditstocoverthe“debits”theywillinflictontheirownwetlands.Debitsareconsid-eredtobeanyharm,degradationordestructiontowetlands.

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Underthebankingconcept,amitigationbankerassemblesacontigu-ousareawhereexistingwetlandscanbeprotected,newwetlandscreatedordegradedonesrestored.Asthebankcreatesorrestoreshabitat,itearnsmitigationcreditsfromaregulatoryagency.Thosecreditscanthenbesoldatmarketratestoeitherpublicorprivatedevelopersthatfacemitigationrequirementsfortheirprojectsthatinvolveconvertingwetlandsatthede-velopmentsite.Buyingcreditsrelievesthedeveloperoftheneedtoconducton-sitemitigation,whichgenerallyresultsinlow-qualitywetlands.Fromalandowner’sperspective,buyingashareinabanktransfersmitigationresponsibilitytobankownerswhopayforthesite,restorationandlong-termmonitoring.Dependingonthecostofthecredits,thiscouldsavelandownersmoney(Hemminger2003).Theestab-lishmentofabankis“anticipatoryandaggregative”(WhiteandErnst2004).

Bankscanbeestablishedbypri-vatelandownersorinvestorswhoseektoprofitfromhabitatconservation.Mitigationbankingcreatesaprivatemarketbyplacingamonetaryvalueonaresourcethatprovidesseveralpublicgoodsintheformofvariousecosystemservices.Mitigationbankscanpreventadecreaseinpropertyval-uesasaresultofbeingdesignatedasconservationland.Todate,themajor-ityofbankcreatorshavebeenprivatecompanies,notindividuals.Individu-allandownersmaybeapproachedbyamitigationcompanythatwishestousetheirlandforwetlandsprotectionordevelopment.Thecompanymaypurchasetheland,oraconservationeasementfromthelandowner,orothercompensationsmaybeworkedoutbetweenthetwoparties.

Inadditiontothefederaleffort,somestateshavecreatedmitigationbankingprograms.Forexample,the

ArkansasWetlandMitigationBankProgramisaimedatprovidingoff-sitemitigationopportunitiesforimpactstowetlandsfromdevelopmentandisadministeredbytheArkansasSoilandWaterCommission(George2002).

AssessmentFromthestandpointofbiologicaleffectiveness,mitigationbankinghasbeenhighlycontroversial.TheNationalResearchCouncil(2001)foundthatmitigationbankingthroughwetlandcreationdoesnotre-placetheoriginalecologicalfunctionsofthedestroyedwetland.Bymitigat-ingoff-site,theimpactedarealosesthebiologicalvaluesandhydrologicfunctionsthatwetlandsprovide.Thestudythereforerecommendedthatmitigationbankingbeminimized.Toaddresstheissueofecologicalfunctionrequiresafullspecificationofwhatconstitutessuccess,identifi-cationofthepartiesresponsibleforbothmitigationandlong-termmain-tenanceofthesite,provisionsformonitoring,andenforceablepenaltiesforthefailuretomeetspecifications(GoldsteinandHeintz1993).

Theavailabilityofappropriatephysicalpropertiesformitigationisalsoabiologicalissue.Availabilityandexistenceofsuitablemitigationsitesvariessignificantlyamongregions/statesandecosystems,especiallywithrespecttoendangeredspecies’habitat.

Conceptually,privatemitigationbankshavethepotentialtoreducelandownercostsofconservationbycreatingamarketmechanismforprotectingwildlifehabitat(GoldsteinandHeintz1993).Thepotentialtomakefinancialgainscouldincreasetheprotectionofhabitatonprivateproperty.However,mitigationbank-ingcanbeveryexpensiveintermsoflocatingandbuyingmitigationsites,conductingrestorationandmanaging

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thebankitself.Thehighcostofmiti-gationbankinghasequityimplica-tionsintermsofwhocaninitiateandsupportabank.Mitigationbank-ingworksonlywhenalandownerwithsufficientholdingsandmeansgoesthroughthelegal,administra-tiveandrestorationcostsofsettingupabank(Olsonetal.1993).Theneedtomeethighstart-upcostsisnotconducivetosmalllandownerparticipation.Thissuggeststhatotherincentivemechanismsmaybemoreeconomicallyefficientfromtheprivateperspective,atleastforsmallholdings.Inaddition,smallerlandholdingsmaybelessbiologi-callyeffectivebecauseofisolatedandsmallerhabitats,andtheymaybelesseconomicallyefficientduetothelackofeconomyofscale.

WhiteandErnst(2004)identifyadditionalissueswithrespecttomitigationbanking.First,regula-torshavefounditdifficulttodenyapermittoprojectswhichotherwiseposeunacceptableimpacts,becausetheyprovideexistingmitigation.Theproblemisthatmitigationisautomaticallyassumedtoreplaceecologicalfunction.Inaddition,sitesaresometimesofferedonthebasisofavailabilityandprice,ratherthanappropriatefeaturesandscaleforhabitatequivalentsandastrongprobabilityofrestorationsuccess.Thiscompromisesbiologicalef-fectivenessforcostconsiderations.Thereisalsotheproblemofallowingmitigationforonespeciesorhabitatbyprovidingbenefitsforothertypesofspeciesandhabitats:theapplesandorangesissue.

Therecanbesubstantialeconom-icrisksassociatedwithmitigationbanking.McClure(2005)reportsthatamitigationbankinggroupinCaliforniacalledTheEnvironmentalTrustrecentlydeclaredbankruptcy

andhadabandonedmanyoftheirpreserves.TheTrustwasrespon-sibleformanagingmorethan90propertiescoveringabout4,600acres,includingadjacentlandsthatdevelopershadtobuyforapprovalofhousingprojects.Managementofthepreserveswassupposedtohavebeenpaidforbyobtainingendowmentsfromdevelopers.Themoneywastohavebeeninvested,withtheinterestpayingforup-keep.However,costsoflaborandequipmentfaroutpacedtheendowment.ThefailureofTheEnvi-ronmentalTrusttomaintainlong-termviablehabitatthroughmitiga-tionbankinghighlightstheoverallproblemofhowmitigationbanks,whetherrunbypublicorprivateenti-ties,aremanaged,andhowthereislittletonooversightbypublicagen-ciestoensurethatmitigationisbeingcarriedoutpertheissuedpermits.21

Anequallyimportantissueisthattheexpertisetobothmanageandmoni-tormitigationbankinglandsneedstobeimproved.

Recommendations Toavoidtheproblemofnotre-placingtheoriginalfunctionsofadestroyedwetland,mitigationlands

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shouldbechosenfromidentifiedconservationpriorityareasthatareestablishedunderarespectedhabitatplanningeffort.Also,mitigationbankingprogramsneedtorecognizethatthereisapointwhenaspecificecosystembecomesirreplaceableduetoscarcity.Atthispoint,nomoredevelopmentormitigationshouldbeconsidered.

Inordertopromotebiologicaleffectivenessandimprovedeconomicefficiencyofpublicresources,themitigationbankingcommunityshouldestablishaccreditationcriteriaanddevelopanoversightmecha-nismbywhichindividualbanksandbankersareheldaccountableforthebiologicalvaluesthattheyareresponsibleformanaging.Furtherre-searchonwhatatradableunitshouldconsistof,andontheindicatorsusedtomeasurethebiologicalintegrityofthoseunits,shouldbeestablishedthroughpeerreview.

Anewassessmentofmitigationbankingshouldinvestigatethefulleconomiccostsandbenefitsofthisincentivemechanism,whatneedstobeimproved,andrecommenda-tionsabouttheappropriaterolesforthepublicandprivatesectors.

California red-legged frog | U.S. Fish and Wildlife Service

21. Delfino, K. 2005. Personal Communication. Defenders of Wildlife, Sacramento, California.


Otherhelpfulinformationwouldincludedevelopingastandardsys-temtomonitorbankeffectivenessandperformance.Establishingamonitoringandevaluationprogramformitigationbanksbecomesevenmoreimportantinlightofthenu-merousrecentstatementsbypublicagenciesthatmitigationbankingwillbeaprimaryincentivetoolgoingintothefuture.

Conservation BankingDescription

Conservationbankingisanoff-shootofmitigationbanking.Conservationbanksareareasthataresetasidetoprotectendangeredorat-riskspeciesandtheirhabitats.Conservationbankingallowsprivatelandownerstoobtainconservationcreditsforconservingandmaintainingendan-geredspeciesortheirhabitatandarenearlyadecadeold.Creditsare“banked”forfuturetrading(Yeager1993),andbanksmustbepre-ap-provedbyfederalandstateagenciesandestablishedwithinthecontextofafederalhabitatconservationplanundertheEndangeredSpeciesAct.Thepurposeofconservationbanksistoproactivelypreservelargecontigu-oustractsofhabitattooffsetimpactsfromdevelopmentactivities(WhiteandErnst2004).

Conservationbankingdiffersfrommitigationbankinginthatconservationbankingisbasedonconservingtheoriginalecosystemandrelevantspecieswheretheyexist.Conservationbankingisbasedonthe

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principlesofincreasingtheprobabil-ityofsurvivalandaddressingpopula-tionswithadequatenaturalhabitat.Asof2004,about35conservationbankshadbeenestablished(Fox2004).Californialeadsthenationinestablishedbankswith30,including11inSanDiegoCountyalone.Itisestimatedthatthesebanksshelterabout22speciesprotectedbytheEn-dangeredSpeciesAct.Cumulatively,

thebankscoverover44,200acresofhabitatandprotectavarietyofplantsandanimalssuchasthegolden-cheekedwarbler,red-leggedfrog,vernalpoolfairyshrimpandPimapineapplecactus(FoxandNino-Mur-cia2005).Therearealsostate-widebankinginitiativesinColoradoandNorthCarolinatopreservehabitatinvolvingbothpublicandprivateparticipants(WhiteandErnst2004).

Assessment Thereareseveralconditionsthatmustbemetforconservationbank-ingtoserveasaviableincentivemechanismforbiodiversityconser-vation.First,conservationbankswillhavetocomplementotherprotectedareasinordertoconservewildlifehabitatonascalethatisbiologi-callyviable.Bankswillthereforerequirelarge,contiguousareas.Smallisolatedpatcheswillbeinsufficienttoprovideviablehabitat.Second,conservationbanksalsorequiresubstantialmanagementinordertomaintaindesiredbiologicalfunc-tions.Withoutprotectionandman-

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agement,thehabitatmaydegrade,andthespeciesmaybedisplaced.Ifconductedintheframeworkoflarge-scaleconservationplans,con-servationbankinghasthepotentialtopermanentlyprotectnativehabi-tatsandtheirspecies.Establishedconservationbanksdonotreflectalloftheidealssetforthbythefederalguidance,buttheyhaveprotectedsignificantamountsofecologicallyfunctioninghabitatthatwouldhaveotherwisebeendeveloped(FoxandNino-Murcia2005).

Thoseindividualsorentitiesthathaveparticipatedinconservationbankinghavefounditfinanciallyat-tractive.Financialmotivesdrovethefoundingof91percentofthebanks,andthemajorityoffor-profitbanksarebreakingevenorbetter(FoxandNino-Murcia2005).Withcreditpricesinconservationbanksrangingfrom$3,000to$125,000peracreinCalifornia,bankingagreementsofferfinancialincentivesthatcompetewithdevelopmentactivitiessuchasbuildinggolfcoursesandhomes(Fox2004).

ResearchhasshownthatthetransactioncostsofestablishingaconservationbankagreementwiththeU.S.FishandWildlifeServicecanbehigh.However,63percentofbankownersreportedthattheywouldsetupanotheragreementgiventheappropriateopportunity(FoxandNino-Murcia2005).Thetimeofestablishmentofaconservationbankisabouttwoyears(Fox2004).Highestablishmentcosts,andthelargear-easrequired,maybedisadvantageoustosmallerlandownersunlesstheycanestablishacooperativebankingprojectthatoffersenoughhabitatatacompetitiveprice.

Moreneedstobeunderstoodabouttheactualandpotentialconstraintstoconservationbanking.

“ ...the majority of for-profit [conservation] banks are breaking even or better.”


Amongmanyprofessionalconser-vationplanners,thereisalackofunderstandingandknowledgeofwhatconservationbankingis,andsomethatdounderstanditperceiveitasfinanciallyandbiologicallyrisky.Becausetheoverallpositiveandnegativeimpactsofbankingarenotwellknown,theremaybeunantici-patedconsequencesintermsofhabitatprotection.

Recommendations Thegoalofconservationbankingshouldbetoprotectin-kind,on-sitehabitatsandspecies.Toachievethisgoal,astandardizedandcentralizedinformationbaseforidentifyinglandsthatcouldserveasviablecon-servationbanksforvariousspeciesandhabitatsshouldbeestablished.Inordertoavoidanetlossofhabi-tat,conservationbankingshouldincludearestorationcomponent,andnotbejustaprotectionexercise.Anecessarycriterionforapprovingbankingoperationsshouldincludeestablishinglargecontiguousareasofappropriatehabitat.

Toimprovethefinancialreturnstoconservationbanking,bankersandpublicagenciesshouldconsidersegmentingdifferentecologicalservicescontainedatabankingsiteandidentifyinganarrayofpoten-tialbuyersinterestedinmultipleorindividualservices(e.g.,pollination,floodcontrol,waterpurification,etc.).TheconceptofecosystemservicemarketsisbroadlyexploredintherecommendationspartofSectionXI.Inordertolowerthetransactioncostsofestablishingandmanagingaconservationbank,wewouldrecommendimplementingaresearchprojecttoquantifysuchcostsinboththepublicandprivatesectorandtoprovidesuggestionsforimprovedadministrativeefficiency.

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Transferable Development RightsDescription

Transferabledevelopmentrights(alsoreferredtoastradabledevelop-mentpermits)arecreatedrightstodevelopalandscape.Underatransferofdevelopmentrightsapproach,alandownerinadesignated“sendingarea”isassignedtradabledevelop-mentrightsforpreservinghisorherlandandmaysellthemtoanownerofadesignated“receivingarea,”tobeusedtoincreaseallowabledevelop-mentdensities.Priortoagovern-mentagencyestablishingamarketintradabledevelopmentrights,alocalplanningcommissiondefinesconservationanddevelopmentzonesanddetermineswhichareasshouldbeconserved,wheregrowthshouldoccurandwheretoallowbuffer-zoneactivitiessuchasagricultureorforestry(Brown1999).

Establishingatradabledevelop-mentrightsprocessandmarketinvolvesseveralsteps(GoldsteinandHeintz1993).First,aconservationplanisdevelopedforadelineatedandzonedregionspecifyinghowmuchareawillbeprotectedtogetherwithaprocessfordeterminingwhichareaswillbedeveloped.Second,apro-cessisestablishedforevaluatingthehabitatvalueofprotectedlandsandassigningtradableconservationcred-itstolandowners.Third,adevelop-ment/conservationratioisdefinedfordeterminingtheamountofmitiga-tion(andhenceconservationcredits)requiredtoundertakeaproposeddevelopment.Fourth,anactualmar-ketprocessisdevelopedforconduct-ingtradetransactionsinconserva-tioncredits.Last,amonitoringandevaluationprogramisestablishedforsecuringperformance,guaranteeingcompliancewithmitigationrequire-mentsandmakingsureconservation

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objectivesaremet.RecentexamplesoftradabledevelopmentpermitprogramsincludetheNewJerseyPinelands,theCentralPineBarrensinNewYorkandPalmBeachCountyinFlorida(Robles2000).

Aswithmineralrights,waterrights,easementsandtradablepollu-tionpermits,developmentrightsonprivatepropertythatsupportsimpor-tantbiologicalhabitatcanbedisag-gregatedfromtheoriginallandbaseandtradedfreelyontheopenmarket.Ownersoflandprovidinghabitatwouldbeallowedtotradeorsellrightstodevelopment.Bothdevelop-mentandnon-developmentinterests,publicandprivate,wouldbeeligibletobuythesedevelopmentrights.Thedeterminationontheamountofhabitateligiblefordevelopmentwouldbebasedonbiologicaldataontheamountofhabitatrequiredtosustainandmaintainspeciesandoverallbiodiversity(Hudson1993).

Delaware’sAgriculturalLandsPreservationProgramhascreatedatradinginstitutionthatallowsland-ownerstoselldevelopmentrights.Whilethisprogramisdesignedtokeepagriculturallandinproduc-tion,itisalsointendedtoprovideforpermanentopenspaceforthepublic.LandownersmayenrollinAgriculturalPreservationDistrictsandreceiveinexchangetheprotec-tionofright-to-farmlegislationaswellastheopportunitytopreservetheirlandinperpetuitythroughconservationeasements.

Assessment Thereisafairamountofinformationontheeffectivenessandefficiencyoftradabledevelopmentrights.Withrespecttobiologicaleffectiveness,tradabledevelopmentrightsarecon-sideredparticularlyuseful,especiallywithinsmallgeographicareaswhere

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sendingandreceivingareasareclearlydefinedandrelativelynon-controversial(Olsenetal.1993).Asignificantconditionforbiologi-caleffectivenessisthatmanagementprescriptionsmustbeidentifiedthatwilloptimizethevalueofthehabitat.Anothermajorconditionisthatthepublicagencieshavetomaketheinitialallocationofrightsthatmaximizeshabitatprotection.Thisisdonebydetermininghowmuchoftheparticularhabitatforanat-riskspecieswouldbeeligiblefordevel-opmentandthendistributingtheserightstoeligiblelandowners(McKineyetal.1993).

Fromtheeconomicefficiencyperspective,tradabledevelopmentrightscanpromotetheselectionofthelowestcostlandsforconserva-tion(GoldsteinandHeintz1993).Tradingtendstoencouragethoselandownerstoselltheirrightswhowouldgiveuptheleastvaluebyforegoingdevelopment.But,thesuc-cessoftradingultimatelydependsonwheretheimportanthabitatis.Moreoftenthannot,importanthabitatislocatedwherelandownerswould

havetogiveupthemostinforegonedevelopmentrevenues.

Therearesomeconditionsthatmustbemetinorderfortradabledevelopmentrightstobeeconomi-callyviableforparticipants.Oneofthedifficultiesindesigningatradablerightssystemisthat,atleastforsomelandowners,thepotentialgainsfromdevelopmentmayexceedthegainsfromthesaleofdevelopmentrights.Ifacreditsmarketdoesnotsetasufficientlyhighprice,theamountoflandtradedintoconservationstatusmaynotbeadequate.Inthiscase,amanagingagencymustsubsidizethemarketprice,purchaseadditionalcredits,supplementthezoning/trad-ingschemewithdirectacquisitionoflandoreasements,orreverttoaregu-latoryapproach.Governmentsubsi-dizationofthemarketorpurchaseofadditionaldevelopmentrightsspreadsthecostsofhabitatconservationmorebroadlyamongthegeneralpublic(GoldsteinandHeintz1993).

ManycountiesthroughouttheUnitedStateshaveexperimentedwithtransferofdevelopmentrightsincentives.Thedegreeofsuccesswith

respecttoconservingviablewildlifehabitathasvaried.MontgomeryCountyinMaryland,forexample,haspermanentlyprotected43,000acresoffarmlandthroughtrad-abledevelopmentrights.However,othercountyprogramshavenotbeensuccessful,becauseincentivelevelshavenotbeenhighenoughtoattractlandowners.If,forexample,therearemanylandownerswhowanttoselltheirdevelopmentcredits,butfewdeveloperswhowishtobuythecred-its,thevalueofthecreditwillbelow(simplesupplyanddemand).Countygovernmentshavetobalancethesupplyanddemandofdevelopmentcreditsandinsurethattheareaoflandinthe“receiving”areasmatchestheareaoflandinthe“sending”areas.Asimilareconomicchallengeisthatthetradablelandcommoditieshavetobecomparable.Thatis,itisnotviabletotradelandssupportingpygmyowlhabitatforvernalpoolhabitat,orlynxhabitatinMaineforlynxinMontana.Thisisaproblemassociatedwith“thin”markets.

Thetransactioncostsassociatedwithestablishingandmanagingatradablehabitatdevelopmentrightsmarketcanbeveryhigh.Aprimarycostisthesubstantialecologicalresearchneededtodetermineviablehabitatamounts.Aninstitutionalmechanismtodistributeandmonitortheallowabledevelopmentrightsalsohastobecreated.Fieldsurveystoestablishthehabitatunitsizeandvalueonprivateparcelsmustbecon-ducted.Finally,aplanformonitoringandenforcementhastobedevelopedandimplemented.Alloftheseactionsincreaseboththepublicandprivatecostsofusingtradabledevelopmentrightsasanincentivemechanism.

Therearesocialequityimplica-tionstoasystemoftradabledevel-opmentrights.Dependingonthe

Lynx kitten | ©Corel Corp.


originalpatternoflandownership,tradingcanredistributedevelopmentwindfallscausedbyzoningoracon-servationplanfromthosewhoareal-lowedtodeveloptothosewhoselandisrestricted.Thecostsofconservationthatwouldotherwisebebornemostlybylandownersinrestrictedzonesareoffsetbypaymentsfordevelop-mentrightsmadebylandownersinzonesdesignatedfordevelopment.Furthermore,developersarelikelytopassalongatleastapartofthecostofdevelopmentrightstotheultimatepurchasersorusersofthedevelopedlands,thuspassingonthecostsofconservationmorewidely.Onemajorquestioniswhetheritispossibletocompensateenrolledlandsdifferentlybasedontheiruniquehabitatvalues(Olsen,etal.1993).

Recommendations Weofferthreerecommendationstoincreasethebiologicaleffectivenessoftransferabledevelopmentrightsincentivemechanisms.First,theidentificationoflandsthatareeligibleas“sendingsites”couldbedonebyusingstatewildlifeactionplansand

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thencontactingtheappropriatelandownerstosolicittheirparticipa-tion.Biodiversityconservationwouldbenefitbecausetheamountofhabitatauthorizedtobealteredwouldbeclearlydefinedandcapped.Second,asinthecaseofmitigationandcon-servationbanking,biologicalcriteriaforin-kindandon-siteconservationneedstobeestablished.Third,werecommendthatadditionalresearchbedonetodeterminewhatsizelandbaseisnecessaryforrecoveringindi-vidualspeciesandtodefinebiologi-callyeffectivemanagementpractices.

Toimprovetheeconomicef-ficiencyoftradedevelopmentrightsmeasuresthereisaneedtoconducteconomicvaluationstudiesofuniquehabitatsinordertosetoutcompensa-tionvaluesforcredits.Anotherre-searchrequirementistoestimatetheleveloftransactioncostsfordevelop-ingamarketintradabledevelopmentrights(e.g.,designingaconservationplan,developingtradingratios,deter-miningmarketrules,etc.)inordertoidentifycost-savingmechanismsthatdonotcompromiseestablishedbio-logicalgoals.Becausetheopportunity

costsofforgoinglanddevelopmentmaybehigh,thereisaneedtode-veloptransferabledevelopmentrightsprogramsthatleveragefundsfromseveral“receiving”sourcesinordertocontinuetopayformanaginglandsfortheirbiologicalvalue.

Ecosystem Service MarketsTheemergenceofprivatemarketsforecosystemservicessuchascarbonsequestrationandwaterqualityisjustbeginning,andnoformalassess-mentoftheirbiologicaleffectivenessoreconomicefficiencyhasbeencarriedout.Todate,theseservicemarketshavebeenfocusedononespecificresource.Theoneexcep-tiontothishasbeenaveryvibrantmarketinpollinationservicesforcommercialcropproduction.

TheWillamettePartnershipinOregonisdevelopinganecosystemmarketplacewherebusiness,govern-mentandconservationinterestsworktogethertoprotectandrestoretheWillametteRiverBasin.Conserva-tioncredits,whichwillbetradedinthemarketplace,canleveragethecollectiveresourcesoffactories,farms,forests,citiesandsewer/waterratepayerstomakestrategic,coor-dinatedconservationinvestmentsthatyielddividendstotheentireecosystem.TheinitialfocusofthemarketplacewillbetoreducewatertemperaturesintheWillametteBasintobenefitfish,publichealthandwildlifehabitat.

Thereisaneedtomonitorandevaluatetheforthcomingexperimentsinecosystemservicemarketstomakesurethatbiologicalresourcesarenotbeingcompromised.Manyoftheconcernsandassessmentneedsformitigationandconservationbank-ingwouldapplytotheconceptofanecosystemmarketplace.

Willamette River wetlands, Oregon | © Jim Yuskavitch


VIII. FINANCIAL INCENTIVES

Financialincentives,orsubsidies(seeBatieandErvin1999;HeimlichandClaassen1998),

constituteapaymentinexchangeforhabitatconservationprojectsoractivities.Thereareseveraltypesoffinancialincentives,suchascom-pensationprograms,cost-sharingofnewconservationtechnologiesormanagementpractices,landrentalorleasing,conservationcontracts,debtforgiveness,insuranceprogramsandpublictaxbenefits.Over-and-abovecost-sharepayments,incentivepay-mentsarebroadlydefinedtoincludepaymentsexceedingfarmers’costs.Arelativelynewincentivemechanismprovidespaymentsforcontinuedprotectionofenvironmentalre-sourcestoagriculturalproducersandissimilartowhatsomewouldcalla“greenpayment.”

Thefinancialincentivemecha-nismsassessedinthissectionincludepublicandprivatecompensation,insurance,cost-share,stewardshippayments,rentalpaymentsanddebtforgiveness.Becausetherearemanypublictax-relatedinstruments,wetreattheseincentivesseparatelyinSectionIX.

Compensation ProgramsDescription

Conservationistshavebeenex-perimentingwithcompensationthatdirectlypayslandownerstooffsetwildlifethreatstocrops,livestock,propertyorpersonalsafety.Compen-sationprogramsaredesignedtoreim-burseindividualswhosuffereconom-iclossesduetowildlifedepredation

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ordamage.Fullorpartialpaymentismadeintheformofcashorotherassistance(Nyhusetal.2003).ThemostfrequentapplicationoftheseprogramsintheUnitedStatesistoreimburselivestockownersforlossesincurredbylargepredatorssuchaswolvesandgrizzlybears.These

programsaremanagedbybothpublicandprivateentitiesandtheiroverallpurposeistomitigatehuman/wildlifeconflicts,withtheintentionofprovidingsupportforthepresenceofwildlife.

Whenhumansencroachoncar-nivores’habitats,orasreintroducedorrecoveringpopulationsincrease,carnivoresmorefrequentlyencoun-terandpreyonpetsorlivestock.Suchencounterscanbecostlyandcanunderminewildliferecoveryprograms.Naughton-Trevesetal.(2003,p.1501)offertherationaleforsuchprograms:“Compensa-tionprogramsofferameanstoredresstheinequitabledistributionofcostsandbenefitsassociatedwithrestoringlarge-carnivorepopula-tions.MostU.S.citizenssupport

carnivoreconservationandmanyenjoytheenvironmental,aestheticandeconomicbenefitsofrestoringcarnivores.However,thedirectcostsofconservingtheseanimalsoftenfallsonaminorityofindividualsinruralareaswholoselivestockorpetstocarnivores.Wildlifemanagershope

thatdirectcompensationpaymentswillimprovetheseindividuals’toler-anceforcarnivoresanddissuadethemfromkillingcarnivoresinretaliation.”Forillustrativepurposes,wedescribeapubliccompensationprogramman-agedbythestateofWisconsinandaprivatesectorprogrammanagedbyDefendersofWildlife.22

Since1982,Wisconsinhashadaprogramtocompensatefordamagecausedbyspecieslistedasendangeredorthreatened,drawingonfundsfromthestateEndangeredResourcesFund(fundedbyvoluntarycontri-butionsontaxreturnsandthesaleofspeciallicenseplates).Thestatehascompensatedwolf-relatedlossessufferedbylivestockproducers,gamefarmersandbearhunters(forhuntinghounds).Compensationdependson

“ Compensation programs are designed to reimburse individuals who suffer economic losses due to wildlife depredation or damage.”

22. See Wagner et al. (1997) for a list of states with wildlife compensation programs.


afieldinvestigationandconfirmationbytheU.S.DepartmentofAgricul-ture’sWildlifeServicestoverifythatlosseswereduetowolves.Thetimetocompleteacompensationpay-mentaveragesabout80daysfromthefirstreportofdepredation(Trevesetal.2002).Between1976and2002,theWisconsinDepartmentofNaturalResourcesofferedcom-pensationfor121verifiedincidentsoncattle,sheep,horses,farmdeer,

petsandhuntingdogs.Thevalueofthecompensationpaymentissetbytheprojectedfallmarketpriceoftheanimal(e.g.,$602percalfin2002)(Trevesetal.2002).

Thecompensationprogramman-agedbyDefendersofWildlifehasbeeninexistencesince1987.ThiswasthefirstprivatecompensationfundforwolveseverestablishedinNorthAmerica(Nyhusetal.2003).By1992,Defendershadestablishedapermanentfundtopayforveri-fiedlossesanywhereinthenorthernRockies(thiswaslaterextendedtoincludetheSouthwest).Atrustfundhasbeenestablishedwithprivatefoundationcontributionsthatcompensateslivestockownersforlossesduetowolvesandgrizzlybears.Thegoaloftheprogramistoshifttheeconomicresponsibilityforwolfrecoveryawayfromtheindividualrancherandtowardsocietyatlarge.

Livestockownersarereimbursedfortheirlossesuponconfirmationbytheappropriatestate,federalortribalofficial.AfteraninvestigationreportissenttoDefenders,itthencontactstheranchertodeterminethevalueofthelivestocklost.Fullmarketvalueispaidforconfirmedkillsbywolvesandgrizzlybears,and50percentofthecurrentmarketvalueforprobablelosseswhentheevidenceisstrong,butinconclusive.

Assessment Privateandpubliccompensationmechanismsdifferintheireligibil-itycriteriaandtheiradministration.Intheprivatesector,DefendersofWildlifeadministersacompensationincentivemechanismtoencourageprivatelandholders,primarilyranch-ers,toacceptthepresenceofpreda-tors,mostlywolvesandgrizzlybears(Brown1999).Between1987and2004,Defenderspaidover$400,000incompensationto345ranchersforpredator-relatedlosses.About1,580livestockanimalswerelost,almosttwo-thirdsofwhichweresheep.Nyhusetal.(2003,p.39)observedthat“Somefeelthisisahugesumtopayforwolfdamage,othersfeelitisatinyprice.Butalmostallwolfexpertsagreethatshiftingtheeco-nomicresponsibilityforwolvesawayfromrancherstowardswolfsupport-ers(thegeneralpublic)hascreated

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abroaderpublicacceptanceforwolfrecoveryandhelpedpavethewayforreintroductions.”

PubliccompensationfundssuchasthatmanagedbythestateofWis-consinhavehadtheirshareofissuestocontendwith.Theseissuesaresetwithinthecontextthat,aswolfpopulationshavebeengrowingandexpandingtheirrange,depredationsareontherise.Naughton-Trevesetal.(2003)foundthatwhileallWisconsinitesapprovedofcompensa-tionpaymentsasawolfmanagementstrategy,thereareparticularsocietalgroupswhohaveexperiencedlosses(e.g.,bearhunters)whoarelesstoler-antofwolves.

Publiccompensationincen-tiveshavebeencriticizedforbeinginadequate,fraudulentorcumber-some.Naughton-Trevesetal.(2003)maintainthatpubliccompensationsuffersfromwhateconomistsrefertoasa“moralhazard”problem.Thatis,theexistenceofacompensationpro-grammaymitigateagainstalivestockownertakingpreventativemeasurestoprotecthis/herherdtolowertheriskofdepredation.Thus,thecom-pensationmechanismcouldresultinhigherpublicorprivateoutlays.

Thereareadditionaleconomicandsocialreasonswhycompensationprogramsmaynotbeveryeffectiveorefficientinincreasingtoleranceforpredators.Thesecaninclude:(1)traditionalattitudestowardswolvesconsiderlethalcontroltheonlyvi-ableoption;(2)ranchersconsidercompensationpaymentsinadequategiventheemotionandyearsinvestedintheirlivestock;and(3)recipientsincurhighcostsforcomplyingwithrequirementstohavedefinitiveevi-denceofapredatorattack(Naugh-ton-Trevesetal.2003).Withrespecttoadequatepayments,landownershavelongmaintainedthattheyexpe-

“ Defenders of Wildlife administers a compensation incentive mechanism to encourage private landholders, primarily ranchers, to accept the presence of predators...”


rienceundiscoveredandunverifiedlossesoflivestock.Thequestionthenbecomeswhatwouldbeanadequateandfaircompensationratio.Inaddi-tion,publiccompensationprogramshavebeencriticizedbecausetheyfrequentlyrunoutoffunding.

Whethercompensationfundsareprivateorpublic,therearecommonconditionsunderwhichtheycanbesuccessfulinprotectingwildlife.Themostimportantconditionistheneedforclearandconvincingevidencethatadepredationhasbeencausedbyaprotectedspecies.Obtainingevidenceisoneofthemostcriticalchallengestocompensationschemes.Ignoringordelayingverificationcanhavenegativeimpactsontheaccept-abilityofcompensationmechanisms.Finally,thereisaneedfortimelypaymentsbasedonverifiedlossesiflandownersaregoingtocontinuetoparticipate(Bulte2005).

Althoughcompensationprogramsmaynotcompletelyameliorateindi-viduals’grievancesagainstcarnivores,theyareconsideredtobeveryuseful.Compensationpaymentsaresupport-edandexpectedbythebroadpublic.Research(Bangsetal.1998)suggeststhatceasingcompensationpaymentscausesretaliationandincreasedhostility.Someexpertssuggestthatcompensationprogramsofferameanstobuyoffbroaderpublicconstituen-ciesandearnsupportfromstate-levelpoliticalrepresentatives(Nyhusetal.2003).Oneobserverhasnotedthatonly$15,000peryearhasbeenpaidforgrizzlybeardepredationsonlivestockinMontanaandIdaho,a“puny”amountofmoneyspenttoshifttheeconomicburdenfromlive-stockgrowerstobearsupporters.23

Recommendations Ourmajorrecommendationwithrespecttocompensationprograms,

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publicorprivate,istomakecom-pensationpaymentsdependentonsomelevelofadoptionofproactive,preventativemeasures.Thisachievestwogoals.First,itcaninduceincreasedprotectioneffortsthataremorebiologicallyeffectivebecausetheylessentheprobabilityoftheneedforlethalcontrol.Fromaneconomicperspective,insistingonpreventativemeasureswouldcounterthemoralhazardproblemdiscussedabove.

Themajorfutureconstraintforpublicandprivatecompensationincentiveswillbefundinglevels.Tolessentheimpactofthisconstraintsomewhat,itwouldbemoreeffec-tivetotryandleveragepublicandprivateeffortsanduseexistingfundsinamoretargetedmanner.Targetingcompensationfundstocoverspecificareasanddomesticpreythataremoreatriskofpredationwouldhelpthesefundstobeusedmoreefficiently(Haneyetal.2005).Theremustalsoberesearchonwaystolowerthetransactioncostsassociatedwithre-porting,verifyingandreimbursementoflosses.Lastly,compensationratiosshouldbeestablishedonthebasisofecologicalregionsandthespeciesconfigurationsinthoseregionsinordertosettlethequestionofverifiedversusunverifiedlosses.

Insurance Description

Insuranceisanotherformofcom-pensation,withtheexceptionthatprivateindividualpotentialclaimantspaypremiums.Insuranceprogramscanbeprivate,ortheymayincludetheparticipationofapublicagency.Premiumsaredeterminedbymarketvaluesandhistoriclossrates(Nyhusetal.2003).Theyaredesignedtominimizepotentialfinanciallossesincurredasaresultoflivestockpredationbycarnivores.

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SeveralEuropeanandAsiancoun-trieshaveusedinsuranceprograms(Klemm1996;Fourli1999;Blanco2003).Inmanycases,insuranceprogramsarecombinedwithothertypesoffinancialinvestmentssuchasruralcommunitydevelopmentfunds,localsavingsandloanassociations,ortheestablishmentofecotourismactivities(Mishraetal.2003,KarkyandCushing2002).Infact,itistheseactivitiesthatusuallygeneratethefundingtostartupcommunityinsur-anceprograms.Inmostcases,localcommunitiesdeterminepremiumratesandclaimrules.Amajoradvan-tageoflinkinginsurancewithothereconomicopportunityprogramsisthatthereislittleincentivetocommitfraud,becausecommunitydevelop-mentactivitieswouldsuffer.

Assessment Becauseoftherecentdevelopmentofinsuranceincentivesasaspeciesorhabitatconservationincentivetool,thereisnotmuchinformationoneithertheirbiologicaleffectivenessoreconomicefficiency.24However,basedonourearlierdiscussionofcom-pensationmechanisms,itispossibletooutlinewhatthegeneralcondi-tionswouldbefordeterminingthebiologicaleffectivenessandeconomicefficiencyofinsuranceincentivesforbiodiversityconservation.

Inaninsurance-basedcompensa-tionprogram,landownersareinsur-ingthemselvesagainstcatastrophicloss,thatis,thoselossesthatarebeyond“average.”InsurancefundsthatarefinancedthroughanexternaldonormaybebetterabletoaddressaverageorindividuallossesHowever,relianceoncompensationfundingfromexternalsourcesmayalsomakeinsurancemechanismslesssustain-able,andthereforelesseffective,overthelongrun.

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23. Johnson, M. 2005. Personal Communication. Defenders of Wildlife. Missoula, Montana. 24. See Mishra et al. (2003); Karky and Cushing (2002); and Hussain (2000).


Primaryweaknessesofinsuranceincentivesarethecurrentlackofanactuarialbasisforsettingpremiumsandthedifficultyindeterminingtheactualvaluelostbylandown-ers(GoldsteinandHeintz1993).Theseconditionsmustbeaddressedinorderforinsuranceincentivestobeeconomicallyefficient.InthecaseofwolvesandgrizzliesintheUnited

States,governmentalreintroductionhasbeentheprimaryeventthathascausedlivestocklosses,andthuslossesdonothavethetypeofrandomoc-currenceexhibitedbymostinsurableevents(e.g.,caraccidents,hurricanes,floods,etc.).Therefore,anytypeofinsuranceincentivemechanismwouldhavetobebasedonexpectedlossesduetocontinuingbusinessoperations.Thedesignoftheinsur-ancemechanismswouldbemorelikeabusinessinsurancemodelforinventorylossordamage(GoldsteinandHeintz1993).

Nyhusetal.(2003)pointedoutthatoneobviouspitfallisthatthecostofinsurancepremiumscouldoutweightheaveragepercapitacostofdamagetoanindividualland-owner.Thisproblemcouldbeoffsetbycombininganinsuranceproductwithacommunitydevelopmentfundtohelpoffsetindividuallosses.

Similartoanycompensationmechanism,insuranceissusceptibletothemoralhazardproblemwherebyalandownermayhaveareducedincentivetopreventlossesifhe/sheknowsthataninsuranceprogramwillreimburseatfullvalue.Thisresultsinhighercostsforinsuranceprovidersandperhapsanunwillingnessofpro-viderstooffertheinsuranceproduct

RecommendationsSimilartothesituationwithcompensationincentives,insuranceincentivescanbemorebiologicallyeffectiveiftherearerequirementsforranchersandlandownerstopreventlossesfromoccurringinthefirstplace,byrequiringtheuseofproactive,preventativemanage-mentpracticestoavoidconflicts.Incaseswherenopreventativemeasuresweretaken,reimburse-mentrateswouldbeloweredorstandarddeductiblescouldbeincreased.Fromapurelybiologi-calperspective,actuarialratesfordeterminingthelevelofriskoflossshouldbedevelopedforvariouspartsofcountry.

Wethinkthereisagoodopportu-nityfortestingcommunity-develop-mentbasedinsuranceprogramsinthewesternUnitedStates.Insuranceprogramscouldbeofferedthrough

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localRuralConservationandDevelopmentorganizationsorthroughspecializedcooperatives.Thiswouldcontributetoloweringthecostsofverifyingandadminister-ingclaimsforlosses.

Cost-Share IncentivesThisdiscussionofcost-shareincen-tivesisdividedintotwocategories:publicandprivate.Theoverwhelm-ingmajorityofcost-shareincentivesareinthepublicfederalsector,andweselectedafewrepresentativeexamplesoffederalcost-shareincentivestoassess.

Public Cost-Share Mechanisms

Description Atthepubliclevel,therearecost-shareincentivesthataredirectlyal-locatedtoat-riskspeciesandhabitats,whileothercost-shareprogramshaveindirectimpacts.Mostpublicconservationincentiveprogramsthatprovidecost-shareassistancealsocontaintechnicalassistanceandeducationalcomponents.Examplesofcost-shareincentivesatthefederallevelthatdirectlyimpactspeciesandhabitatconservationincludetheU.S.DepartmentofAgriculture’sWildlifeHabitatIncentivesProgramandEnvironmentalQualityIncen-tivesProgram,andtheU.S.FishandWildlifeService’sPartnersforFishandWildlifeandLandownerIncentivePrograms.

Atthefederalandstatelevels,thereareliterallydozensofprogramsdesignedtoassistlandownerswiththecostsofimplementinghabitatandresourceconservationprojects25,eachwithitsownuniqueeligibilitycriteria,paymentlevelsandmecha-nisms.Forthegeneralpurposesofthistaxonomy,however,therearecommoncharacteristicsofthesepro-

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“ ...insurance incentives can be more biologically effective if there are requirements for ranchers and landowners to prevent losses from occurring in the first place...”

25. A detailed description of recent federal cost-share, grant and other incentives programs is provided in Hummon and Casey (2004).


gramsthatwarrantdescription.First,mostpubliccost-shareprogramsalsoprovidefortechnicalassistance.Second,mostarenotaimeddirectlyatspeciesorhabitatconservationbutinsteadpredominatelyaddresssoilerosionandwaterqualityproblemsthathaveindirectbeneficialimpactsonspeciesandhabitats,especiallyaquatichabitats.Third,dependingonthepurposeandstructureofeachindividualprogramorrecommendedmanagementpractices,cost-shareamountscanrangefrom50percentto100percent.Inaddition,manyprograms,especiallythoseatthefederallevel,offerextraincentivepaymentsfortheadoptionofspecificpracticesorforaselectedhabitattype(e.g.,riparianzones).

Typically,thefederalgovern-ment,especiallytheU.S.DepartmentofAgriculture,determineswhichmanagementpracticesitwillcost-share.TheEnvironmentalQualityIncentivesProgramadministeredbytheDepartmentofAgricultureusesanEnvironmentalBenefitsIndextotargetcost-sharefundstoprojectsconsideredtohavethehighestenvi-ronmentalbenefit.

Ninetypercentofstateshaveatleastonetypeofpublicpaymentpro-gram.26Themostcommonaregrantsorcost-shareprogramsthatpayallorpartofthetotalcostofactivitiessuchashabitatrestorationorenhance-ment.Thirty-sevenstateshavecost-shareprograms,and20stateshavegrantprograms.Oneexampleofastatecost-shareincentiveforhabitatconservationisWisconsin’sTurkeyandPheasantStampProgram,whichprovidesfundingtolandownersforpracticestomanage,restoreandpre-servewoodlands,savannah,wetlandsandprairie.Thecost-shareprovidesfundsforthelaborcostsofprescribedburningaswellasin-kindmateri-

alssuchasburningequipmentandprairieseed.Thecost-shareincentivealsocoverssomepaymentstoland-ownerstoallowhuntingaccessandrequiresaten-yearcommitmentfromlandowners.Georgiaadministersacost-shareincentivetolandownersforthepreservation,creationorenhance-mentofbobwhitequailhabitat.Underthisincentive,alandownerorleaseholdercontrollingaminimumof50contiguousacresofrowcropagriculturallandorthinnedpinestandsmaybeeligibleforpaymentsofupto$10,000.

Twenty-onestatesofferin-kindmaterialstolandownerstoencourageenhancementorrestorationofresourc-esonprivateland.Forexample,theIllinoisPrivateLandWildlifeHabitatProgramassistslandownerswithna-tiveplantmaterials,equipmentandlabortodevelopandmaintainwildlifehabitatmanagementpractices.

Assessment Todate,thereislittleinformationoneitherthetechnicaleffectivenessoreconomicefficiencyofindividual

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cost-sharemechanismstoconservespeciesandwildlifehabitat.Fromthestandpointofbiologicaleffectiveness,thecost-sharemechanismmayonlybeatemporarysolutionunlesstheinitialone-timepaymentisaugment-edwithmanagementfundsorotherlonger-termmechanisms.

Fromaneconomicperspective,cost-sharepaymentsincreasethelikelihoodthatlandownerswilladoptpracticesconducivetospeciesandhabitatconservation,becausetheyreducethenetcostofdoingso(Claas-senetal.2001).Incentivepaymentsthatexceedthecostofadoptioncanprovideincomesupporttofarmerswhoadopthabitatconservationpractices,compensatingthemforprovidingapublicgoodsuchaswildlifehabitatandnativespeciesdiversity.Iflandownersarerequiredtoimprovetheirenvi-ronmentalperformanceasaresultofaregulatoryrequirement,publicsub-sidiesforadoptingrequiredpracticesareconducivetovoluntarycontractsspanninganumberofyears,ensuringcontinuityofpracticesandmaintainingspeciesandhabitatsovertime.

Masked bobwhite quail | U.S. Fish and Wildlife Service

26. See George (2002) for a more detailed description of selected state direct payment programs.


Cost-sharemechanismsthatprovidelessthan100percentofadoptioncostswillbeeffectiveonlytotheextentthattargetedpracticesprovideadditionalprivateeconomicbenefitsorregulatorycompliance.Participationwillincreasealongwiththeincentivepaymentlevel.Howev-er,itmaybeexpensivefortaxpayersalonetofundsubstantialeffortsinspeciesandtheirhabitats.Therefore,private-publicpartnershipsmaybe

apotentialsolutiontofundingcon-straintsforcost-sharemechanisms.

Onefeaturethatmakessomepubliccost-shareincentivesbiologi-callyeffectiveisthattheyareopentoalltypesoflandowners,notjustthoseintheagriculturalsector.Forexample,arelativelyrecentadditiontotheU.S.DepartmentofAgricul-ture’sWildlifeHabitatIncentivesProgramistheoptionfora15-yearorlongercost-shareagreementthatisaimedspecificallyatat-riskspe-ciesandhabitats.Furthermore,thecost-shareincentivecancover100percentoftheinvestmentneededfordefinedmanagementpractices.Bothoftheseelementscontributetothisprogram’sincreasedeffective-nessand,fromthestandpointoftheparticipant,financialviability.

TheWildlifeHabitatIncentivesProgramhastosomeextentbeen

implementedinatargetedfashion.Underthisprogram,eachstatehasprepared(andsomehaveupdated)asummaryofgeneralwildlifehabitatconditions,andthatdeterminespri-orityhabitatsorspeciesfortargetingcost-sharefunds.EachstatebiologistfortheUSDANaturalResourcesConservationService,inconsultationwiththeirstatetechnicalcommit-teeandotherentities,prioritizestatehabitatconservationneedsbydesig-

natingpriorityregions,habitatsorspecies(Burke1999).Insomestates,threatenedandendangeredspeciesandtheirhabitatshavebeentargetedforcost-shareassistanceonagricul-turalandnon-agriculturallands.27

OneindicationofthefinancialattractivenessoftheWildlifeHabitatIncentivesProgramisthebacklogoflandownerswhowishtoparticipatebutcannotgetfunding.Forexample,between1998and2001,morethan2,500landownersappliedforcost-sharefundstocover250,000acresofhabitat,butalackofprogramfundspreventedtheirenrollment.In2004alone,thebacklogwas2,000landowners.Presumably,privatelandownerswouldnotbeinterestedinthisprogramifthecostsofdoingsooutweighedtheperceivedbenefits.Onedrawbackinimplementingtheprogramislackoffunding,withonly

about$40to$60millionavailableperyear,whichisonlyenoughforafewprojectsperstate.Grayetal(2005)haveindicatedthattheWild-lifeHabitatIncentivesProgramhasawiderangeofhabitatenhancementactionsthataffecthundredsoftargetandnon-targetspecies.Furthermore,whiletheauthorsstatethatfewquan-titativedataexist“describinghowfishandwildlifehaverespondedtoter-restrialandaquatichabitatsenrolledintheprogram…thereisanecdotalevidence(that)impliesthattangiblebenefitstotargetspeciesarebeingrealized”(Grayetal,2005,p.155).

Themajor“workinglands”cost-shareincentivemechanismisdeliv-eredthroughtheU.S.DepartmentofAgriculture’sEnvironmentalQualityIncentivesProgram.Theprogramisthelargestsinglefederalcost-shareincentiveprogramthatindirectlyimpactsspeciesandwildlifehabitat.From1996to2001,thiscost-shareprogramwasusedtoimplementalmost14,000projectsnationwide,coveringmorethan5.3millionacres,foratotalcostofnearly$13mil-lion.Mostoftheprojectsrelatedtoimprovedwaterqualityprobablyhadbeneficialimpactsonaquatichabitat,butthisisasyetunverified.Projectsprovidingindirectbenefitstowildlifeincludedthoseforsoilerosion,residueandpesticidemanagement,vegetativebuffersandwindbreaks.Theprogramalsoprovidesfundingforprojectsthatconservehabitatforat-riskspecies.Forexample,programfundinghasbeenappliedtoprevent-ingthelistingofthearcticgraylinginMontanabypayingfarmersforfore-goneproductionfromnotirrigating,andforrehabilitationofsagegrousehabitatonagriculturalandranchlandsinseveralwesternstates.

However,neithertheeffective-ness,northeeconomicefficiency,of

“ One indication of the financial attractiveness of the Wildlife Habitat Incentives Program is the backlog of landowners who wish to participate...”

27. States that have indicated that their primary goal is improving conditions for threatened and endangered species are Arizona, Colorado, Kentucky, Maine, Maryland, Montana, New Jersey, Nevada, and New Mexico (Burke 1999).


thecost-shareincentivemechanismonbiodiversityconservationhasbeenexamined.Before2005,thiscost-shareprogramsupportedtwoprojects(coveringonly20acres)thathadadirectimpactoncontributingtotherestorationandmanagementofde-clininghabitats.However,newusesofthisprogramin2005haveincludedpredatordeterrentmeasuresaswellasandhabitatimprovementsforpipingplover,salmon,arcticgraylingandpallidsturgeon.Theefficacyofcost-shareincentivesforthesedirectuseshasnotyetbeenevaluated,butallpublicfundingallocatedforcost-shareamountswasappliedforbylandown-ers.28Atleastattheprivatefinanciallevel,thisindicatesthatthecost-shareamountsweresufficientenoughtoattractlandowners.

TheU.S.FishandWildlifeServiceofferscost-shareincentivesthroughitsPartnersforFishandWildlifePro-gram.Underthisprogram,thehigh-estpriorityisgiventoprojectsthatbenefitdecliningmigratorybirdandfishspecies,threatenedandendan-geredspecies,andspeciesproposed

forlisting,andtothoseproposalsonprivatelandsthatsatisfytheneedsofpopulationsadjacenttoNationalWildlifeRefuges.Specialconsider-ationisgiventoprojectsthatareonpermanentlyprotectedlandsorthatreducehabitatfragmentation.Projectsoflongerduration,thosethatleveragenon-federalmoney,andthosethataremostcost-effectivearehighlyranked.Todate,therehasbeennoanalysisofeitherhoweffectiveorefficientthecost-shareincentivemechanismhasbeeninmeetingtheprogram’sgoals.

TheU.S.FishandWildlifeService’sLandownerIncentivePro-gramofferscost-shareandtechnicalassistanceincentives.Thisprogram,whichisadministeredbyeachstate,helpslandownersenhancehabitatforat-risk,threatenedandendangeredspecies.Itisthereforetargetedtocost-sharingconservationpracticesforspeciesinneedofconservationandassistance.Somestatesareprioritizingfundingforprojectsthatimplementtheirstatewildlifeactionplan.

Oneofthebiologicalbenefitsofthecost-shareincentivesofferedby

theU.S.FishandWildlifeServiceisthattheycanpreventhabitatdeg-radationforat-riskspecies.Oneofthefeaturesthatmakethiscost-sharepotentiallymoreeffectiveisthatitincorporatesamonitoringcompo-nent,whichincludesapre-agree-mentsurveyandaperiodicprogresscheck.Themonitoringactivitylendstheprogramflexibilitythroughadaptivemanagement.Ontheotherhand,U.S.FishandWildlifeServicecost-shareprogramshavebeencriticizedwithrespecttowhethertheyhelpendangeredspecies.Someobserverssaythatthestructureoftheseincentivesactuallydiscouragelandownersfromconservingfeder-allylistedspecies(Freedman2003).Theprogramguidelinesestablishthatprojectsshouldbenefit“at-risk”species,whichisbroadlydefined.However,thehightransactioncostsassociatedwithaccessingcost-shareincentivesforfederallylistedspecieshasencouragedstatestousethefundsforstate-listedorotherat-riskspecies(Freedman2003).

Therearetwotypesofeconomicconstraintsthatmayreduceprivatelandownerparticipation.First,thefinanciallevelatwhichlandown-ersmeettheirpartofthecost-sharerequirementsmaybetoohightoallowforwidespreadparticipation.Forexample,aprivatelandownercanreceiveupto$20,000inFloridatocost-sharepracticesforconservingen-dangeredspecies.However,a50per-centnon-federalmatchisrequired,whichmaydiscouragesmallerprivatelandowners.Second,landownersonlyreceivereimbursementafterrestora-tionworkiscompletedandevaluatedbystatefishandwildlifebiologists.

Fromthepublicfinanceperspec-tive,CongressandtheU.S.FishandWildlifeServicehavehadproblemsgettingenoughincentivefunding

Bombay Hook National Wildlife Refuge, Delaware | U.S. Fish and Wildlife Service

28. David White. May 2005. Personal Communication. Natural Resources Conservation Service. Bozeman, Montana.


outtothefield,thereforemakingitlesseffective.

Recommendations Totheextentthattargetingcost-sharefundsalreadytakesplaceinthepublicrealm,thoseeffortsshouldbemaintainedandexpanded.Atthefederallevel,theDepartmentofAgriculturecost-shareincentiveprogramsshoulddevelopbiologicalcriteriaforincorporationintotheEnvironmentalBenefitsIndexasadecisionmakingtool.ForDepart-mentofAgriculturecost-shareprograms,wewouldrecommendthatonlyaportionbetargetedtohabitatsidentifiedinstatewildlifeactionplansasneedingconserva-tion.ForbothfederalAgricultureandFishandWildlifePrograms,themanagementpracticesthatarecost-sharedshouldbereviewedfortheirbiologicaleffectivenessandeconom-icefficiency.Toalimitedextent,theDepartmentofAgricultureisalreadyimplementingsuchareviewthroughitsConservationEffectsAssessmentProgram.Thiseffortneedstobecontinued.

Wehavethreebasicrecommenda-tionsthatcouldbeusefulinimprov-ingtheeconomicefficiencyofpubliccost-shareincentives.First,thereneedstobecoordinationofpractices,paymentlevelsandpriorityareasbetweenthestateandfederaleffortsinordertomakemoreeffectiveuseofexistingfunds.Second,wewouldrecommendthataneconomicevalu-ationofenvironmentaloutcomesbeimplementedinordertogaugethepublicbenefitsoflandownerconservationefforts,andperhapstoreadjustcost-shareamounts.Third,forthoselandownersthatengageinactivitiesthatcanresultinbetterconservation(e.g.,coordinationwithotherlandowners,conducting

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monitoringandevaluationactivities,addressingcriticalresourcesofcon-cern,etc.),incentivebonuspaymentsshouldbeoffered.

Private Cost-Share IncentivesDescription

Oneexampleofaprivatecost-shareincentiveisthefundingofproactiveprojectsandpracticestopreventconflictsbetweenlandown-ers’economicutilizationoftheirresources(cropsorlivestock)andnativewildlife.Privatefundshavebeenemployedtoprovideassistancetolivestockownersandotherrurallandownerstocost-sharepreventa-tivemeasurestoavoidconflictsbetweenwildlifeandhumans.

DefendersofWildlifeestablishedaproactivecost-sharecarnivoreconservationfundin1999tohelpwithrecoveryeffortsforwolvesandgrizzlybearsandtopreventconflictsbeforetheyoccur.Otherobjectivesaretokeeppredatorsfrombeingunnecessarilykilledbyagenciesinresponsetohumanconflictsandtoincreasegeneraltoleranceforcarni-voresacrossthelandscape.Defend-erscollaborateswithfederal,stateandlocalgovernments,livestockproducers,andprivateenterprisestoinitiateproactiveprojects.

Examplesofproactivepracticesincludefurnishingguardanimals,radio-activatedguardboxes,flagsofribbonfabriconfencing,elec-tricfencesaroundcalvinggrounds,electricnightpensandaerial

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monitoringflights;retiringgrazingallotments;providingalternativegrazingpasturesandfeedsourcesforlivestock;andhiringrangeherd-

ersandriders.From1999to2003,Defenders’completed76projectsforacostofabout$257,000.For2004and2005,investmentsinproactivemeasuresreached$219,000.Mostoftheseprojectshavebeenaimedatre-ducingconflictsbetweenwolvesandlivestockintheNorthernRockies.

Assessment Todate,therehasbeennoassessmentofthebiologicaleffectivenessoreco-nomicefficiencyofprivatecost-sharemechanisms.Withrespecttoeconomicefficiency,andtotheextentthattheprivatesectorcanadministerfundingwithfeweradministrativerequire-ments,privatecost-sharemechanismsmayinvolvefewertransactioncoststhanpublicprograms.Anothereco-nomicadvantageofprivatecost-shareincentives,specificallyforlivestockdepredationsbylargecarnivores,isthattheycanimprovetheeffectivenessofcompensationprograms.

Recommendation Ourmajorrecommendationisthatprivateproactivecost-shareincentivesbemorerigorouslyassessedtodeter-minetheireconomicefficiencyandtheirimpactsonspeciesandhabitatconservation.Thisworkisimportant,asdemandforsuchprogramsislikelytoincreaseinthefuture.

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“ To date, there has been no assessment of the biological effectiveness or economic efficiency of private cost-share mechanisms.”


Conservation Stewardship IncentivesDescription

Conservationstewardshipincen-tivesarepaymentstolandownersforsupplyingandmaintainingenviron-mentalservicessuchascleanwater,reducedsoilerosionandimprovedbiodiversity.Thisincentivemecha-nismdiffersfromcost-sharepay-mentsinthesensethatlandownersreceivecompensationforthepublicresourcegoodsthattheyarealreadyproviding.Thatis,landownersarenotreceivingcompensationoras-sistancefor“fixing”environmentalproblems,butratherformaintainingsoundenvironmentalpracticesthattheyarealreadyimplementingandwillcontinuetoimplement.Themajorjustificationforasteward-shipincentiveisthatlandownerswhomanagetheirlandtogenerateenvironmentalbenefits,whichareenjoyedbythepublicatlarge,shouldreceivesomeformofcompensationforpublicbenefitsthathavenoread-ilyavailablemarkets.

Assessment TheonlyconservationstewardshipincentivemechanismnowbeingimplementedisthroughtheDepart-mentofAgriculture’sConservationSecurityProgram.Thisprogramwasauthorizedin2002,andthefirstpar-ticipantswereenrolledin2004.Sincetheprogramissonew,therehasbeennobiologicaloreconomicassessmenttodetermineitseffectivenessoreffi-ciency.However,becausetheprogramhasbeeninhighdemandthroughoutthecountry,weassumethatprivatelandownersarefindingitcost-ef-fectivetoparticipate.Oneobserver(Henry2005)hasstatedthatthepo-tentialforimprovingwildlifehabitatthroughtheConservationSecurityProgramisenormous.Certainly,

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offeringincentivestolandownerstomaintainpublicbiodiversitybenefitsovertimethroughactivemanagementcouldbemorebiologicallyeffectivethataone-timecost-shareincentiveforinstallationofapractice.

RecommendationOurmajorrecommendationforthisstewardshipincentivemechanismisthatitundergoafullevaluationtodetermineitscontributiontobiodi-versityconservationanditsprivateandpubliceconomicefficiency.Thiswillrequiresomeestimatesoftheeconomicvalueoftheenviron-mentalgoodsandservicesthatarebeinggeneratedandmaintainedbylandownersintheConservationSecurityProgram.

Land and Water Rental and LeasesDescription

Conservationincentivesintheformoflandrentalpaymentsoccurprimar-ilyinthefederalsector,andspecifi-callythroughtheU.S.DepartmentofAgriculture.ThemajorlandrentalprogramsaretheConservationRe-serveProgramanditssisterprogram,theConservationReserveEnhance-mentProgram.29TheConservationReserveProgramwasestablishedin1985andprovidescompensationthroughlandrentalpaymentstolandownerswhoceaseproductionofagriculturalproductsonerodibleandotherenvironmentallysensi-tivelandsandestablishperennialgrassortrees.Whereastheprogramwasoriginallyconceivedasadual-purposecommoditysupplycontrolandsoil-erosion-reductionprogram,ithasevolvedintoamultipurposeconservationprogramwithwildlifeconservationnowrecognizedasoneofitscoregoals(McKenzie1997).TheConservationReserveProgramis

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thelargestfederalresourceconserva-tionprogramintermsofthenumberofparticipantsandprogramexpendi-tures.Morethan34millionacresarecurrentlyinlandrentalagreements.In1996,policymakerscreatedtheConservationReserveEnhancementProgram,afederal/statepartnershipprogram,tofocusonlocalenviron-mentalproblems.InMaryland,forexample,theEnhancementProgramistargetedtoprotectwaterqualityintheChesapeakeBay.InWashingtonandOregon,theprogramfocusisonsalmonrecovery.Rentalcontractsarefor10to15years,withannualpaymentssetatlevels(basedonlo-calagriculturallandrentalrates)tocompensatelandownersforforgonenetrevenues(netbenefitstheywouldhavereceivedhadtheyusedthelandforsomeformofproduction).

Anexampleofastate-fundedlandrental/leaseprogramisKansas’s“Walk-InHuntingAccess.”Thisincentiveprovideslandownersleasepaymentsforwildlifehabi-tatretentionandenhancementinexchangeforaccesstothepublicforhunting.In2001,theKansasDepartmentofWildlifeandParksleasedabout680,000acresofhabi-tatunderthisprogram.

Contrastedtolandrentals,leas-ingin-streamwaterrightstoprotectaquatichabitatandspecieshasbeenprimarilyaninstrumentutilizedbyprivatewesternconservationgroupssuchastheOregonWaterTrust.Inaddition,Oregon’sConservationRe-serveEnhancementProgram,whichusesfederalandstatefundstorestoreriparianareasforhabitatandwaterquality,includesanoptionforleasingirrigationwaterforin-streamuses.Todate,therehasbeennoanalysiscon-ductedtodeterminethebiologicaleffectivenessoreconomicefficiencyofwaterleasingincentives.Thus,the

29. The U.S. Department of Agriculture’s Grassland Reserve Program has only been implemented since FY 2003, and not enough experience has been gained to determine either its effectiveness or efficiency in protecting wildlife habitat.


assessmentandrecommendationssub-sectionsbelowaddressonlylandrentalincentives.

AssessmentVanBuskurkandWilli(2004)foundthatlandwithdrawnfromagriculturalproductionthroughlandrentalpay-mentsenhancednativebiodiversityintheUnitedStates.Thenumberofspe-ciesofbirdsandinsects,forexample,arehigheronrentallands,andpopu-lationdensitiesincrease,especiallyforthoseindecline.Additionally,theyconcludedthatlandrentalincentivesimprovedtheviabilityofnativeplantsandanimalsonadjacentlandsthatremainedinagriculturalproduction.Themajordeterminantsofbiologicaleffectivenesswereidentifiedasusingnativeplantspecies,rentinglargerparcels,usinglessintensiveproduc-tionpracticesandhavinglongerrentalagreements.

TheavailabilityofpermanentcoveronConservationReserveProgramrentallandshashadsomepositiveimpactsonbiodiversityintheformofprovidingnestingcover,winteringhabitat,andplantandinsectfoodsources.Landrentalagreementsusuallycontainsomerestrictionsonharvestingpracticesinordertobenefitwildlife.Forinstance,theenrolledlandsinaspecialbiomassproductioncategorymaynotbeharvestedmorethanonceeveryotheryear,andthebiomassmaynotbeusedforanythingotherthanenergyproduction.Therearerestric-tionstoprotectparticularbirdspecies,suchasforbiddingharvestingormow-ingduringnestingseasons.

Landrentalincentivesareparticu-larlywellsuitedforsecuringenviron-mentalbenefitsthatincreasewiththelengthoftimelandisremovedfromcropproduction.Landretirementcanbeeasilyconfirmedand,therefore,easilyenforced.However,sinceland

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rentalprogramsaretemporary,thereisnolong-termguaranteethathabitatwillremainprotectedaftera10to15yearagreementhasexpired.Further-more,only25percentofthelandareaofanyonecountymayberentedun-dertheConservationReserveProgramatanyonetime,possiblymitigatingtheachievementofasufficientbiologi-calscaleforsomespecies.

Itisgenerallyassumedthattakinglandoutofintensiveproductionwillbenefitnativeplantsandanimals.However,therehavebeenseriousquestionsabouttheconservationvalueoflandrentalincentivepayments.AsVanBuskurkandWilli(2004,p.998)pointout,“Variousecologicalandeconomicargumentssuggestthattheseprogramsandincentivesareinefficientandrelativelyunsuccessfulatprovid-inghabitatforwildlife.Agro-eco-logicalmonitoringoftheimpactsofset-asidesonbiodiversityhasproducedalargeandcontradictoryliterature.”However,theauthorsdonotexplic-itlyrecognizethattheConservationReserveProgramhasbeenprimarilyaimedatreducingsoilerosionandthatprovidingwildlifehabitathasnothistoricallybeenitsmajorfocus.

Despitesomesuccessesinattainingbiologicaleffectiveness,theConserva-tionReservelandrentalshavehadsomeunintendednegativeconse-quences.Oneisthatnativeprairiehabitathasbeendestroyed(Baker2005).“Sodbusting,”thepracticeofconvertingvirginprairieintocrop-land,hasapparentlybeenparticularlyacuteinSouthDakota.However,thefederalagenciesoverseeingtheConservationReserveProgramhaveindicatedthatafter2000,sodbustinghasnotbeenalargeproblem.Still,fromapublicgoodsperspective,landrentalpaymentsarelesseffectiveandeconomicallyinefficientiftheyresultinlossesofecologicalfunctionin

adjacentnativeprairies.Anothertechnicalproblemwith

theConservationReserveProgramhasbeenthelackofanexplicitprohibi-tionagainstcertainpracticesthatmayunderminenativeprairiehabitat,suchasplantinginvasivespecies.Becausetheoriginalpurposeoftheprogramwasreducingsoilerosion,federalagen-ciesatonetimeevenrequiredtheuseofinvasivegrassspecies.Currently,however,newenrollmentpoliciesencourageandrewardlandownerstoplantnativegrasses.

Fromtheperspectiveoftheland-owner,AllenandVandever(2003)reportsurveyfindingsdesignedtogaugetheimpactsoftheConservationReserveProgram,andindirectlytheeffectivenessoflandrentalincentives.Theauthorsstatethat85percentofrespondentsreportedimprovedcontrolofsoilerosionasaresultofputtinglandintotheprogram,morethan75percentbelievedthattheben-efitstowildlifeareimportant,and73percentbelievedthattherewereposi-tivechangesinwildlifepopulations.Ontheotherhand,only39percentofthelandownersthatrespondedthoughttherewereimprovementsinwaterquality.

ThebiologicalimpactoftheCon-servationProgramReservehasdifferedbyregion,buttherearenodefinitivenumbersintermsofspeciesprotected.Winkleman(2005)reportedthattheprogramhashadapositiveinfluenceonnestingsuccessofthegreaterprairiechickeninMinnesotabyprovidingdensegrasslandhabitat,detractingpreda-tors,andprovidingagreaterfoodsupply.

IntheMidwest,Heardetal.(2000)observedthatbirdabundancehasbeensubstantiallyhigheronunconvertedConservationReserveProgramlandsthanonrowcropfieldstypicallyreplacedbyreserveplantings.Limitedevidenceindicates


thatreproductivesuccessandsurvivalaresufficientlyhightoyieldpositivepopulationgrowthforafewspe-cies.Todate,however,asignificantpositiverelationshipbetweentheestablishmentofhabitatandgrowthofpopulationshasbeendocumentedforonlytwograsslandbirdspecies.Overall,theevidenceaccumulatedtodateindicatesthatreservehabitatprotectedwithrentalpaymentsintheMidwestlikelycontributestothepopulationstabilityorgrowthofmany,butnotall,grasslandbirdspecies(Reynolds2000).However,thereisaneedtocontrolmanage-mentpracticessuchashayingandgrazingfortheconservationofhabitattoremaineffective.Johnson(2005)hasindicatedthechangefromcroplandtograsslandsince1985hasinfluencedbirdpopulationsandthatmany,butnotall,grasslandspeciescandowellonreservelands.How-ever,theresponsesofbirdswilldifferbyspecies,region,thevegetationcompositioninthefield,andwhetherornothayingorgrazinghastakenplace(Johnson,2005,p.17).

IntheGreatPlains,theeffectsoftheConservationReserveProgramonwaterfowlhavebeendocumented.Inareviewofpublishedandunpub-lishedstudies,Johnson(2000)foundthatgrasscoveronreservelandrent-alswashighlyattractivetonestingbirds.Between1992and1997,ithasbeenestimatedthatreservelandsintheprairiepotholeregioncontributedtoa30percentimprovementinduckproduction.Reynolds(2005)hasup-datedthisassessmenttoindicatethatthereserveprogramhas“significantlyincreasedduckproductivityfromthemostimportantduckbreedingareainNorthAmerica”(p.38).

Burger(2005)estimatedthatmorethan1.3millionhectareswereenrolledintheConservationReserveProgram

intheSoutheast.Becauseofnaturalsuccession,however,thewildlifespe-ciesthatoccuronreservelandswillvaryovertime.Theprovisionandmanagementofwildlifehabitatovertimerequiresactivemanagement,includingtheeradicationofexotic

foragegrasses.Burger(2005)con-cludesthatthewildlifehabitatvaluesofreservefieldsintheSoutheasthavediminishedovertimebytheselectionofcoverpracticeswithshortdurationorminimalhabitatvalue.

Intheareasforwhichlandrentalsoccurthroughthefederal-statepart-nershipoftheConservationReserveEnhancementProgram,norealevalua-tionofbiologicaleffectivenesshasbeencarriedout.Nonetheless,researchonwildliferesponsestoconservationbuffers,whichareanapproachcom-monlyavailablethroughtheenhancedprograms,havebeenassessedbasedonareviewofstudiesofbirdcom-munitiesinvariousstripcoverhabitats(Best2000).Birdabundancesandnestdensitieswerefoundtobehigherinstrip-coverhabitatsthaninbloc-coverhabitats,butnestsuccessinstrip-coverhabitatsisoftenverylow.However,strip-coverhabitats(orbuffers)mayfunctionasbiologicalsinksthatcannegativelyimpacttherecoveryofaspecies.Allen(2005)pointsoutthatmostReserveEnhancementprogramshaveonlybeeninexistenceforfouryears.Monitoringprogramstoevalu-

atetheperformanceoftheprogramhavebeenestablished,but“becauseofthetimeneededtoestablishvegeta-tivecoversandthecomplexitiesoflandscape-levelanalysis,quantifiableresultsarelimitedatthistime”(Allen2005,p.115).

Fromaneconomicefficiencyperspective,therearebothadvan-tagesanddisadvantagestolandrentalincentives.First,fromanationalperspective,thepublicfacesconstantlyrecurringcostsofrent-ingthesameamountofecologicalservices,ratherthanowningthosesameservices.Shafferetal.(2002)haveshownthatforconservingarepresentativenationalsampleofnativebiodiversityandwildlifehabitats,landacquisitionwithmanagementandeasementsaremorecost-effectivethanlandrent-als.Anothereconomicdisadvantageisthatrentalpaymentsmustcoverthefullvalueoftheproductivecapacityofthelandandthereforecanbemoreexpensiveonaperunitbasisthanothertypesofincentivemechanisms.Attheprivateland-ownerlevel,rentalratesforirrigatedland,andtheriparianlandsthatarecrucialtosomanyspecies,arenotsethighenoughincomparisontovalueoflandinproduction.

TheReserveProgramhasdemonstratedsomepositivepubliceconomicbenefits.Asitislinkedto

“ From an economic efficiency perspective, there are both advantages and disadvantages to land rental incentives.”


thelandrentalincentive,conserva-tioncompliancehasbeenestimatedtoprovideenvironmentalnon-mar-ketbenefitsofabout$1.4billionperyear(Claassenetal.2001).Erosionreductionsonprogramlandsarees-timatedtoprovide$694millionperyearinnon-marketbenefits(Claas-senetal.2001).Thesevaluesincludewater-basedrecreation,soilproduc-tivity,andindustrialandmunicipalwateruses.Thevalueofimprove-mentstowildlifeviewingandtohuntinginducedbytheprogramhasbeenestimatedat$704millionperyear.Thisrepresentsalowerboundestimateofwildlifebenefits,becauseitdoesnotincludenon-usebenefitsofincreasedprotectionofthreat-ened,endangeredandotherspeciesthatsocietyasawholevalues.

Therehavebeensomeattemptstocombinetechnicaleffectivenesswitheconomicefficiencyintheselectioncriteriaforlandrentalincentives.ProposedlandrentalcontractsfromlandownersarerankedaccordingtoanEnvironmentalBenefitsIndex,which

consistsofdeterminingaratioofprojectcoststoestimatedbenefitsgen-eratedintheformofwildlifehabitat,waterqualityandsoilerosioncontrol.Proposedcontractswiththehighestbenefit-to-costratioreceiveprioritiza-tionforfunding.

Oneeconomicfactorthatwillbeimportantfromapublicfinanceperspectiveisthatthelandrentalagreementsonabout28millionConservationReserveProgramacreswillbeexpiringandupforrenewalin2007-2008.Itispossiblethatthegoaloffederalbudgetdeficitreductionwillresultinfeweracresbeingrentedwithpublicfunds.Whilelowerenrollmentrateswillresultinsomecostsavings,thereisaconcernthattheprogramwillbescaledbackandthebiologicalgainsthathavebeenmadewillbelost.

RecommendationsThereareanumberofrecommen-dationsthatwecanofferwhichwebelievewouldincreasethebiodiversityimpactsoflandrentalincentives.Theserecommenda-

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tionsareprimarilyaimedattheConservationReserveProgram,buttheyshouldalsobeapplicabletootherprogramsthatofferrentalpayments,suchasthenewGrass-landsReserveProgram.Perhapsthemostimportantrecommenda-tionistostrengthenandenforcethesod-busterprovisionsoftheFarmBillsothatlandsunderrentalagreementsarenotsubstitutedwithnewlandsthatarebrokenopenforproduction.Second,althoughithasbeendemonstratedthatcertainbirdspecieshavebenefitedfromtheConservationReserveProgram,thereisaneedtoevaluateandadjustmanagementpracticesthatarerequiredunderrentalagreementsinordertoimprovetheirbiodiversityimpacts.Third,activemanagementbylandowners,includingburning,controlofinvasivespecies,etc.,shouldbeadequatelycompensated.Biodiversityconservationandenhancementdoesnotstopwiththesigningofarentalagreement.Fourth,asinourrecommendationsforotherincentivemechanisms,webelievethereshouldbesomedegreeoftargetingtheReserveProgramtohabitatsandspeciesidentifiedinthestatewildlifeactionplansasneedingattention.Tosomeextent,thisisalreadydonebyratingapplicationsfortheprogrambasedontheEnvi-ronmentalBenefitsIndexdescribedabove.Whatmaybeusefulistoincorporatetheprioritiesofthestatewildlifeactionplansintocurrentindexesforeachstate.Finally,the“25percentrule”;thatis,thatonly25percentofanyonecountycanbeenrolledintheReserveProgramatanyonetime,shouldbesuspended.Thisputsanartificiallimitontheareathatlandownersmaywishtorentoutandmayunintentionallyleadtohabitatfragmentation.

Farmer and conservation agent, California | Natural Resources Conservation Service


Withrespecttoimprovedeconomicefficiency,thefactthatprivatelandownersarewaitingtogetintotheprogramisasignthattheReserveProgramisprofitableforthem.However,asreportedearlier,landrentalcontractsoveralongtimehorizonarelessefficientfromthepublictaxpayerperspectivethanlandpurchases.Toimprovetheeconomicefficiencyoflandrentalincentiveswehavetworecommendations.First,rentalratesforirrigatedlandsneedtoberaisedbecausecurrentratesbasedonMidwestcroplandarejustnotcompetitivewithirrigatedcropproduction,especiallyfruitsandveg-etables.Second,inordertoremaincompetitivewithalternativelanduses(includingsprawl),rentalratesshouldbebasedontheirfairmarketvalueinalluses,notjustagriculture.

Conservation ContractsDescription

Conservationcontractsforresourceconservationservices,betweenprivatepartiesorbetweenpublicagenciesandprivateparties,cantakemanyforms.Althoughconservationcontractsdonottransferspecificownershiprights,theycontractuallybindtheownertomanagehisorherpropertytoachievespecificenviron-mentalobjectives(Brown1999).

Typically,alandownerwhoagreestocontracttermsmayreceiveapaymentinreturn.AllconservationprogramsmanagedthroughtheU.S.DepartmentofAgricultureinvolveacontractualagreementtoimplementspecificconservationpracticesinexchangeforpayment.Intheprivatesector,producer-processorcontractscanrequiretheuseorbanofspecificinputsormanagementpracticestoimprovefoodsafety,improvewaterquality,orprotectspeciesandtheirhabitats(Swinton,etal.1999).

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Contractingforthesupplyofgeneticresourcesalsoprovidesdirectfinancialpayments.Biodiversitymaybeextremelyvaluableintermsofgeneticresourcesforpharmaceuticalandmedicinalresearch,agricultureandindustry.

Forinstance,itisestimatedthat25percentofmedicinesandpharma-ceuticalswereoriginallyderivedfromplantspeciesandanother25percentfromanimalsandmicro-organisms(Meyers1997).Examplesincludetaxolforcancerandbacteriumcol-lectedfromYellowstonehotspringsthatallowforgeneticfingerprinting(Brown1999).Thesecontract-ingmechanismsprovidethemeanstoderiveassetvaluesfromnaturalresourcesandactasanincentivefortheirconservation.

AssessmentWithrespecttothetypesofprivateconservationcontractslistedabove,therehasbeennoempiricalanalysisofspecificprojectsorprogramsintermsofbiologicaloreconomicimpacts.

RecommendationThereisaneedtocarryoutanassess-mentofconservationcontarctsandtocomparetheresultstoothertypesofincentivemechanisms.Oneparticularconcernfromaneconomicsperspec-tiveisthatincentivesreflectmultiplenon-usevaluesofbiologicalresources,justnottheirprivatemarketvalueforuseinfulfillingsomeparticularhumanneed.

Debt Forgiveness Description

TheFarmServicesAdministrationoftheU.S.DepartmentofAgriculturemanagesaDebtforNatureProgram.Thepurposeofthedebtforgivenessincentiveistohelplandownerstoimprovetheiroverallfinancialstability

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andsimultaneouslyimprovewildlifehabitat,environmentalqualityandthescenicvalueofagriculturallands.

Thefinancialincentiveiscancel-lationofaportionofthepartici-pant’sdebtinexchangeforconserva-tionactivities.Notallagriculturallandsareeligibleforthisincentivemechanism.Onlyhighpriorityareascomposedofwetlands,highlyerod-iblelandsorlandsin100-yearfloodzonesmayparticipate.

Theamountofdebtthatcanbecancelediscalculatedbyconsideringthepresentmarketvalueofthefarm,thevalueofthedebtitselfandthenumberofacrestobecoveredbyaconservationcontract.BorrowerswhoareuptodateontheirDepartmentofAgricultureloanpayments,orwhoarereceivinganewloan,canhavenomorethan33percentoftheirloancanceled.Therearerestric-tionsontheuseofenrolledlands,includingnoconstruction,timberharvestingoragriculturalproduc-tion.Theparticipantmustagreetocontinuetheconservationpracticesfor10,30or50years,dependingontheloanreimbursementschedule.

AssessmentAsinthecaseforconservationcon-tracting,therehavebeennoassess-mentsofeitherthebiologicaleffec-tivenessoreconomicimpactsofdebtforgivenessasanincentivemeasureforhabitatandspeciesconservation.

RecommendationsWewouldrecommendthatasub-sampleofparticipantsbesurveyedandfieldvisitsmadetorespondtotheseinformationneeds.Oneimportantquestioniswhetherthemarketandnon-marketvaluesgener-atedthroughconservationeffortsarecomparabletotheforgonedebtrepaymentsoftaxpayerfunds.

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Taxincentiveshavelongbeenusedbyfederalandstategovernmentstohelpachieve

conservationobjectives.Taxallow-ancesprovideafinancialbenefittothoselandownerswhomaintainorrestorelandforavarietyofconserva-tionpurposes.Taxincentivesdonotseektobalanceexistingland-basedrevenuesandopportunitycosts.Theyareintendedasmotivatingincentivesandeconomicsignals,notascom-pensationfortheeffectsoflawfulandappropriategovernmentregulation(Olsonetal.1993).

Themajortypesoftaxin-centivesallowforreductionsinincome,property,estateorcapitalgainstaxes.Federaltaxincentives

toconserveandprotectbiodiversityfallintotwocategories:incometaxreductionsandestatetaxreduc-tions.Reductionsinincometaxescancomeaboutbydonatingaconservationeasement,excludingconservationcost-sharepaymentsfromgrossincome,ordeduct-ingconservationexpenditures.Moststatetaxincentivebenefitsarereceivedinexchangeforeitherpassivelymaintainingpropertyinitscurrentstateoractivelymanag-ingthelandaswildlifehabitat.Forty-onestatesprovidesomeformofstatetaxbenefitforcitizensthatmaintainwildlifehabitat.

Thissectionisorganizedalittledifferentlyfrompreviousdiscus-

sionsofincentivemeasures.First,wedescribealltaxincentivesinonesub-section.Thisisfollowedbyageneralassessmentforalltaxincen-tivemechanismsandrecommenda-tionsthatarebasedonindividualtaxmeasures.

Income Tax Incentives Federalincometaxincentivestoen-couragehabitatconservationincludedeductionsfordonatingconservationeasements,forincurringconserva-tionexpenditures,andfromrevenuederivedonlandsthataremanagedtosupportnaturalhabitat.Thevalueofadonatedconservationeasementmaybedeductedfromfederalincometaxesiftheeasementisforconserva-

IX. PUBLIC TAX INCENTIVES�0

30. This section on public tax incentives draws from previous papers by Hummon and Casey (2004) and George (2002).

Columbine and Parnassian butterfly | U.S. Fish and Wildlife Service


tionpurposesandistransferredtoaqualifiedorganization.Landownerexpendituresforrestoringorcreatinghabitatforendangeredspeciescaneitherbedeductedfromincometaxesorreceivedasataxcredit.

Anotherstrategyistoexempt,ortaxatalowerrate,revenuesfromlandsthataremanagedforendan-geredspecieshabitat.Thisincentivecurrentlyonlyexistsatthestatelevel. Relieffromstateincometaxesforpri-vatelandownerstomaintainwildlifehabitat,thoughlessnumerousthanpropertytaxprograms,isthesecondmostprevalentstateincentivemecha-nism.Elevenstatesutilizeincometaxincentives,andtheyfrequentlyexistintheformofcreditsordeductions.

Themostcommonstateincometaxreliefprogramsinvolvedonatinganeasementtothestateorqualifiednon-profitorganizationforconservationpurposes.Theseprogramstypicallyallowacreditagainstthestateincometaxinsomeproportiontothevalueofthedonation.InVirginia,forexample,theLandConservationIncentivesActof1999giveslandownerswhodonateconservationeasementsastateincometaxcreditofupto50percentoftheeasement’sfairmarketvalue.

Donation of a Conservation Easement:Adonatedconservationeasementcanqualifyasacharitablegift,whichentitlesthelandownertodeductionsonhis/herfederalincometaxreturn.However,thereareseveralconditionsthatmustbemet,asde-finedbySection170(h)oftheInternalRevenueCode.Theeasementmustbeperpetual,donatedtoaqualifiedorga-nizationforconservationpurposesandprovidesomebenefittothegeneralpublic.Thelandsubjecttoanease-mentmusteitherprotectascenicviewforthegeneralpublic,openspace,animportant,relativelynaturalhabitat,orhistoricproperty,orprovidepubliceducationoroutdoorrecreation.Thelandownerretainsownershipofthepropertyandmaychoosetoshapethetermsoftheeasementtoallowforcompatibleuses.Inaddition,theeasementdoesnothavetocoveralloftheproperty,orallowpublicaccessinordertoqualifyasacharitablegift.Originally,upto30percentofalandowner’sgrossincomemaybedeductedeachyearforsixyears.InNovemberof2005,however,anewtaxbillexpandedtheincentivespro-gramfordonatedeasements.Thisbillextendedthedeductionperiodfrom

1to16yearsandraisedtheceilingfordeductionsto100percentofadjustedgrossincomeforfarmersandranchers(AmericanFarmlandTrust2005).

Exclusion of Cost-Share Payments from Gross Income:Section126oftheInternalRevenueCodeallowslandownerstoexcludefromtheirgrossincomeallorsomeofthecost-sharepaymentsreceivedfromfederalandstategovernmentconservationprograms.Inordertodoso,twoconditionsmustbemet:(1)TheSecretaryofAgriculturemustdeter-minethatthepaymentisprimarilyfortheconservationofsoilandwaterresources,protectingorrestoringtheenvironment,improvingforests,orprovidingwildlifehabitat;and(2)TheSecretaryoftheTreasurymustdeterminethatthepaymentdoesnotsignificantlyincreasetheannualincomederivedfromtheproperty(Haneyetal.2001).Forqualifyingconservationprogramsonagriculturallands31,theInternalRevenueServiceandtheU.S.DepartmentofAgricul-turedeterminewhichpracticesareeligibleforexclusion.Governmentpaymentsforlandrentalsdonotqualify,makingtheConservationandGrasslandReserveProgrampaymentsineligibleforexclusionfromgrossincome(Haneyetal.(2001).

DeductionsforConservationExpenditures;Section175oftheInternalRevenueCode(Haneyetal.2001),enableslandownerswhoinvestinsoilorwaterconservationtodeductrelevantexpensesontheirincometaxreturn,aslongasthelandis,orwasinthepast,usedforfarming.Eligiblefarmsincludethoseproducingstock,dairy,poultry,fish,fruitorvegetables.Thedeductionforsoilandwaterconservationexpensescanbenomorethan25percentofthelandowner’sgrossincomefromfarming.Iftheexpensesaregreater

Native grasses in conservation buffer, Iowa | Natural Resources Conservation Service

31. These programs include the Environmental Quality Incentives Program, the Wildlife Habitat Incentives Program and the Wetland Reserve Program, among others.


than25percent,surplusexpensescanbecarriedovertothenextyear.Thedeductioncanonlybemadeiftheexpensesareconsistentwithanapprovedfederalconservationplanorcomparablestateagencyplan.Approvedconservationexpendi-turesfordeductionincludethosefor(1)treatmentormovementofearth,suchasleveling,conditioning,terracing,grading,contourfurrow-ingandrestorationofsoilfertility;(2)theconstruction,controlandprotectionofdiversionchannels,drainageditches,irrigationditches,earthendams,watercourses,outletsandponds;(3)theeradicationofbrush,and(4)plantingwindbreaks.Expensesfromdrainingorfillingwetlands,andpreparinglandforacentralpivotirrigationsystem,cannotbedeductedassoilandwaterconservationexpenses.Ifthelandownerchoosestodeductsoilandwaterconservationexpenses,he/shecannotexcludeanycost-sharepaymentsreceivedfortheexpensesfromgrossincome.Iftheexpensesarenotdeducted,thentheymustbecapitalized.InFlorida,landownerswhoparticipateinFlorida’sgreenwaysystemareexemptedfromanystateincometaxesdueonmonetarycom-pensationreceivedfromconserva-tionactivities.

Property Tax IncentivesPropertytaxincentivesareallowabletaxdeductionsatthestateand/orlo-callevel.ThisincludestaxcreditsforhabitatmaintenanceorimprovementorpartialtaxcreditsforEndangeredSpeciesActcomplianceexpenditures.Akeycomplimentaryincentiveisrelatedtohowlandvaluesareas-sessedforappraisalpurposes.Severalstatesrequireappraisalaccordingtocurrentuseratherthan“highestandbestuse”toprotectagriculturaland

ranchlands.AversionofthisstrategyisthePublicBenefitRatingSystemwherebylandownersaregiventaxcreditsiftheyrestrictthepotentialdevelopmentorusepotentialoftheirproperty.Forexample,themorealandownerdoestoprotectwildlifehabitat,thelargerthecredit.

Thirty-sixstatesofferpropertytaxincentivesfortheestablishmentormaintenanceofwildlifehabitat(George2002).Thereareseveralpermutationsofstatepropertytaxincentives.Commonapproachesin-cludecurrentusevaluationfortaxas-sessmentpurposes,reducedpropertytaxesoroutrightexemptionfromtaxation.Lesscommonmechanismsincludetaxincentivesassociatedwiththetransferofdevelopmentrights,creditforopenspaceorhabitatman-agement,ortaxreliefforpropertyusedexclusivelyforpreservationpurposesbyconservationgroups.

Currentuseassessmentcom-prisesthelargestgroupofpropertytax-basedincentiveprograms.Theseprogramstakeintoaccountthelegalrestrictionsonlandusewhencalcu-latingtheproperty’svalue.Themostcommoncurrentusevaluationstat-utesthatcanbenefitwildlifehabitatconservationincludethoseforfarm,forest,openspaceandconservationuseproperty.Forexample,Illinoisprovidesthatpropertydedicatedasanaturepreserveorasanaturepreservebuffershallbedepreciatedforassessmentpurposes.

Seventeenstatesprovideforpropertytaxreliefforlandsubjecttoaconservationeasement.ColoradoandSouthCarolina,forexample,allowbothincometaxbenefitsandpropertytaxbenefitsforauthorizedconservationeasements.Propertyownedbyconservationgroupsand

usedexclusivelyforconservationpurposesbenefitsfromoutrightexemptionfrompropertytaxesinsomestates.

All50stateshavepreferentialpropertytaxprogramsforagricul-turallandthatcanserveashabitatforsomespecies.Whilesomestateshavepurepreferentialprograms(nopenaltiesforchanginglanduse)otherstatesimposeadeferredor“roll-back”tax-pluspenaltiesiflandisconvertedtonon-conservationuses.

Estate Tax IncentivesEstatetaxesmustbepaidonthemarketvalueofinheritedpropertyatits“highestandbestuse.”Thisusuallymeanstheland’sdevelop-mentpotentialintermsofhousing.Consequently,aninheritormayneedtosubdivide,selland/ordevelopsomeorallofthelandtopaythetax.TheFederalTaxpayerReliefActprovideslandownersanincentiveforputtinglandunderconservationeasementbyexcluding40percentofthelandvaluefromthetaxableestateunderaqualifyingeasement(Brown1999).Themaximumamountthatcanbeexcludedis$500,000.These

“ Thirty-six states offer property tax incentives for the establishment or maintenance of wildlife habitat.”


benefitsareavailableforeasementsthatreducethefairmarketvalueofapropertybyatleast30percent.Fewerbenefitsareavailableforeasementsthatreducepropertyvaluesbylessthan30percent.

Aconservationeasementcangreatlyreducethefairmarketvalueofland,especiallyinareasfacingintensepressuresfromdevelopment.Section2055(f )oftheInternalRevenueCodeallowsthevalueofdonatedeasementstobedeductedfromthetaxableestateofthelandowner.Thus,estatetaxescanbelowereddramati-callybytheuseofeasements.

TheInternalRevenueServiceRe-structuringandReformActof1998amendedsection2031(c)toallowanestatetaxdeductionforapost-mor-temeasement.Thismeansthattheheirstoanestatemaybeallowedtodonateaconservationeasementandstillreceiveestatetaxbenefits.How-ever,noincometaxdeductioncanbemadeunderthisoption.

Thereareseveralconditionsthatmustbemetforadonatedconserva-tioneasementtoqualifyfortheestatetaxbenefits.First,thelandmusthavebeenownedbythedecedentorfamilymemberduringthethreeyearspriortothedateofdeath(Haneyetal.2001).Theeasementsmustalsoqualifyforadeductionundersection170(h)oftheInternalRevenueCode(describedabove).Furthermore,theeasementmustprohibitallbut“deminimus”commercialrecreationalactivities.

The2001taxlawworkstophaseouttheestatetaxaltogetherbyraisingtheunifiedcreditto$1millionin2002,$3.5millionin2009,andnoestatetaxin2010.However,in2011theestatetaxwillreturn,unlessCon-gresstakesactiontochangeitbeforethen.Thereisanon-goingdebateaboutwhethertopermanentlyrepealthefederalestatetax.

Atthestatelevel,Virginiaallowsforpersonalrepresentativesandtrust-eestodonateaconservationeasementontheirdecedent’sorsettler’sprop-ertyinordertoobtainthebenefitoftheestatetaxexclusionoftheUnitedStatesInternalRevenueCode.Montana’sestatetaxstatuteallowsawaiverofinheritanceandestatetaxesbytransferringlandeasementstothestatetoconserveopenspaceandpreservewildlifehabitat.

Capital Gains Tax IncentivesTaxesoncapitalgainsmaybeavoidedwhenalandownerdonateslandtoaqualifyinggovernmentagencyornonprofitconservationorganization.Thisallowsthelandownertowriteoffaportionofvalueofthepropertyandsimultaneouslycontributetoenvironmentalprotection(Hudson1993).However,thecurrentexclu-sionratefromcapitalgainstaxesisonly25percentofthevalueoflandswithconservationeasements.ExamplesofexemptionsfromstatecapitalgainstaxesincludeArkansasandVirginiaforthesaleorexchangeoflandoraneasementtoapublicorprivateconservationagency.

General Assessment of Tax IncentivesTherehasbeenlittleanalysisoftheeffectivenessorefficiencyofanypublictaxincentivetoconserveorrestorewildlifehabitats.Theinformationwepresentislimitedtopersonalincomeandpropertytaxincentives.Brown(1999,p.468)indicatedthat,ingeneral,taxmechanismsare“oneofthemostpowerfulmarket-basedpolicytoolsforprovidingincentives(ordisin-centives)forencouragingprivatelandownerstorestoreorprotectbiodiversity.”Robles(2000),ontheotherhand,pointedoutthattax

lawsarefrequentlymodified,andlong-termprotectionofhabitatsandspeciesmaynotbepossiblethroughtaxincentives.Whileitistruethattaxlawsprovideimportantsignalstoresourcemanagers,theviabilityoftaxincentivestoprovideforlong-termwildlifeconservationcanbeopentoquestion.

McKinneyetal.(1993,p.3)concludedthattherearethreemajoreconomicandequityreasonsfor“usingthefederaltaxcodeasabasisforprovidingincentivestoprivatelandownerstoconserveandrestorewildlifehabitat.First,acentralizedtaxsystemservesasthemechanismneededtosupplementthetransferofmoneyamonggroupsinsociety.Itismoreefficienttodistributetaxdollarstoprivatelandownersattemptingtorestoreandpreserveendangeredspeciesandtheirhabitatsthanitisforconcernedcitizenstowritecheckstoindividuallandown-ers.Second,thefederaltaxcodeisusedregularlytostimulateandshapeinvestmentanddevelopmentdecisionsformanyfacetsofoureconomy.Third,thefederaltaxcodeisacentrallocusthatreachesalleco-nomicagentsintheUnitedStates,andisthereforeequitable.”

Transactioncostsassociatedwithpropertytaxincentivesincludethoserelatedtoidentifyingspecieslocation,acreagequantificationanddelineation,managementplandevel-opment,andcompliancemonitor-ing.Biologicalsurveysareneededtoidentifyanddelineatehabitats.Thesetypesofsurveysareongoingandareutilizedincurrenteffortsbysomestatestodeveloptheirstatewildlifeactionplans.Transactioncostsofpropertytaxincentivescanbequitehighwhenadditionalre-sourcesformonitoringandstatetaxrevenuereductionsareincluded.


Onemajorproblemfacingtheapplicationofpropertytaxincen-tivesonprivatelandsisthewaythatprivatelandisvalued.Thebenchmarkforlandtaxassess-mentsisthe“highestandbestuse”towhichlandcanbeput,whichmeansdeterminingitsmaximumlikelyrevenuepotential.Intheviewofpropertyappraisers,thepresenceofanendangeredspeciesisnotconsideredaspartoftherevenuepotentialofalandarea,itiscon-sideredasdecreasingthevalueofaproperty.Thetaskistodevelopin-centivesthatmaximizethevalueofbiodiversityandhabitatassetsandminimizetheprivatecostsoftheirconservation.Properlystructured,therightsystemoftaxincentivescouldslowtherateofhabitatlossandprovideeconomicreturnstoprivatelandowners(McKinneyetal.1993).

Tax Incentive RecommendationsTaxdeductionsformaintainingwildlifehabitatareneeded.Taxdeductionsandcreditsshifttheburdenofthecostofbiodiversityconservationfromtheprivatetothepublicsector,providingamoreequitablefundingsource.However,taxdeductionsandcreditsdonotmakethecostsgoaway.Givencurrentfederalbudgetconstraintsandtaxcuts,thegoalofatax-basedincentiveprogramshouldberevenueneutral,wheremoniesfromdisincentivesfundvariousincentives.However,withoutdataontheacreagelevelsofprivatelandsupportingeligiblehabitatorthenumberoflandownerswhowoulddecidetotakeadvantageofthetaxincentives,itisnotpossibletodeterminetheextentoftherevenueshortfall(Olsenetal.1993).

Income TaxesTherearetwotypesofincometax-relatedincentivemechanismsforconservingwildlifehabitatandspecies.Thefirstisanincometaxcreditforexpenditurestorestoreandconserveviablewildlifehabitat.Thesecondisanincometaxdeductionfromrevenuesthatmaybeearnedfromeconomicactivitiesonlandsusedforhabitatconservation(e.g.,research,education,wildlifewatch-ing,hunting,fishing,etc.).

Atthefederallevel,thereiscur-rentlynoincometaxcreditforexpen-diturestoprotect,createorimproveendangeredspecieshabitatforland-ownerstoimplementprotectionandconservationmeasuresundertheEn-dangeredSpeciesAct.Thisshouldberemedied,andwewouldrecommendallowingapremiumtaxdeductionforestablishingeasementsinhabitatareasidentifiedbythestatewildlifeactionplans.Federaltaxcreditscouldbeallowedforexpensesincurredinimprovingdegradedhabitat,orcreatingnewhabitat,forendangered,threatened,orcandidatespeciesandforsignificantbiodiversity.Restoredandnewlycreatedhabitatareascouldalsobeeligibleforannualpropertytaxcredits.Bonuscreditscouldbemadeavailabletothoserestorationeffortsresultinginre-colonizationbypreviouslyextirpatedendangered,threatenedorcandidatespecies.Thedisadvantageisthatitcaninvolvesubstantialadministrativecostsfordevelopingaconservationplanandassociatedmonitoringcosts.

Othereligibleexpensesforanincometaxcreditcouldincludeincurringexpensesassociatedwithbiologicalstudiesandfieldsurveys,labordevotedtohabitatprotectionandconservation,specialequipmentorconstructionmethods,andfeespaidbyprivatelandownerstopartici-

pateinhabitatconservationplan-ning.Acaponthetotalamountoftaxcreditsmaybewarranted,becausemanyoftheseexpensescanbesimplypassedontoconsumersintheformofhighertimber,commodity,energyorhousingprices.

Revenuesderivedfromeconomicactivityonlandsthataremanagedtofullysupportendangered,threat-enedandcandidatespeciescouldbedeductiblefromtheearningsthatqualifyforfederalincometaxa-tion.Examplesofactivitieswouldincludemodifiedtimber,grazingoragriculturalpracticesthatsustainnativebioticcommunities,hous-ingdevelopmentsdesignedtoretainsensitivehabitats,orprivatelyman-agedrecreationandhuntinglandswherefeeswerecollectedforwildlifeviewing,recreationorhuntingaccess.Onlyrevenuesstemmingfromlandssupportingthesespecieswouldbeeligibleandwouldincludeahabitatmanagementcomponent.

Property TaxesLocalandstatepropertytaxesonlandsprovidinghabitatforendan-gered,threatenedandcandidatespeciesandforsignificantbiodiversitycouldbeoffsetbyanannualfederaltaxcredit.Propertytaxesarealreadydeductiblefromfederalincometaxes,butataxcreditintheamountoftheallowabledeductionwouldamplifythetaxbenefitsothatqualifyinglandswouldbecomecompletelyex-emptfrompropertytaxes.Thiswouldshifttheeconomicburdenofreducedtaxesfromthecountytothefederalgovernment,whichisappropriateforfederallylistedspeciesandothernationallysignificantbiodiversity.

Reductionsinpropertytaxesareawidespreadandacceptedmethodforpreservingfarmandrangelands,openspaceandhistoricproperties.Proper-


tytaxcreditsmaybeeffectiveonthefringesofrapidlydevelopingurbanandsuburbanareaswhereassessedpropertyvaluesincreasedramati-callyandwhereincreasednumbersofplantandanimalspeciesarebeinglistedasendangeredorthreatened.However,landownerswithprimarilyfinancialmotivationswouldchoosetheprofitsfromdevelopmentifapackageofeasementsandtaxincen-tiveswasnotcompetitive.

Estate Tax and Capital Gains TaxesTheallowablereductionsinestateandcapitalgainstaxesneedtobeincreasedforlandsthatareputunderaconservationeasement.Amajorreasonforseriouslyconsider-ingasignificantreductioninthesetaxratesisthatlandundercon-servationeasementsmayactuallyincreaseinvalueasafunctionofit’sprotectedstatus.Withrespecttotheestatetax,wewouldrecommendan

increaseintheexcludableportionofthelandvaluefrom40percentto60percentandamaximumexclud-ableamountthatistaxableatthe2009levelof$3.5million.Theseincreasedbenefitsareespeciallyimportanttokeeplandsinhighgrowthandconversionareas,suchasCaliforniarangelands,frombeingsub-dividedanddeveloped.

Forfederalcapitalgainstaxes,werecommendaprovisionthatwouldexcludeallcapitalgainsfromthesaleoflandsforwildlifehabitatconser-vationeasements.Webelievethiswouldalsocontributetosupportingruraleconomiesandsecurelandstewardshipoveralongtimeperiodandwouldnotdecreasethelocaltaxbase.WhilethereiscurrentlyaversionofataxreconciliationbillbeforetheSenate,itdoesnotcontainaprovisionforanyexclusionofcapitalgainsfromsalesoflandforconservationeasementpurposes.We

Bird watchers | U.S. Fish and Wildlife Service

recommendthatacapitalgainstaxexclusionbeincorporatedintoanyfuturetaxlegislationorattheveryleastadecreaseinthetaxburdenof50percent.

Researchisneededonesti-matingthebenefitsandcostsofimplementingandmonitoringtaxincentiveprogramsdesignedtoconservespeciesandtheirhabitats.Theseactivities,whichconstitutetransactioncosts,areneededtoen-surethatincentiveprogramsareanefficientandcost-effectivemeansofsafeguardingimportantbiologi-calhabitats.Bydoingthisresearch,wecanfindoutwhatthedemandisfortaxincentivesandwhatthepublicfinanceimplicationswouldbeforimplementingtaxcredits.Becauseequityissuesareinvolved,researchneedstobedonetode-terminethedistributionalimpactsfromimplementingthesevarioustaxincentivemeasures.


Facilitativeincentivesaredefinedasthoseinstitutionalmeasuresthatfacilitateandassistland-

ownerparticipationwith,andunder-standingof,variousincentivemecha-nismsandprograms.Thesemeasuresincludeprovisionofeducationandtechnicalassistance,establishmentofadministrativestructuresandland-ownerrecognitionprograms.Therearenumerousfederal,state,localandprivatesectorprogramsthatofferallthreefacilitativeincentivemeasures.

Education and Technical AssistanceDescription

Atthefederalandstatelevels,educa-tionandtechnicalassistanceareusu-allyofferedinapackagealongwithcost-sharingofmanagementpracticesorsomeformoflandconservationprogram.Educationalprogramsandtechnicalassistanceinvolvethetransferofconservationinforma-tiontolandownerstoimprovetheirdecisionmakingandtofacilitatetheadoptionanduseofenvironmentalpractices.Assistancecanrangefromprovidingdata(e.g.,onsoilquality),disseminatinginformationaboutnewtechnologiesorpractices,helpingwithgrantorpermitapplications,coordinatingprojectsandhelpingtoprepareconservationplans.Themajorsourcesofconservationeduca-tionandtechnicalassistanceatthefederallevelaretheU.S.DepartmentofAgriculture’sCooperativeStateResearch,Education,andExtensionServiceandtheNaturalResourceConservationService.Thecost-share

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LandownerIncentiveProgramman-agedbytheU.S.FishandWildlifeSer-vice(assessedinSectionVIII)alsohasamajortechnicalassistancecomponent.

Inadditiontofederalprograms,state-leveleducationandtechnicalassistanceareofferedinallbutsevenstates.Oftentechnicalassistanceisprovidedalongwithotherincen-tives.InMissouri,forexample,theLandownerAssistanceProgramofferslandownerscost-sharefunds,in-kindmaterials,equipment,andlabortoinstallwildlifefriendlypractices,inadditiontoprovidingtechnicalas-sistance.Theprogramhelpslandown-ersinstallriparianfencing,stabilizestreambanks,plantgrasses,removelevees,useprescribedburningandinstallalternativewateringsystems.

Severalprivateconservationorganizationsalsooffereducationandtechnicalassistanceprogramsforaccessingpublicincentivesandforinstallingandmaintainingconserva-tionpractices.Thesegroupsinclude,amongothers,DucksUnlimited,JointVentures,PheasantsForeverandEnvironmentalDefense.

AssessmentAlthougheducationandtechnicalassistancearecrucialtothesuccessfulimplementationofincentivemecha-nismstoconservewildlifehabitatandspecies,therehasbeennoanalysisastowhethertheseincentiveshavecontributedtomorebiologicallyeffectiveoreconomicallyefficientwildlifehabitatconservationandrestorationefforts.Withrespecttotechnicaleffectiveness,gather-

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inganddistributinginformationtothepublicmayincreasetheuseofconservationpracticesbylandown-erswhoareeitherunawareofthemorunsureabouthowtoadoptthem.Privatebenefitsmayincludegaininganeconomicopportunitytodirectlybenefitfromaspeciespresence(e.g.,ecotourism,etc.).Onedisadvantageofpubliceducationandtechnicalassistanceincentivesisthataccessingthesetoolsiscompletelyvoluntary,witheffectivenesslargelydependentonwhetheragivenpracticecre-atesbenefitsforfarmersthatoffsetthecostsofadoption(RibaudoandCaswell1999).

Onemajorconstraintthathasbecomeapparentoverthelastfewyearsisthechronicunder-fundingofpublicagenciestoprovidesufficientbiologicaltechnicalassistanceforhabitatrestorationandconservation.Thedemandbylandownersfortech-nicaladvicefaroutstripstheavailablesupply,withtheconsequencethatfewerlandownerstakeadvantageofexistingconservationincentivesthanwhatotherwisemightbethecase.

Withrespecttoprivatetechnicalassistanceandeducationprograms,itisstilltooearlytotellwhetherhabitatrestorationactivitieshaveanyimpacts.Thereissomeevidence,however,thattheLandownerConser-vationAssistanceProgrammanagedbyEnvironmentalDefensehaspro-videdenoughtechnicalassistancetoprivatelandownerstorestorehabitatsforsomebirdspeciesthatshouldbesuitableforoccupancybywithinthenexttwotothreeyears(Wilcoveand

X. FACILITATIVE INCENTIVES


Lee2004).Asmeasuredbylandown-erenrollment,asofSeptember2003,therewere43individuallandownersenrolledwithprojectscoveringmorethan74,000acresintheassistanceprogram.LandownerinterestintheprogramexceedsEnvironmentalDefense’scapacitytohandlerequests,whichisanindicatorthatthepro-gramisattractivetolandowners.

RecommendationsItisdifficulttomeasurethebiologicaleffectivenessoreconomicefficiencyofwhatareessentially“indirect”in-centivemechanismssuchastechnicalassistanceandeducation.Nonethe-less,thesefacilitativemechanismsarecrucialtothesuccessfulapplicationofallformsofincentives.Thus,ourmajorrecommendationswithrespecttoeducationandtechnicalassistancerevolvearoundincreasingthequan-tityandqualityofresourcesavailable.Certainly,morefundingisnecessarytoincreasethetechnicalassistance

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presenceforbiodiversityconserva-tion.Oneproposalwouldbetoestab-lishaResourceConservationCorpsthatwouldbemadeupofthree-yearvolunteersthatwouldreceiveschoolloanforgivenessinexchangeforprovidingtechnicalassistance.Thereisalsoacrucialneedforimprovedtraininginbiodiversityconservationforfieldextensionagents.Onemeansofcontrollingthecostsoftechnicalassistancewouldbetoform“conser-vationcooperatives,”whichcouldsharetechnicalassistanceandotherresources(Hummon2005).

Administrative and Organizational StructuresDescription

Improvedadministrativeandorga-nizationalstructuresalsoqualifyasfacilitativeincentivesinthesensethattheyencouragelandownerstopar-ticipateinconservationprogramsbyreducingtransactioncosts.Therearetwoprimarytypesofincentivesthat

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qualifyasinducementsforgreaterlandownerparticipation:coordina-tionofincentivesthroughadminis-trativereformandtheprovisionofassistancefromnon-governmentalconservationorganizations.

Administrativeincentivesrefertoimplementationproceduresthatencouragelandownerstoconservehabitatinexchangeforsimplerandlesscumbersomeadministrativerequirements.Coordinationismoreareflectionofagencypolicyorindi-vidualstaffcommitmentsratherthananestablishedincentiveprogram.Nonetheless,itisconsideredextreme-lyimportantforencouragingland-ownerparticipationinconservationprograms.Coordinationrefersmainlytoadministrativereformsthatmakeitlesscomplexandcostlyforland-ownerstoparticipateinvoluntaryconservationprograms.Examplesofcoordinatedproceduresincludesim-plerandfasterpermittingprocesses,allowingformanagementflexibility,

Assessing vernal pool habitat, California | Natural Resources Conservation Service


orcreationof“one-stopshopping”forapplyingforconservationprogramsandenvironmentalpermits.

Atthefederallevel,theForestTaxationProgramprovidesland-ownerswithaconsolidatedsourceofinformationonthecomplextaxissuesassociatedwithforestman-agement.Anexampleofone-stopshoppingatthestatelevelistheIdahoOnePlanprogramthathelpslandownerstodevelopasinglecon-servationplanthataddressesfed-eral,stateandlocalregulationsandtoapplyforconservationprograms

throughonestateoffice.However,thisprogramprimarilyfocusesonsoilandwaterresources,withwildlifeeffortslimitedtocompli-ancewithfederalandstateregula-tions,ratherthanproactivehabitatconservation.Tenotherstatesalsooffersomeformofcoordinatedenvironmentalpermitting.Forex-ample,theArizonaGameandFishDepartmentprovidescoordinatedpermittingaspartofitsPrivateLandsStewardshipAgreements.

Anotherexampleofcreatinganadministrativestructuretoreduce

privatetransactioncostsisOregon’sflexibleincentiveslegislation.In2001,theOregonLegislaturepassedacomprehensiveconserva-tionincentivesbillthatincludedcreatingaflexibleincentivesac-count.Theaccountcanserveasapotentialmechanismforreducingtheadministrativecomplexityandbureaucraticroadblockswithexist-ingprograms.Investmentsfromthefundwouldbeusedtoaccomplishhighpriorityactionsonprivatelandsconsistentwithalandscapescaleconservationplan.Prioritiescouldchangeovertimeasearlyprojectsarecompleted.Landown-ers(oragencystaff )wouldsubmitapplicationsthatsimplydescribehowaproposedprojectfitsintoaregionalconservationplan,andwhatassistanceisneededinordertocompletethework.

Thereareseveralexamplesofprivateorganizationsthatfacilitatelandownerparticipationinconser-vationprograms.Locallandtrustsoftenhavetheadvantageoflower-ingtransactioncostsforindividualswantingtoengageinconservationthroughcreationofeasements.ConservationorganizationssuchasDucksUnlimitedoffertechnicaladviceandassistancetolandownersforapplyingtofederalconservationprogramsliketheWetlandReserveProgram.Watershedcouncilsandsimilarlocallandownergroupsofferassistancetolandownersforthoseprogramsthatmeettheirorganization’smission.

AssessmentToourknowledge,theimpactofsimplifyingadministrativeandorga-nizationalstructurestofacilitatethedeliveryofincentivemechanismshasnotbeenassessedintermsofbiologicaleffectivenessoreconomic

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Canada geese on farm, Maryland | Natural Resources Conservation Service


efficiency.Forafutureassessment,importantissuestoaddresswouldincludethefollowing:doessim-plificationandcoordinationofincentivemechanismsinanywaycompromisetheireffectivenessinconservingbiodiversityandwildlifehabitat?Towhatextentdoesadmin-istrativereformofincentiveslowertransactioncostsforgovernment,non-profitsandlandownersandencouragemoreconservation?

RecommendationWewouldrecommendthatcurrentprogramssuchastheone-stopshoppingprograminIdaho,andvariouseffortsbynon-profitsandlandtrusts,beassessedtodeter-minewhetherandtowhatextentsimplifyingadministrativestruc-turesiseffectiveandefficientinprotectingbiodiversity.

Recognition IncentivesDescription

Recognitionincentivesarede-signedtoprovidepublicacknowl-edgmentoflandownerswhomaintainand/orrestorehabitatforwildlifeontheirproperty.Theyareameansofdemonstratingpublicappreciationforlandownereffortstoconserveat-riskspeciesandtheirhabitats.Thesupportfromrecognitionprogramsdoesnotre-sultindirecteconomicpayments,butratherthegoodwillofthelocalcommunityandthegeneralpublic.Manyoftheseprogramshighlighttheimportanceofthefamilyfarmtothequalityoftheenvironmentandthestabilityofthelocalcommunity.Typesofrec-ognitionprogramsincludeheritage

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and/orsomeotherformofspeciallanddesignation,publicationofinnovativeapproachestowardsconservationeffortsbylandown-ers,oranannualawardprogram.

Atthistime,therearenofed-eralrecognitionprograms.How-ever,overone-halfofthestatesofferoneormorepublicrecogni-tionincentives.Inmanystates,incentivesareofferedviathestate’sNaturalHeritageProgram,whichgivesheritagedesignationforlandsofecologicalsignificance.Forexample,Kentucky’sNaturalAreasRegistryprovidesrecognitionandaheritagedesignationforlandsthatareuniqueandecologicallyimportant.TheColoradoDivisionofWildlife,throughits“Landown-eroftheYear”program,recognizeslandownerswhomakeoutstandingimprovementstowildlifehabitatand/orhaveprovidedpublicaccesstoColorado’swildlifeontheirpri-vateagriculturalorforestedlands.Theprogrampromotescreationandimprovementofhabitatandprovidesopportunitiesforpublichunting,fishingandwildlifeview-ing.Texasrecognizeslandownerswhopreserverareelementsofbiodiversitythroughits“LoneStarLandStewardAward.”

Privateconservationgroupshavealsoestablishedrecognitionprograms.OneexampleisaReg-istryProgramsponsoredbyTheNatureConservancyinMinnesota.Thisprogramrecognizeslandown-ersthatarecommittedtoconser-vationofnaturalresourcesontheirland,includingtheprotectionofhabitatofrareorendangeredspecies.Another,theMinnesota

ValleyHeritageRegistryProgram,createsanhonorrolloflandownerswhoselandusepracticesbenefitwildlifeandnature.Asof2005,230landownershadregisteredtheirholdingswiththeprogram.DefendersofWildlifeprovideslettersofrecognitiontoagricul-turalproducersinWisconsinwhorestorenativewildlifehabitatandtheshippersandretailerswhomarketapotatocropfromfarmswhererestorationactivitieshavetakenplace.Inaddition,Defend-ersinformsitsmembershipoftherestorationactivitiesthesegrowersareinvolvedin.

AssessmentTodate,therehavebeennoformalassessmentsofrecognitionincen-tivesasatooltopromoteeffectiveandefficientbiodiversityconserva-tion.Thereisnolackofrecogni-tionmechanismsthatcouldbeaddressed,andwesuggestthatresearchbecarriedouttoinvesti-gatethebiologicalimpactsoftheseprogramsandtheirprivatecostsandbenefits.Certainly,itwouldappearthatlandownersdorespondtorecognitionasindicatedbythegrowthofbothstateandprivateinvolvementinofferingrecognitionincentives,andwewouldencouragetheircontinuance.

RecommendationsWewouldrecommendthatthefed-eralgovernment,especiallynationalfishandwildlifeandagriculturalagencies,andthenon-governmen-talconservationcommunity,devel-opprivatelandownerrecognitionprogramstofurthertheseefforts.

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Inthissectionweprovideabriefoverviewandassessmentsummaryforallpublicandprivateincen-

tivemechanisms.ThepurposeofthisexerciseistoillustrateinacompactmannerthefindingsofsectionsIVthroughXthatdescribedvariousindividualincentivemechanisms.Weprovidethissummarywiththeunderstandingthatthereisnocentralinformationbaseorclearinghouseforpublicorprivateincentiveprogramsandthatthenumberofincentivepro-gramsisquitelarge.

Overall AssessmentAsameanstosummarizetheprelimi-naryassessmentofstewardshipincen-tivemechanismspresentedintheprecedingsections,weintroduceasimpletablethatisqualitativeinna-ture.Table2presentsthetaxonomyofincentivemechanismsandprovidesrankingsymbolsfortwocriteria:biologicaleffectivenessandeconomicefficiency.Theeconomicefficiencycriterionissub-dividedintocost-ef-fectivenessandtransactioncosts.Therankingsymbolsforbiologicaleffectivenessandcost-effectivenessareverygeneralinnaturebecauseofthelackofcomprehensivedata,analysisandtestingoftheimpactsofthevariousmechanisms.Thesesymbolsindicateapositiveinfluence(+),anegativeinfluence(-),aneutralinfluence(0),andnoinformationatall(?).Forsomeincentivemeasures,thereisarankingthatusesthedoublesymbolof+*.Thisindicatesthatwhiletheimpactisgenerallypositive,

XI. SUMMARY OF FINDINGS AND RECOMMENDATIONS

Table 2. Assessment Summary of Voluntary Stewardship Incentive Mechanisms

Type of IncentiveBiological

EffectivenessEconomic Efficiency

Economic Efficiency

Cost- Effectiveness

Transaction Costs

Institutional Innovation

Legal/Statutory

SafeHarbor + + �

CandidateAgreements ? ? ?

RegulatoryRelief ? ? ?

Property Rights

ConservationEasements +* + �

CovenantandDeedRestrictions ? ? ?

StewardshipExchangeAgreements

? ? ?

Market Oriented Institutions

UserFees + +* 1

Ecotourism + + 1

Ecolabeling +* +* �

MitigationBanking +* - �

ConservationBanking + + 2

TradableDevelopmentRights + +* �

Financial Incentives

CompensationPrograms +* + 2

Cost-shareIncentives + + 1

LandRentals +* - 1

ConservationContracts ? ? ?

DebtForgiveness ? ? ?

Insurance +* + 2

TaxIncentives +* 0 1

Education,Information,andTechAsst.

+ + 1

Administrationand

Organization ? ? ?

Recognition ? ? ?


therearecircumstancesthatcouldcompromisethebenefitsoftheincen-tivemechanism.Forexample,thebiologicaleffectivenessofconserva-tioneasementsisonlypositiveaslongasthehabitatmanagementrequire-mentsoftheeasementareadequateandenforced.Therankingforeachincentivemechanismisnotbasedonwhattheimpactcouldtheoreticallybe,butwhatwaslearnedfromexist-ingempiricalinformationregardingthecurrentuseofthatmechanism.

Therankingfortransactioncostsundertheeconomicefficiencycriteriausesascaleof1,2and3toindicatelow,moderateandhightransactioncosts,respectively,relativetootherin-centivemeasures.Forexample,publicandprivatetransactioncostsarerelativelylowerforestablishingasafeharboragreementthantheyareforinstitutingaconservationeasement.Conservationeasementagreementsmustbedoneforeachindividuallandownerandproperty,whereassafeharboragreementscanbeestablishedforagroupoflandowners.

TheobviousobservationfromTable2isthatwestillhavealotofquestionswithrespecttothebio-

logicaleffectivenessandeconomicefficiencyofindividualincentivemechanismstoachievebiodiversityconservation.Partofthisisduetothestochasticnatureofconservationefforts,whichmaybeimpactedbyotherfactorsbeyondtheincentivemechanismorprogramperse.Theprimaryreasonissimplythelackofmonitoringandevaluationofindividualincentivetools.

Intermsofbiologicaleffec-tiveness,foratleastthoseincen-tivemechanismsthathavebeenthesubjectofresearch,therehavebeensignificantbenefits.Formanyincentivesinthepropertyrights,market-basedandfinancialincentivecategories,however,thereissomequestionabouttheireffectivenessgiventhedetailsoftheirimplementa-tion.Forexample,landrentalsundertheConservationReserveProgramareonlyeffectivefromabiodiversitystandpointiftheydonotresultinadditionalmarginallandsbeingputtoagriculturaluse.Taxincentivesarebeneficialsolongastheystayinplace.Similarly,mitigationbankingisonlybiologicallyviableifthereareproceduresandsafeguardsinplace

tomaintainahabitat’slong-termbiologicalintegrity.

Withrespecttocost-effectivenessofvariousincentivemechanisms,therearemoreconcreteresults.Thereareseveralmechanismsthathaveclearpositiveprivateandpublicimpactsabovetherelativecostsofthemanagementpracticesorservicesprovided.Theseincludesafeharboragreements,conservationeasements,ecotourism,compensationprograms,cost-shareincentives,insuranceandthefacilitativemechanismssuchaseducation,informationandtechnicalassistance.Thecost-effectivenessoflandrentalsandmitigationbankingarerankedasnegativefordifferentreasons.AswasshowninShafferetal.(2002),landrentalforbiodiver-sityprotectionislessefficientthaneasementsorlandacquisition.Formitigationbanking,cost-effective-nessisrankedasnegativebecauseofthefinancialcostsassociatedwithmaintaininghabitatsthatarenotequivalentintheirbiologicalfunc-tionasthehabitatsthatwerelosttodevelopment.Conservationbankingavoidsthisproblem.

Therearesomeincentivemecha-nismsthatgeneratehigherpublicandprivatetransactioncostsrelativetoothers,butfordifferentreasons.Therelativelyhightransactioncostsofsafeharboragreements,conserva-tioneasements,mitigationbankingandtradabledevelopmentrightsaremostlyduetothelongtimeframeanddetailednatureofnegotiationtodeveloplegalagreementsoverrightsandresponsibilitiesonthepartofprivateandpublicparties.Thehightransactioncostsforestab-lishingaviableeco-label,however,areprimarilyattributabletothenecessaryefforttocreateorfindvi-ablemarketsandtoassureconsum-ersthatproductsreflectproduction

Great horned owl in restored area, Iowa | Natural Resources Conservation Service


processesthatarecompatiblewithhabitatandspeciesconservation.Thoseincentivemechanismswithrelativelylowertransactioncosts(userfees,ecotourism,cost-share,landrentals,andeducation,infor-mation,andtechnicalassistance)indicatethatfewerresourcesandlesstimeareexpendedbyprivatelandownersandpublicagenciesindeliveryofthemechanism.

Theresultsintheprecedingparagraphsarenotmeanttoindicatethatoneparticularincentivemecha-nismissuperiortoanotherintermsoftheirbiologicaleffectivenessoreconomicefficiency.Aswasstatedattheoutsetofthissection,therearetrade-offsamongthevariousmecha-nismsintermsoftheirlong-termviabilityandcost.Furthermore,becauseofvaryingphysicalandeconomicconditions,landownersshouldbeabletocombinevari-ousincentivemechanismsintoareasonableandflexiblepackagethatmeetsboththegoalsofsocietyandtheindividual.Wehavenodoubtsthatallexistingincentivetypesatalllevelshavecontributedinsomewaytobiodiversityconservation,bothintheprivateandpublicsectors.However,weneedmorepreciseinformationwithrespecttothebiologicalandeconomicimpactofvariousincentivetypesonbiodiver-sityconservation.

Wethinkthatallmechanismshaveaplaceintheportfoliooftoolstoachievetherestorationandconservationofourbiologicalheritageatareasonablecost.Thenextsectionoutlinessomeofourrecommendationsbothforindi-vidualincentivemechanismsandforspecificprogramsforincreasingtheeffectivenessandefficiencyofbiodiversityconservationeffortsoflandownersandthegeneralpublic.

Recommendations SummaryTherecommendationsforindividualincentivesmechanismsdiscussedintheprevioussectionsareimple-mentedwithinthecontextofpublicorprivateconservationprograms.Thus,thereisaneedtoaddresswaystoimprovetheprogrammaticaspectsofincentivedeliveryandadministra-tion.Thetopicsaddressedinthissectionincludegoalsetting,planningandtargeting;technical,administra-tiveandresearchcapacity;scaleoflandownership;incentivefund-ing;geographicandtemporalscale;incentivepolicyconsistency;andmonitoringandevaluation.

Goal Setting, Planning and TargetingDefiningconservationobjectives,developingadequatespatialplanstomeetthoseobjectivesandtargetinglandscapesareessentialiftheapplica-tionofincentivemechanismsisgoingtobebiologicallyeffective.Whilegoalsetting,planningandtargetingrevealnothingabouttheinherenteffectivenessorefficiencyofspecificindividualincentivemechanisms,theseactivitiesneverthelessprovideacontextwithinwhichanyincentivemechanismorprogramcanbemoreefficientandeffective.Untilrecently,therehasbeenalackofcomprehen-sivegoaldefinition,planningandtargetingwithrespecttoconservingbiodiversityandat-riskwildlifehabi-tatintheUnitedStates.

Therearetwoprimaryissuesrelatedtogoalsetting.Firstisiden-tifyingwhichhabitatsneedtobeconservedandhowmuchhabitatisitnecessaryinordertoachievebiologi-caleffectiveness.Thesecondissueiswhetherincentivemechanismsshouldbegoal-basedorpractice-based.Goal-basedreferstodeterminingwhetheraparticularincentiveprogramresultsinaspecifiedoutcomeorperfor-mancelevel.Practice-basedlinksanincentivetotheadoptionofapre-de-terminedmanagementpracticethatisassumedtohaveapositiveimpactonbiodiversityconservation.

Mostpublicandprivatehabitatconservationincentivemechanismslackacleardefinitionoftheeco-logicalgoals(oroutcomes)tobeattainedattheprogram,projectorgeographiclevel.Itisthereforedifficulttoassesswhetherthereisastronglinkbetweenincentivemechanismsandspecifiedgoals.Currently,incentiveperformanceisindirectlymeasuredbythenumberofparticipantsoracresenrolledinaparticularprogram,andnotwhetherthemechanismitselfisparticularlyefficientoreffective.Withoutacleardefinitionofthedesiredecologi-caloutcomes,itisdifficultforbothprogramadministratorsandland-ownerstofindthemostefficientandcost-effectiveincentiveforachievingbiodiversityconservation.

“ ... all existing incentive types at all levels have contributed in some way to biodiversity conservation...”


Whererigoroushabitatconserva-tionplansexist,specificgoalsshouldbeinplaceorrelativelyeasytoestab-lish.Then,variousincentivemeasurescanbecomparedintermsoftheirpotentialcontributiontomeetingthespecifiedgoals.Itmaybechallengingtosetgoalsforindividuallandown-ersthatarecompatiblewithhabitatgoalsatalarger,moremeaningfulscale.Doingsowillrequireplanningthatcrossespropertyboundariesandcooperativemanagement.Themosteffectiveincentivemeasureforeachindividuallandownermayvaryac-cordingtohisorherfinancialstand-ingorpreferences.

Onemeanstodefineanddevelopgoalsisthroughconservationplan-ning.Intheabsenceofconservationplans,itisdifficulttodecidewheretoinvestpublicresourcesandwhichincentivestooffertoconservehabitat.Ideally,statewildlifeactionplanswouldbeconsistentwithnationalguidelines.Regionalconservationplanscouldlinklocallanduseandwatershedplanstogetherinacoordi-

natedefforttomakestrategic,long-terminvestmentsinprojectsthatleadtotheconservationofhabitat,speciesandecologicalprocesses.Unfortu-nately,foronearea,thereareusuallyseveralindividualplansfordifferentnaturalresourcesatdifferentscales,anditisdifficulttovisualizeacoher-entapproachtohabitatconservation.Itisclear,however,thatplanningonlyforoneresourceorprojectatatimecancompromiseeffectivewildlifehabitatconservation,particularlyindevelopedordevelopingareas.Thelackofcoordinatedplanningcomplicatesthetasktodefinewhichparticularincentivetool(s)mayormaynotwork.

Nearlyallcurrenthabitatsteward-shipincentivemechanisms,publicandprivate,areopportunistic.Thatis,theyarebasedonvoluntarydecisionsbylandownerstoparticipate,iftheymeetminimumprogramcriteria.Pro-ponentsoftheopportunisticapproachappreciatetheequitythatincentivemeasuresandprogramsprovide.Withanopportunisticprogram,everyone

canparticipate(intheory)withtheprospectthatneighborscanbeinflu-encedbyneighbors,therebycommu-nicatingtheavailabilityofincentivesthroughoutthewidercommunity.However,giventhatresourcesarelimited,itmaybemoreeffectivetofocusaportionofincentivefundingonprioritylands,totargetlargerpar-cels,andtoensurethatthereissomehabitatconnectivity.Astrongcasecanbemadethatastrategicapproachtodefiningandapplyingspecificstewardshipincentivemechanismsisnecessarytomaximizethelong-termbenefitsofpublicinvestments.

Effectivestrategicinvesting(tar-geting)reliesonestablishedconser-vationgoals.Strategicinvestmentiseasywithasinglefundingsource,centralizeddecisionsoracoordinat-ingmechanismamongallagenciesandtheprivatesector.However,thislevelofcoordinationdoesnotyetexistwithrespecttohabitatconser-vation,orthevariousstewardshipincentivemechanismsmeanttoachieveconservation.32

32 For some voluntary cost-share and land rental stewardship incentive tools, one means of targeting has been the Environmental Benefits Index employed by the U.S. Department of Agriculture to competitively rank proposed landowner conservation projects for program funding. The index was developed to achieve the maximum environmental improvement per dollar of estimated cost-share or rental payment. Producers can increase their index score (and hence eligibility for federal funding) by maximizing the benefit side or by minimizing the cost side. Although producers score higher on the environmental benefit side if they submit a project that includes the restoration or conservation of habitat for threatened and endangered species, minimizing estimated project costs is a more common strategy for achieving a higher index ranking. Furthermore, the index does not address the issue of giving preference to proposed projects that would target areas that have been identified as priorities in a conservation strategy. Thus, the index does not provide a direct link to determining what particular incentive measure may be the most efficient.

Colorado rangeland | Natural Resources Conservation Service


33. Natural habitat protection is defined as leaving key lands in their current natural or near-natural condition where they support occurrences of at-risk elements of biodiversity, as identified by The Nature Conservancy and the network of state Natural Heritage Programs. This approach would involve comprehensive protection and/or restoration of plan communities as well as individual species. At the national level, incentive tools should take into account landscape scale conservation and long-term planning.

Inorderforeffectivetargetingofincentivemechanismstooccur,theremustbeaprocessforestablish-ingexplicitconservationgoalsthatvariousincentiveprogramsuse.Oneprocessistodevelopaconservationvisionatthenationalandlocallevels(Defenders2004).33Atthenationallevel,broadlydefinedgoalswouldincludeecologicallyandeconomicallysustainablelanduses,withafocusonbiologicaldiversity.Withrespecttotheagriculturalandforestrysectors,complementarygoalswouldincludemeetinglong-termfoodsupplyobjectives,helpingachievepublichealthandnutritiongoals,assist-ingruralcommunitystabilityandsmallfamilyfarmers,andfacilitatingconsumereducation.Stewardshipincentivemechanismswouldhavetobecompatiblewiththeachievementofthesebroadergoalsaswellasthoseestablishedforhabitatconservation.

Atthelocallevel,theselectionofincentivemechanismscanbeguidedbythosewithon-the-groundknowl-edgeofthehabitatsthatneedtobeconservedandwhatincentivemecha-nismslandownersmayfindmoreattractive.Incentivemechanismsandprogramsshouldbepartiallyorganizedaroundconservinganativehabitatthatisimportanttolandown-ersandthecommunity.

Apromisingmeansofachievingnationalandlocalbiodiversitygoals,andbetteridentifyingappropriateincentivetools,istousestatewildlifeactionplanstodefineconservationobjectivesandtargetincentivefund-ing.Inorderfortheseplanstobesuccessful,therearecertaincriteriathatneedtobemet.First,theactionplansneedtofocusonmultiplespe-ciesandhabitats,includingnon-listedat-riskspecies,andalsoaddressplantsandinvertebrates.Second,stateswillneedtofollowaniterativeprocess

withpartners,includingpublicagen-cies,privatelandowners,non-profits,tribesandotherorganizationsindefiningandimplementingincentivetools.Furthermore,somefundingacquiredthroughstatewildlifegrantscouldbeusedtoimplementstateac-tionplans.Futurefederalfundingforincentivesaimedathabitatconserva-tion(statewildlifegrantsorotherfederalprograms)couldbeusedtorewardthebeststateplanningefforts.

Inadditiontothenationalandlocallevel,thereisalsoaneedforregional-scaleplanningtoavoidhabitatfragmentation.ExamplesofthesetypesofplanningeffortsincludetheSonoranDesertConser-vationPlanandtheLowerMissis-sippiConservationPlan.Becauseofthediversityoflandownersandlanduses,implementationofregionalconservationprogramswouldbebestservedbymaintainingamenuofconservationincentivetoolstoachievestewardshipobjectives.

Althoughstrategicplanningandtargetingofincentivesmaybethemoreeffectiveapproach,opportunis-ticconservationprojectsshouldalsobeavailableandwilllikelyremainim-portantgiventhevoluntarynatureofmostincentiveprograms.Importanthabitatsmayexistoutsideofthosear-easencompassedinastatewildlifeac-tionplan,andtherearegoodreasons

toimprovehabitatconservationman-agementacrossthelandscape.Thereareworkablestrategiesandincen-tivesforbothtargetingconservationeffortandmaintainingopportunisticapproaches.Forexample,ownersinhigherpriorityareasmightqualifyforamenuofenhancedincentivemecha-nisms.Adjoininglandownerswhoen-rollcontiguouspropertiesmightalsoqualifyforincreasedincentivebenefitsforcooperativeefforts.Totheextent

thatagencystaffhavetheresourcestosolicitparticipationandmanageincentiveprograms,theymightdosoprimarilyinpriorityareas,whileatthesametimeprovidingsupporttolandownersseekingassistancefromnon-priorityareas.

Toimplementatargetedap-proach,individuallandownerscouldreceivefinancialincentivesfordevelopingandadoptingahabitatprotectionand/orrestorationplanthatisconsistentwithastatewidehabitatconservationplan.Withtheappropriateincentiveprogramdesign,landownerscouldhavetheopportu-nitytodesign,testandimplementappropriatemanagementpracticesandtechnologiestofittheirspecificcircumstances,thereforeaddingflex-ibilitytoconservationefforts.Addi-tionalincentivescouldbeofferedforlandownerswillingtodevoteresourcestomonitoringecologicaloutcomes.

“ ...the selection of incentive mechanisms can be guided by those with on-the-ground knowledge of the habitats that need to be conserved...”


Incentivetoolsandpoliciesthatimprovehabitatconservationonlandsinproductionneedtobeflexibleinordertotakeadvan-tageofthewidearrayofphysical,environmentalandmanagementfactorsthataffecttheimpactsofproductionpracticesonspeciesandhabitats.Recognizingthecom-plexitiesthatnaturecanimposeonwildlifeprotectionefforts,biolo-gistshavedevelopedsomegeneralrecommendationstoprotectandenhancewildlifepopulationsandhabitatsonworkingagriculturallands(LeawandroskiandIngram1999).Theserecommendationshaveimplicationsfortheincentivepoliciesandmechanismsemployedandinclude:(1)allowconservationprogramstheflexibilitytoaddresslocalandregionalwildlifehabitatpriorities;(2)reducechemicaluse;(3)promotelargercontiguoustractsofhabitatoversmalleriso-latedtracts;(4)reducedisturbancessuchasplowing;and(5)encourageconservationtillageonagriculturallands.Habitatconservationincen-tivesonworkinglandscapescouldalsobeappliedtocontrolinvasivespeciesandtoallowthereturnofecosystemprocesses,suchasfireandflooding,thatareessentialtomaintainingorrestoringpopula-tionsofat-riskspecies.

Inadditiontoconcentratingonlandswithessentialwildlifehabitat,targetingcriteriaforincentivescouldincludeprioritizinglandswhereconservationinvestmentsresultinmultiplebenefits(e.g.,si-multaneousimprovementsinnativewildlifehabitat,waterquality,floodplainfunctions,non-impactrec-reationanddecreasedsoilerosion,etc.)andlandswiththehighestmarginalbenefitperinvestmentintermsofresourceprotection.

Facilitative IncentivesFacilitativeincentivesincludetechni-calassistance,administrativeflexibil-ityandresearchcapacity.Themajorissuesrelatedtotheseincentivesincludethequantityandqualityoftechnicalassistancetodeliverincen-tivestolandowners,cumbersomead-ministrativeprocedures,andresearchprogramstoimprovetheeffectivenessandefficiencyintheapplicationofincentivesforhabitatconservation.

Technical AssistanceThemajorproblemwithtechni-calassistance,withtheexceptionofsomestates,isthattherearefewconservationagentsorconsultantstodeliverincentivestoprivateland-ownersforbiodiversityconservationandrestoration.Clearly,conservationplanningandstrategicapplicationofincentiveswouldbemoreefficientifmoreexpertisewereavailabletoassistlandownersindecidingwhatincen-tivemechanismsandlandprotectionandmanagementstrategiesarethemostappropriateandcosteffec-tive.Unfortunately,mosthabitatconservationincentiveprogramsareunderstaffed.Thefundingpatterninrecentyearsatthefederalandstatelevelshasbeentoappropriatemoneyforincentiveprogramswithoutcorrespondingfundingincreasesforfieldandadministrativepersonneltoimplementthem.Someagencieshavebeendevelopingthecapacitytoworkwithprivatetechnicalassis-tanceproviderstorelievethestrainonpublicpersonnel,butsofar,fewoutsidetechnicalagentswithexper-tiseinbiodiversityconservationhavebeenavailable.

Inadditiontohavingmorepublicsectorstaff,thereareotherwaysofdeliveringincentivetools.Beginningwiththeidentificationofimportanthabitatstoconserve

orrestore,extensioneffortscouldbeincreasedbyestablishinglocalconservationgroups/cooperatives.Therecouldalsobeinvestmentsin“peer-to-peermentoring”andtheestablishmentofcommunitycon-servationassistancenetworks.Thereshouldalsobeanincreaseinoverallresourceconservationprogramandtechnicalassistancefunding.WealsorecommendinitiatingaResourceConservationCorps,similartoAmeriCorps,wherebyrecentgradu-atesfromagriculturalandnaturalresourcescollegescouldparticipateinathree-yearvolunteerprograminexchangeforfederalserviceandrepaymentofschoolloans.

Trainingaboutthevarioustypesofincentivemechanisms,alongwiththeiradvantagesanddisad-vantages,isessentialandcouldbeofferedtolandownersandagencystaff.Moreopportunitiescouldbeprovidedtolandownersandpro-gramdelivererstoshareideasandexperiencewithrespecttoincentivetoolsthroughsitevisits.

Communicationandcoordina-tionbetweenextensionstaffandresearchers,withrespecttothecostsandbenefitsofhabitatconservationincentives,shouldbeimproved.Aca-demicresearchstaffneedtocommu-nicatebetterwithextensionagentsinordertohaveabetterunderstandingoftheimpactsofvariousincentivetoolsandwhysomelandownersmaynotparticipateinhabitatconserva-tionprograms.Extension’sroleinbridgingthegapandbuildingrela-tionshipsbetweenlandownersandgovernmentconservationagenciesandprogramsshouldbeexpandedandimproved.Lastly,technicalinformationsources(e.g.,websites,expertsystems,etc.)canbeestab-lishedtoincreaseknowledgeaboutandaccesstoincentivemechanisms.


Administrative FlexibilityInapplyingforconservationincen-tiveprograms,numerouslandownersfindthemcumbersomeandexpensiveintermsoftheircommitmentoftimeandotherresources.Thistranslatesintohightransactioncosts.Theplethoraofincentivetoolsandpro-gramsmeansthatlandownershavetogotoseveralfederal,stateandprivateinstitutionstoidentifyappropriateprograms,determinetheireligibilityandfindouthowtoapply.

Thereisameansbywhichcum-bersomeadministrationofincentivemechanismscouldbeimproved.“One-stopshopping”couldbeinstitutedbycoordinatingvariousincentiveprogramsbetweenpublicandprivateentities.Thiscouldbeaccomplishedbydevelopingamasterorumbrellaconservationincentiveprogramandthenapplyingamenuofincentivesacrossalargerarea(e.g.,county,stateandwatershed).Thismaybeadaunting,long-termtask,withimprovedcoordinationandaccesstoexistingprogramsamorerealisticgoal.Considerationshouldbegiventoestablishingasinglepointofentryforlandownerstoapplytoincentiveprograms.Simplify-ingadministrativeprocedurescouldresultinthereductionofbarriersandtransactioncoststolandownersinaccessingincentiveprograms.

InOregon,adiversepublic/pri-vatepartnershipisinitiatingtheOregonSustainableAgricultureResourcesCentertoprovideone-stopshoppingtoallfarmers,ranchersandresourceprofessionalsinOregon.Thecenterwillcompileandcross-linkincentiveprogramsandotherfundingsources,regulations,certifica-tionstandardsandothertechnicalresources.Thecenterwillalsoprovidetechnicalassistancedirectlytolandowners.Alonger-termgoalisto

identifywaystolink,streamlineandcombineeffortsbetweendifferentagenciesandorganizations.Thereisstrongsupportforthecenterfromstateandfederalagencies,agriculturalinterestsandconservationgroups.Thiscentercouldserveasamodelforotherstates.

Stewardshipagreementswithoneorseverallandownershavebeenproposedasanimprovedmeansofdeliveringandadministratingincen-tivemechanisms.Theseagreementscouldspecifywhatwildlifehabitatbenefitswouldbeprovidedbyland-ownersandwhattypesofincentiveswouldbereceivedinexchange.SomeexperiencewithforeststewardshipagreementsinOregonsuggestthattheyshouldbeofferedtolandownerswillingtoexceedminimumregulato-ryrequirements,andthattheincen-tivesneedtobesubstantialenoughtoattractparticipation.

Therearethreeformsofflexibilitythatwouldincreasetheperformanceofincentivemechanisms:flexibilityintheapplicationofincentivesatthelandownerlevel,flexibilityintheavailabilityandselectionofmanage-mentpractices,andflexibilityinfunding.Withrespecttotheapplica-tionofincentivetools,landownersshouldhavesomeroleindefiningwhatincentivemechanismsmaybemostappropriatefortheirparticularareaorfinancialcondition.Forstateswithwell-defined(i.e.,mapped)statewildlifeactionplans,manypriorityareasforconservationwillincludelandsinprivateownership.Becausetheselandswillbeusedinvaryingdegreesofintensity,thereisaneedforavarietyofincentivestopromoteessentialhabitatprotectionandrestorationbothpermanentlyfornaturalareas,andaspartofthework-inglandscape.Aflexibleapproachtoincentivesrecognizesthatthesocial

andeconomicfactorsthatinfluencedecisionsabouthabitatconservationarenotthesameforalllandowners.Anarrayofincentivesisintendedtoprovidealevelofflexibilitywithinwhichmanyindividualsmayfindacombinationoffeaturesthatsuitthephysicalandeconomicconditionsoftheiroperation.

Increasedflexibilityintheap-plicationofeconomicincentivescanbeachievedbycreatingacentralizedaccesspointthatallowsindividuallandownersaccesstothefullmenuofpossibleincentives,sotheycanapplyfortheincentivemeasurethatbestfitstheirphysicalandeconomicsitu-ation.Themajortypesofincentivesalandownercouldchoosefromwouldincludetermorperpetualconserva-tioneasements,landrentalpayments,stewardshippaymentsforresourcemanagementpractices,orcost-shar-ingofmanagementpractices.Local,stateorfederaltaxincentivescouldcomplementexistingincentiveop-tions.Secondaryincentiveswouldincluderesearchandeducationalopportunities,marketingassistance(e.g.,eco-certificationandproductlabeling,preferentialgovernmentpurchasing)and/orstewardshiprec-ognitionrewards.Whilecentralizingincentiveadministrationcouldcostmoreintermsofdelivery,isshouldlowertransactioncostsforprivatelandownersandcouldbemorebiologicallyeffective.Ourrecommen-dationistocreateastate-orregional-levelincentivescoordinator,withadditionalstafflocatedaroundthestatethatwouldcoordinatevariousincentiveprogramsandmechanismsforprivatelandowners.

IntheTualatinRiverBasinjustwestofPortland,Oregon,anewinnovativepartnershipisaddress-ingtheproblemofinadequateincentivelevels.Here,farmerswere


notparticipatingintheConserva-tionReserveEnhancementPro-gram,whichinOregonfocusesonriparianrestorationtobenefitsalmonhabitatandwaterquality.Thelackofparticipationoccurredbecausetherentalpaymentswerenotenoughofanincentivetoretirelandfromproducinghigh-valuecrops.CleanWaterServices,which

providessurfacewatermanagementandsewagetreatmentfortheurbanareasoftheTualatinBasin,neededtoreducethewaterqualityimpactsoftheirtreatedeffluent.TheyareusingcustomerfeestoincreasethepaymentsthatlandownerscouldreceivethroughtheConservationReserveEnhancementProgramtomeetwaterqualitystandardsinthebasinbyinvestinginhealthyruralriparianareas.TheTualatinSoilandWaterConservationDistrict,whichhasalonghistoryofworkingwithrurallandowners,deliverstheprogramincoordinationwiththeFarmServiceAgencyandtheNatu-ralResourcesConservationService.Thepartnershiphasalsodevelopedaparallelnon-federalprogramforlandownerswhodonotqualifyfororprefernottoparticipateinthefederalprogram.Inaddition,thepartnershipisdevelopingaparallelincentiveprogramforforestlandandaprogramtorewardlandown-erswhoconserveintacthabitat.

Thefragmentednatureofconser-vationprogramshasalsocontributedtocomplicatingproducerchoice(s)ofconservationmanagementpracticesthatarefundedwithvariousincen-tives.Forfederalprograms,resourceconservationmanagementpracticesarefirstdevelopedandpilottested.Althoughmanagementpracticesmaythenbepartiallyadaptedtolocal

conditions,incentivemechanismsarenot.Thus,selectedmanagementpracticesandtheirattendantincen-tiveprogrammaystillbeinappropri-ateforspecificlocalenvironmental,ecologicalandeconomicconditions.Therecanbelowprogramparticipa-tionrateswherepracticesareill-suit-edorincentiveratesareinadequate,resultinginlowertechnicaleffec-tivenessandhigherprogramimple-mentationcosts.Formostpubliclyfundedprograms,thereisnotimelyprocessforalteringconservationmanagementpracticesorincentivelevelstoadjusttodynamictechnicalandeconomicconstraints.

SectionIIIofthisreportdescribedthediversenumberofpublicandpri-vatevoluntaryincentivemechanismsforhabitatconservationthatarecur-rentlyavailabletolandowners.Whilethediversityofincentivemechanismsprovidesarichmixofapproaches,existingincentivetoolsandprogramsarefragmentednotonlybytheirenvironmentalandecologicalpurpose

butalsobytheadministrativeagencyresponsiblefortheirimplementation.Thissituationhasledtoincreasedprogramduplication,complexityandcosts.Thefragmentednatureofexistinghabitatconservationincen-tiveprogramshasimplicationsintheformoftransactioncostsresultingfromthecomplicatedandexpensiveprocessesproducersfacetoidentifyandaccesstheincentivemechanismthatsuitstheirconditionsandneeds.

Withrespecttoincentivetoolsadministeredbythepublicsector,thenumberandeligibilitycriteriahavegrownsocomplexandunwieldythatitisbecomingcounterproduc-tivetoacoherenthabitatresourceconservationandprotectionstrategy.Fromthelandowner’sperspective,thenumerous,andsometimesredundant,incentivetoolsandprogramsaredif-ficulttounderstandbecauseeachhasdifferentinformation,eligibilityandtechnicalassistancerequirements.

Consolidatingtheadministra-tionofbiodiversityandwildlifehabitatincentiveprogramsintooneoveralleffortatthestatelevelcouldcontributetodecreasingthecomplexityandcostsofthecurrentsystem,andwouldlikelyincreaselandownerparticipation.Asinglehabitatconservationprogram,whichpooledfundingfromexistingfederal,stateandprivateprograms,couldbemoreeffectivelycoor-dinatedtoallowfor“one-stopshop-ping.”Thissystemwouldfacilitatelandownerinformationacquisitionandselectionofincentivesandreducelandownertransactioncosts.Itcouldalsofacilitatemonitoringcompliancewithhabitat-relatedstandardsandregulations.

ResearchAnotherpriorityistodevelopaclearinghouseofinformationon

“ From the landowner’s perspective, the numerous, and sometimes redundant, incentive tools and programs are difficult to understand...”


assessmentsoftheimpactsofvariousincentivemechanismsforbiodiver-sityconservation.Webelievethiswouldbenefitlandowners,incentiveprogramdeliveryagents,andpolicymakers.Theestablishmentofsuchaclearinghousewouldmakeiteasiertofocusonareasthatneedfurtherresearch.Toacertainextent,thisisalreadybeingdoneindirectlythroughthecurrentConservationEffectsAssessmentProgramwithintheU.S.DepartmentofAgriculture.However,thisprogramissolelyfocusedonthebiologicalimpactsofconservationpractices,notincentivemechanisms.And,itdoesnotaddressquestionsofeconomicefficiency.

Thedevelopmentofaland-ownerincentiveprogram(througheitherprivatemarket-basedorpublicentities)forprovidingecosystemservices,includingbio-diversity,deservesmoreattentionthroughadditionalresearchandpilottesting.Aspartofthiseffort,thereneedstobeanevaluationofthepublicandprivatecostsandbenefitsofprovidingincentivesforecosystemservicesthroughprivatemarkets,includingthemaintenanceofbiodiversityvalues.

Forconservationmanagementpracticesthatarefundedthroughcost-shareorothertypesofincentivetools,agriculturalproducersshouldhavetheflexibilitytodesign,testandimplement(withtheassistanceofqualifiedgovernmentagencies,nonprofitgroupsand/orcertifiedprivateconsultants)newagro-envi-ronmentaltechnologiesthatareap-propriatetorestoringandconservinglocalwildlifehabitat.Landownerscouldalsobeallowedtomodifyex-istingmanagementpracticesinordertomeethabitatconservationgoals.Onenewincentivetoolwouldbetoinitiateapilot“safetynetprogram”

whosepurposewouldbetoprovideaminimumpaymentfortherisktakeninimplementingnewconser-vationpracticestoprotectwildlifehabitatorspecies.

Scale of Land ManagementAnotherimportantstructuralconsiderationisthedistributionofincentiveresourcesoverdifferentsizedlandholdings.Thebasicques-tioniswhetherincentivesshouldbedirectedtolandownerswithlargeorsmallholdings,orboth.Thedebatefocusesonlandownerswhomaybeabletoprovidelargecontiguoustracksofhabitatversusthosethataremorescatteredacrossthelandscape.Withintheforestrysector,research(Hummon2005)hasdemonstratedthatfamilyforestlandownerswithsmallerholdingsplaceahighvalueontheenvironmental,aestheticandheritagevaluesoftheirland,whilelargeindustriallandownersaremoredrivenbyprofits.However,industriallandownerstendtoownlargerparcels,haveaccesstomoreresources,andmayhavegreatercon-cernsaboutconsumerdemandsandpublicperceptionintheireffortstoconservehabitatsandspecies.Toaddresstheissueofadequatescaleatthesmalllandholderlevel,addition-alincentivescouldbeprovidedtogroupsofadjacentlandownerswhoagreetoprovidehabitatconserva-tionoveracontiguousarea.Inthiscase,abonusincentivecouldbeof-feredforcoordinatedefforts.Atthefederallevel,theConservationSecu-rityProgramallowsforalandownerenhancementpayment(bonus)ifthereisa75percentparticipationratewithinawatershed.Giventhemosaicoflandownershipanduse,incentivemechanismsandpoliciesmustbedesignedforbothtypesoflandowners.

Incentive FundingConservationincentivefundinginthepublicandprivatesectorsisinsuf-ficienttomeetthedemandfrompri-vatelandowners.Additionally,thereareissuesrelatedtotheallocationofavailableconservationfundsandthemeanstogenerateadditionalfunding.

Publicfundinglevels(federalandstate)forhabitatconservationincentivesandtechnicalassistancehavenotbeenadequate,despitegrowingdemandbylandowners.Forexample,thebacklogofapplicationsforfederalFarmBillconservationincentives,acrossallprogramsthatindirectlyordirectlybenefitwildlifehabitatsandspecies,infiscalyear2004totaledabout$4.48billion,whichleftmorethan150,000land-ownerapplicationsunfunded.Atthefederallevel,realfundingfortechni-calassistancetodeliverconservationprograms,andfortheresearchanddevelopmentofnewconservationtechnologies,hasactuallydeclinedoverthelast10years.Thissitua-tionhasresultedintheinabilityofreducedstaffstoprovideeffectiveservicetothegrowingnumbersofproducerswaitingtoparticipateinanincreasingarrayofpublicresourceconservationprograms.

Conservation-relatedpublicinstitutionsneedadditionalfundingtodesign,testandmarketinnova-tivehabitatconservationincentiveprograms.Federalandstateagenciesalsoneedincreasedfinancialsupportforresearchanddevelopmentofpro-ductionpracticesthat,totheextentpossible,simultaneouslymeetprofitandproductiongoalsandreduceadverseenvironmentalimpactsonwildlifehabitat.Increasedfinancialresourcesmustalsobemadeavail-abletosupportbiodiversityconser-vationeducationforlandownersandforprogramdeliverers.


Theallocationofincentivefundingneedstobemorerationalandcoordinatedbetweenprivateandpublicsources.Thedistribu-tionofincentivefundsshouldbemadeattwolevels:onethatfocusesonimplementingnationalandlocalconservationpriorities,andasecondthatprovidesfundingforinnovativewildlifeconservationactivities(specialprojects).Withrespecttotheimplementationofnationalandlocalpriorities,apor-tionoffederalconservationfundingshouldbeallocatedtoimplement-ingstatewildlifeactionplans.Spe-cifically,incentivepaymentsshouldbeincreasedforthoselandownersthatimplementprojectsthatmeetnationalorlocalhabitatconserva-tiongoalsorthatconserveorrestorehabitatformorethanonespeciesonagriculturalorforestrylands.FuturepublicfundingforhabitatconservationcouldbelinkedtoareasidentifiedbytheConserva-tionEffectsAssessmentProgramashavingpositiveimpactsonwildlifehabitat,assumingthisprogramcaneventuallymakethelinkbetweenfundedmanagementpracticesandbiologicaloutcomes.

Increasedpublicandprivatefundingisneededformarket-drivenincentiveapproaches(e.g.,certifica-tion,niche-marketing,ecotourism,etc.)toencouragelandownercon-servation.Furthermore,aportionofpubliccost-sharefundingshouldbeusedforlandownerandagencystafftraining/educationinbiodiversityandhabitatconservation.Educationeffortscouldbeimplementedthroughfinan-cialassistanceprograms,oriftechnicalassistancefundingwereaugmented.Last,publicandprivateconservationincentivefundsshouldbemadeavail-abletolocalcommunityconservationgroupstorestoreorconservehabitatsidentifiedinstatewildlifeactionplans.

Thereisasignificantpoliticaldimensiontotheallocationofpublicincentivefunds.Althoughtargetingincentivestothoselandswiththegreatestecologicalvalueforthelow-estcostisagoodstrategyfromthebiologicalandeconomicefficiencystandpoint,allocationsmaybedeter-minedforotherreasons.Forequityconcerns,politicalpressuremayforceexpendituresontolandsthatarelessecologicallyvaluableandmoreexpensive.Aneffectiveandefficientstrategywillfocusincentivesinrural

areas.However,resistancemaybein-tensetotheremovaloflandfromtaxrolesorfromcommodityproductiontoaccommodatehabitatconserva-tion.Also,urbanresidentsmayresistchannelingallfundstoruralagricul-turalandforestrylandsattheexpenseoflocalparksandgreenspacesthathavelessecologicalsignificance.

Federalincentivefundstoprotectandconservewildlifehabitatcouldbeprovided,inpart,throughstategrantswithfederalmonitoringandoversight.Stateswoulddecidehowtoallocateincentivefundsamongprior-ityresourceconservationareasidenti-fiedintheirstatewildlifeactionplan.Stateeligibilityforincentivefundingwouldbecontingentonthecapacitytoeffectivelyimplementthehabitatconservationstrategyandontheallocationofadequateresourcestomonitortheeffectivenessofincentiveprogramsandconservationresults.

Inadditiontothearrayofpublicandprivateincentivemechanismsalreadyinexistence,tieredcompensa-tionstructuresfortheprovisionofon-goingpublicenvironmentalben-efitscouldbeanadditionalincentiveforhabitatconservation.Sometimescalled“greenpayments,”thecompen-sationgoestolandownersforon-go-ingandeffectivemanagementoftheirlandstoprovidehabitatbenefits.Forexample,landownersusingconven-tionalintensiveagriculturalorforestmanagementtechniquesthatprovidenoconservationvaluewouldnotbeeligibleforincentivegreenpayments.Operationsdeemed“sustainable,”meaningthattheysustainecologicalvalueswithinaproductioncontext,wouldbeentitledtopartialpay-ments.Thehighestpaymentswouldbemadetolandownersinprior-ityconservationareaswhoagreetomanagelandsprimarilyforecologicalvalues,therebyreducingorforgoing

Sandhill cranes | U.S. Fish and Wildlife Service


opportunitiestogeneraterevenuefromcommodities.TherelativelynewU.S.DepartmentofAgricultureConservationSecurityProgramcouldbecalledaprecursortoa“greenpay-ments”incentiveprogramthatcouldbecomeincreasinglyimportantinlightofpotentialfuturerestrictionsimposedbytheWorldTradeOrgani-zationonU.S.agriculturalcommod-itypriceandmarketingsupports.

Geographic and Temporal ScaleInorderforincentivemechanismstobeeffective,theirstructureandfund-ingmechanismsmustbeconsistentwithtwoissuesrelatedtothescaleofconservationeffort.Onescaleisgeographic,theotheristemporal.Withrespecttogeography,scaleissuesconfoundincentiveprogramsbecausecurrentincentivestendtobefocusedonindividuallandowners,whileeffectivehabitatconservationneedscrossmultiplejurisdictions,economicsectorsandlanduses.Inordertoconserveenoughhabitatoftherightkind,intherightplace,andwithanappropriateconfigura-tionforwide-rangingspecies,itisnecessarythatincentivemechanismsandprogramsbeapplicableacrossmultipletypesoflandownership.Theexception,ofcourse,iswhereindividualownershavesignificantacreagesthatencompassarepresen-tativeportionofaparticularhabitat.Aninherentdilemmainthisarrange-mentisthatwithsomeexceptions,thelargertheowner(especiallyforindustriallandowners),thegreaterthepressuretomanagethelandformaximumcommodityproduction.Ownersofsmallerparcelsmaybemorereceptivetothenotionofman-aginglandforbiodiversityvalues,butthefragmentedpieces,oftenfoundinruralresidentialareas,havelesspotentialecologicalvalue.

Withrespecttothegeographicalscaleissuefortherecoveryofbio-logicalfunction,werecommendthatregionalorwatershedlevelprojectsshouldbeencouraged.Thisapproachcouldofferadditionalincentivesforlandownercooperationandcoordina-tionthatcouldhavealargerimpact

onconservationtargets.Somepublicstewardshipprogramsalreadyofferadditionalincentivestoencouragecooperativeconservationeffortsbetweenindividuallandowners.

Examplesofregionalconserva-tioninitiativesincludetheMalpaiBorderlandsintheSouthwestandtheChesapeakeBayregionontheEastCoast.Also,boththeU.S.FishandWildlifeServiceandtheU.S.DepartmentofAgriculturemanageconservationincentiveprogramsthatcanbeappliedonaregionalbasisacrossmanylandowners.Forexample,variousU.S.DepartmentofAgricultureincentiveprogramshaveusedsomefundstotargetsagegrousehabitatthroughout11statesintheWest.ThePartnershipsandCooperationProgramestablishedin2002undertheU.S.DepartmentofAgricultureisanexampleofaconservationprogramthatimple-mentsspecificprojectswiththegoalofencouragingconservationacrossmultiplejurisdictionsandnaturalresources.

Thetemporalscaleisequallyimportant.Restorationandconser-vationofwildlifehabitatrequiresalong-termcommitmenttobesuccess-ful.Withtheexceptionofpermanenteasementoptions,mostpubliclyfundedhabitatincentivemechanismsaretemporaryinnature,employing

predominatelycost-shareorlandrentaltools.Theseincentivesarenotgearedtothelong-termgoalofpermanentlyconservingbiodiversityvalues.Forso-calledworkinglands,theConservationSecurityProgramhasthepotentialtoprovidelandown-erincentivesonanon-goingbasistomanagetheirlandforecosystemser-vicesthatincludespeciesandhabitatprotection.Thisprogramrecognizesthatresourceconservationshouldnotendaftercost-sharingtheadoptionofaconservationpracticewithinashort-termcontract.Inaddition,thereisaneedtocontinueincentivesforthepurposeofongoingconserva-tionmanagement.

Incentive Policy ConsistencyTheconsistency,andthereforetheeffectiveness,ofwildlifeandconser-vationincentivesisconfoundedbytwoproblems.Theseproblemsresidemoreinthepublic,especiallyfederal,domain,althoughconsistencyandcompatibilitybetweenpublicandprivateincentivemechanismsand

“ ...the Conservation Security Program has the potential to provide landowner incentives on an on-going basis to manage their land for ecosystem services...”


programsalsoneedstobeaddressed.Thefirstconsistencyissuestemsfromtheinterplaybetweenincentivemea-sures.Althoughonesetofincentivemechanismsmaybeaimedatprotect-ingandconservingwildlifehabitat,anotherincentivesetmayactuallyencouragedestructionofhabitat.Forexample,whilesomeU.S.Depart-mentofAgricultureorU.S.FishandWildlifeServiceincentivesareaimedatconservingspecifichabitats,otherfederalsubsidiesavailablethroughthetransportation,housingorenergysectorsmayactuallyresultinadverselyalteringthesesamehabitats.

Toaddresstheissueofconsistentpoliciesbetweenfederalandstateagencies,theagenciesresponsibleforwildlifeconservationshouldcoordinatewithotherpublicagen-ciesonaregularbasisonthelocationandnumbersofatriskspeciesandtheirhabitats.Toalimitedextent,thiscoordinationalreadytakesplacewiththeframeworkoftheNationalEnvironmentalPolicyActandtheEndangeredSpeciesAct.However,itisbecomingincreasinglynecessarytomakesurethathabitatconservationincentivesarebeingappliedeffectivelyandefficientlywithinthecontextofincentivesofferedinthetrade,energy,commerce,housingandtransportationsectors.Evenbetweenfederalnaturalresourcesagencies,coordinationhasbeenminimal.Forexample,imple-mentationisgenerallynotcoordinatedbetweentheCleanWaterActandtheEndangeredSpeciesAct.TheEnvi-ronmentalProtectionAgencywouldnotconsiderimpactsofpesticidesonlistedsalmonuntilalawsuitforcedtheagencytocomply.

Thesecondconsistencyissueinvolvesincompatibleincentivepro-gramswithinthesameagency.ThereisalackofcoordinationbetweentheconservationobjectivesoftheFarm

Billandtheproductionobjectivesofthecommodityandriskmanagementprograms.TheinterplayofthesevariousFarmBillTitlesisimportantindetermininghoweffectivehabitatconservationincentivescanbe.Insomecircumstances,productionin-centivesmayprovetobecounterpro-ductivetohabitatconservation.Forexample,althoughanincreaseinthesubsidyonfederalcropinsurancecandecreaseaproducer’sfinancialrisk,itcanalsoactasaninducementtoputunusedmarginallandsintoproduc-tion,therebyimpairingtheirvalueashabitatforat-risknativeanimalandplantspecies(Adamsetal.1999;Wu1999).TherearealsoinherentconflictswithinFarmBillpolicyconcerningcommodityproductionandwildlifehabitatconservation.ThecommoditytitleofFarmBillsubsidizeseightcommoditycrops,resultinginmorelandbeingconvert-edorputintomoreproductionforthesecrops,allofwhichareextremelyintensewithrespecttoresourceuse.Itisestimatedthatalmost300,000acresofnativegrasslandwerecon-vertedtocroplandbetween2002and2005inNorthandSouthDakotaandthatannuallossratesofgrasslandsince2000exceed2percentperyear(ArgusLeader2005).Increasedpro-ductionintensitycanleadtoadirectlossinbiodiversityoncommoditycroplandsandtotheimpairmentofecosystemsduetotheintenseuseoffertilizers,pesticidesandotherinputs.

Thereareseveralwaysthatpoliciesaffectinghabitatconservationcanbeconsistentandcoordinatedwithinindividualagencies.TheU.S.Depart-mentofAgricultureservesasagoodexample.Thebasicobjectivewithre-specttofarmpolicyistostrikeabetterbalancebetweenproductioncapacityofthelandandresourceconservation.Thisisabalancebetweenencouraging

landownerstostayonthefarmandassistingtheminadverseeconomicconditionsinawaythatdoesnotresultinhabitatdegradation.Biolo-gistshavebeenchallengedindeter-mininghowmuchproduction,andatwhatintensitylevel,isconsistentwithhabitatconservationandprotection.Commodity-relatedincomesupportpayments(incentivestoproduce)needtobeexplicitlylinkedtotheadoptionofconservationpracticesandstrate-gies(cross-compliance),includingaprohibitionagainsttheexploita-tionofecologicallyvulnerablelands(rarehabitats,highlyerodiblesoils,wetlands,riparianbuffers,etc.).Inadditiontoincentivesembeddedinthecommoditytitleoffarmlegisla-tion,incentiveswithothertitles(e.g.,trade,energy,ruraldevelopment)needtobeconsistentwithhabitatconserva-tionincentives.Examplesofachievingmorecross-titleconsistencywouldbetoreshapeorganiccertificationandmarketingprogramstowardsattainingahighlevelofhabitatconservation,andtoencouragetheuseoffoodstampstopurchaselocallygrownfoodproducedinahabitat-friendlymanner.

Monitoring and EvaluationTheimplementationofhabitatcon-servationprogramshasafairlylonghistory,butwedonotknowmuchabouttheirphysicalcontributiontobiodiversityconservation.Thereisanabsenceofdefinedprocessestomonitorconservationincentivesandtolinkthemwithprojectoutcomes.Thelackofmonitoringdatamakesitdifficulttoaddressdynamicenviron-mentalandecologicalproblemsortoidentifymoreappropriateincentivemechanisms.Monitoringisrequiredtodeterminethebiologicalimpactsoftheeconomicincentivesemployedtoachievedefinedrestorationandconservationgoals.


Therearemanyapproachestomeasuringconservationprogramout-comes.Oneapproachisimplemen-tationmonitoring,whichmeasuresthedegreetowhichstepshavebeentakentocarryoutaprogram(e.g.,howmanytreeswereplanted).Thesecondiseffectivenessoroutcomemonitoring,whichmeasurestheimpactofanincentivemechanism

ontheground(e.g.,howmanytreessurvived,andhowwasthepopulationofspeciesxaffected).Theproblemwithimplementationmonitoringisthatitassumesthereisarelationshipbetweenprogrammaticactivities(i.e.,landownerparticipationrates,acresenrolled)andbiologicalresults,whichmaynotbeanaccurateassumption.

Thechallengeforeffectivenessmonitoringofincentivesisthatthereisconsiderablenaturalvari-abilityinecosystems,andsignificantecologicalchangesmaynottakeplacefordecades.Whatisneededisanintermediatemeasurementsystemandindicatorsfordeter-miningtheimpactsofincentivemeasuresthat’seasytounderstandandadministerandthatprovidesusefulinformationandfeedbacktoinformandguideincentiveprogrammanagementovertime.

Conservationgoalsshouldbesetatthestateorregionallevelandthenimplementedatthelocallevel,wherehabitatconservationprojectsspecifyclearoutcomestobeachieved.Forexample,awildlifehabitatprojectgoalmaybetoincreasehabitatforan

at-riskspeciesby“x”percentoveraspecifictimeperiod.Forwaterquality,specificgoalsshouldbeconsistentwithexistingnationalstandardsorobjectives.Outcomemeasurementshouldnotonlyaddressthetechni-caleffectivenessofrecommendedmanagementpracticesbutalsothecost-effectivenessofincentiveinstru-mentsselectedbylandowners.

TheNaturalResourcesConser-vationServiceoftheU.S.Depart-mentofAgricultureisattemptingtomeasuretheeffectivenessofconserva-tionpractices.UnderitsConserva-tionEffectsAssessmentProgram,theNaturalResourcesConservationServiceisinvestigatingtheviabilityofandmeasuringvarious“outcome”indicatorsthatcouldserveasthebasisforevaluatingresourceconservationeffortsforthetechnicaleffectivenessofspecificmanagementpractices.

Exceptinaveryindirectway,theConservationEffectsAssessmentProgramdoesnotaddresstheap-propriatenessorefficiencyoftheeco-nomicincentivesusedtoencourageconservationbehavior.Ifindividualpracticesorlevelsofparticipationaredeemedtobeeffectiveinconser-vationefforts,thenbydefault,theincentivemechanismforaparticularprogramisconsideredefficient.Thisconclusionmaybeunfounded,be-causealthoughlandownersmaypar-ticipateinaconservationprogram,theymaydosoforotherreasonsthanfindingaparticularincentivemecha-nismorpaymentlevelworthwhile.

Inaddition,theNaturalResourceConservationServicewillalsobeimplementingamonitoringsystemthatusesdatafromtheirNaturalResourcesInventorytodeterminetheimpactsofagriculturallanduseonwildlifehabitatcompositionandconfiguration(BradyandFlather1995).Totheextentthatlanduseisimpactedbyspecificconservationincentivemechanisms,thismonitor-ingprogrammayormaynottellusanythingabouttheeffectivenessortheefficiencyofindividualincentivetoolsinconservingwildlifehabitat.

Clearly,publiceffortsneedtobeexpandedtoincludethemonitoringandevaluationonincentivemecha-nismsintermsofbiologicalconserva-tiontheeconomicefficiency.Thereisaneedforadedicatedamountoffundinginallpublicprogramsformonitoringandevaluationofincentivemechanisms.

“ Conservation goals should be set at the state or regional level and then implemented at the local level...”

Lark Bunting | Natural Resources Conservation Service


Inthefuture,thehabitatsandspeciesingreatestneedofconser-vationattentionwillincreasingly

beonprivatelands.Recognizingthatprivatelandownerswillplayakeyroleinbiodiversityconserva-tion,wecanandshouldencourage

theseefforts.However,inadditiontopositive,voluntaryincentives,thereisclearlyaneedforconserva-tionregulationsthatsetaminimumperformanceleveltoguidelandownerdecision-making.Inotherwords,thereisaneedforboththe“carrot”andthe“stick.”

Wealsoneedtoestablishaclearboundarybetweentheregulatoryapproachandtheroleofincentives.Weshouldnotpaylandownerstoobeythelaw.Regulationsdefinethebaselineforprotectionofecologicalvalues.Incentivesshouldencouragelandownerstopursuemoreambitiousgoals.Simplypreventingadditionalecologicaldamageisinsufficient,giventhenation’shistoryofbiodi-versitylossesandthestrengthoftheforcesthatarestilldrivingthattrend.Aneffectivelong-termconserva-tionpolicywillrequirebothactiveecologicalrestorationandcontinuingstewardship.Conservationincentives

policyshouldencouragerestorationwithoutpenalizinglandownerswhohaveahistoryofgoodstewardshipbylimitingassistancetothosewhoselandshavebeendamaged.

Thereareincentivemechanismsforwhichnoformalbiologicalor

economicappraisalhasbeendone,andthereareotherswhereverylittlehasbeendone.Thisdoesnotmeanthatweshouldnotsupportcurrentincentiveprograms,butratherweshouldfindwaystomakethemworkbetter.Indeed,withouttheseprograms,habitatandspecieslosswouldnowbemoreseverethanitcurrentlyis.However,moreresearchisrequiredtomeasurethecomparativeadvantagesofvariousincentivemechanisms.Oneareaofimmediateactionistofindwaystodecreasetheprivateandpubliccostsofaccessingandimplement-inglandownerincentiveprograms.ResearchontheseissuescanbeimplementedthroughtheU.S.De-partmentofAgriculture’sEconomicResearchService,thelandgrantuniversitysystemorbynon-govern-mentalorganizations.

Thereareparticularthemesthatemergefromourassessmentthat

areimportantforestablishingaworkableframeworkforincentivedeliveryandmanagement.First,establishingamarketstructureforlandownerstocapturethepublicbenefitsofwildlifeconservationcanbejustasimportantasfinancialin-centives.Second,administrativeeaseforaccessingincentivemechanismsbylandownersisimportant.Third,thereisagreatpotentialformergingpublicandprivateincentivetoolstoencouragelandownerstoconservebiodiversityvalues.

Landownersneedaccesstoabundleofinstitutional,market-ori-ented,financialandfacilitativeincen-tives.One-stopshoppingthatofferslandownersaclearpictureofthefullrangeofoptions,incentives,permitrequirements,fundingsourcesandotherinformationapplicabletotheirindividualsituationscouldresultinbothhigherlevelsofparticipa-tionandimprovedadministrativeefficiencies.Wealsoneedtofindwaystobuildmoreflexibilityintoactualincentivesusedandintothemanage-mentpracticesthoseincentivesaremeanttoencourage.Whileflexibilitycomesatahigherpriceintermsoftransactioncosts,thetradeoffwitheffectivenessislikelytobepositive.

Anincentivetoolthatdeservesfurtherexplorationisanecosystemservicesmarketplacethatpromotesbothbiologicalintegrityandeconom-icefficiency.Althoughtheconceptisjustbeginningtogainsometraction,primarilyintherealmofcompensa-torymitigation,thepotentialexistsformuchbroaderapplication.

XI. CONCLUSIONS

“ An effective long-term conservation policy will require both active ecological restoration and continuing stewardship.”


ProposalstoshiftFarmBillfund-ingfrom“brownbox”commoditysupportprogramsto“greenbox”con-servationprogramsthatprovidepay-mentsforecosystemservicescouldhaveaprofoundeffectonthescopeandscaleofthisemergingecosystemmarketplace.However,thereismuchtobedoneintermsofdefiningwhat“service”isactuallybeingfurnished,whatmetricsareusedtomeasurethatserviceandwhattheappropri-atemethodofeconomicvaluationshouldbe.

Regardlessofthemechanism,in-centiveswillbemosteffectiveiftheyareimplementedwithinthecontextofspecificbiodiversityconservationgoalsoroutcomesthatallowustomeasureprogressagainstthesegoalsandadaptincentivetypesandlevelsovertime.Investmentsinconserva-tionincentivesneedtobemadestrategically.Fewpolicymakerswouldacceptthenotionthatthegovernmentshouldinvestitslim-itedfundingforconservationlandacquisitionsinpurchasingpropertyfromanylandownerwhosteppedforward.Yetmostincentiveshavebeentreatedthatwayforyears–madeavailabletoabroadspectrumoflandownersandallocatedonafirst-come,first-servedbasis.Wenowhavetoolsthatallowincentivestobetargetedmorestrategically,basedoncomprehensiveconserva-tionassessmentssuchasthestates’newwildlifeactionplans,TheNatureConservancy’secoregionalassessmentsandotherscience-basedconservationstrategies.Monitoring,implementedbythirdpartiesatawatershedorecoregionalscale,canbeusedtogaugeeffectiveness,guideimprovementsinthewayincentivesareformulatedanddeliv-ered,andprovideaccountabilityforpublicinvestments. Three generations of farmers, Iowa | Natural Resources Conservation Service


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