Incentivising Biodiversity Net Gain with an Offset Market

Katherine Simpson, Nick Hanley, Paul Armsworth, Frans de Vries and Martin Dallimer

No 312052, 95th Annual Conference, March 29-30, 2021, Warwick, UK (Hybrid) from Agricultural Economics Society - AES

Abstract: Most programmes which incentivise the supply of public goods such as biodiversity conservation on private land in Europe are financed through the public purse. However, new ideas for how to fund biodiversity conservation are urgently needed, given recent reviews of the poor state of global biodiversity. In this paper, we investigate the use of private funding for biodiversity conservation through an offset market. The environmental objective is to increase some measure of biodiversity in a region (“net gain”) despite the loss of land for new housing. Farmers create biodiversity credits by changing their land management, then sell these credits to housebuilders who are required to more-than offset the impacts of new house building on a specific indicator of biodiversity. Combining an economic model of market operation with an ecological model linking land management to bird populations, we examine the operation, costs and biodiversity impacts of such a (hypothetical) market as the target level of net gain is increased. A general result is established for the impacts on price and quantity in the offset market as the net gain target is make more ambitious. For a case study site in Scotland, we find that as the net gain target is increased, the number of offsets traded in equilibrium falls, as does the market clearing offset price. Changes in the spatial pattern of gains and losses in our biodiversity index also occur as the net gain target is raised.

Keywords: Land Economics/Use; Environmental Economics and Policy (search for similar items in EconPapers)
Date: 2021-03
New Economics Papers: this item is included in nep-agr and nep-env
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:ags:aesc21:312052

DOI: 10.22004/ag.econ.312052

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