Forestry and Wildlife Sciences Bldg
602 Duncan Dr, Auburn, AL 36849
Title: Economic analysis of habitat conservation banking in the United States
Location: 3315 Dixon Executive Conference Room
Date: Friday, April 21, 2017
Time: 8:00 – 9:00 a.m.
The Endangered Species Act (ESA) is probably the most powerful environmental law ever enacted in the United States and is often portrayed as one of the most extreme forms of government intervention. Private landowners often avoid management activities that can potentially attract endangered species into their land and probably take actions to eliminate endangered species habitats. Several landowner incentive programs have been implemented by the U.S. Fish and Wildlife Service to encourage landowner to manage their land in ways that provide ecosystem services to promote the recovery of listed species.
Conservation banking offers financial incentives to landowners in exchange for managing land in a way that provides habitat for endangered species. This feature of the market-based approach is generating specific price signals for entrepreneurs to get involved in solving environmental issues. The United States pioneered conservation banking program and is recognized as a leader in implementing biodiversity offsets as a means to conserve endangered species. Few studies have evaluated the performance of conservation banking market. However, most of those studies were conducted a decade ago.
In the first chapter, we fill the gap by quantifying the number of total banks, conservation credit inventory, sales, and analyze the trends and the characteristics of conservation banks. As of December 2015, we find 137 conservation banks conserving some 153,000 acres of land. This number has increased to 180,298 acres recently. Nearly, 519,540 conservation credits were generated from 137 banks and some 71,365 credits were sold in last 21 years. About 66% of conservation credits were sold by private companies and credit price ranges between $1,500 and $198,560 per credits. This chapter concludes that conservation banking has become a business-based habitat planning system and that large urban areas tend to have the highest demand for conservation credits and are willing to pay the highest prices per credit.
The second chapter presents an econometric analysis of factors influencing demand and supply of the conservation credit market. The results reveal that demand and supply are inelastic to price, suggesting that conservation credit price changes are not likely to result in significant changes in the demand for credits. Inverse price and quantity relation shows the actual distribution of price in the market. Furthermore, the results suggest that the marginal production of conservation credit is likely to increase over time with more land area allocated for conservation bank and likely to decrease with increased in land value.
The third chapter uses hedonics to explores the relationship between credit prices and the characteristics of credits. This approach allows an implicit price to be estimated for each covariate. Private bank ownership, species types, the number of listed endangered species, and time factors were significant predictors of credit price. These results should be useful for landowners, bankers, and investors interested in enhancing the marketability of their land and understanding the effect of management actions.
Chapter four assesses the conservation banking project investment by examining the costs structure, revenue, and profitability of several conservation banks. We calculated the net present value of selected numbers of conservation bank located in California at the discount rates of 5.57%. Results show that the all eight selected conservation banks’ NPV appears to be positive. Our findings suggest that the investment in conservation banking is not only profitable but also yield high returns. Those landowners who may have discouraged because of lack of knowledge and data and from the fear that presence of endangered species habitat in their land would result in a regulatory compliance can be reassured from our finding that conservation banking can be perspective market for financial incentives.
Finally, we conclude that conservation banking market is dynamic and imperfect and an econometric model that incorporates either the dynamic or oligopolistic aspects of the conservation banking market, or both, seems to be a more promising prospect for future research.