Wetland credit sales as a strategy for achieving no-net-loss: The limitations of regulatory conditions

Abstract

Wetland restoration and creation has been undertaken by the private sector, by public agencies, and by non-governmental organizations (NGOs) in order to create wetland credits for sale to wetland permit recipients. The permit recipients use credits purchased from these commercial sales ventures as compensation for activities permitted under Section 404 of the Clean Water Act of the United States and related state and local government programs. For commercial sales ventures to make a, positive contribution to achieving no-net-loss of wetlands, the credits sold must be ecologically successful, ventures must receive prices adequate to cover their credit production costs, and fill permit recipients must be willing and able to pay the resulting prices. From the perspective of the individual sales venture, costs and required prices are affected by 1) regulatory conditions governing when the wetland credits are sold, 2) the cost of gaining regulatory approval to sell credits, and 3) the future certainty of wetland credit demand. The consequences of these three factors for costs, prices, and availability of wetland credits are illustrated using a financial simulation of a hypothetical wetland restoration activity. A discussion of the results of the financial simulations and of barriers to competition among sales ventures leads to the conclusion that there are significant limits to achieving no net loss in the regulatory program through wetland credit sales.