A Conceptual Analysis of the Application of Tradable Permits to Biodiversity Conservation

Tradable permits have been applied in many areas of environmental policy and may be a response to increasing calls for flexible conservation instruments that successfully conserve biodiversity while allowing for economic development. The idea behind applying tradable permits to conservation is that developers wishing to turn land to economic purposes, thereby destroying valuable habitat, may only do so if they submit a permit to the conservation agency showing that habitat of at least the equivalent ecological value is restored elsewhere. The developer himself does not need to carry out the restoration, but may buy a permit from a third party, thus allowing a market to emerge. Nevertheless, the application of tradable permits to biodiversity conservation is a complex issue because destroyed and restored habitats are likely to differ. There may be various trade-offs between the ecological requirements that destroyed and restored habitats be as similar as possible, and the need for a certain level of market activity to have a functioning trading system. The success of tradable permits as an instrument for reconciling the conflicts between economic development and conservation depends on the existence of certain economic, institutional, and ecological preconditions, for example, a functioning institutional framework, sufficient expert knowledge, and adequate monitoring and enforcement mechanisms.