Box Perverse Incentives on Endangered Species

Ben Cone is a tree farmer in North Carolina. He owns 7,200 acres of pine forest that he was managing on an 80-100 year rotation. The system made sense for him because he could harvest different portions of his land at different times and take the largest, most valuable trees. And it was good for a wide variety of species that lived on his land. In particular, it was good for red cockaded woodpeckers, which like to make their nests in pine trees that are at least 80 years old. These woodpeckers are endangered, however. So when they were discovered on Cone's land, the U.S. government prohibited him from harvesting some 1,500 acres of forest. This ban alone is alleged to have cost Cone some $1.8 million in lost revenues.

Following the prohibition, Cone did what any rational landowner would do: he started har-

vesting the trees on the rest of his land on a much quicker rotation schedule (around 40 years). Understandably, he did not want those trees to be still standing after 80 years and thereby become a tempting home for the endangered woodpeckers. It wasn't Cone's preferred modus operandi, since the trees were less valuable and needed to be harvested on a quicker rotation, but he could not afford to have more of his land placed "off-limits" by endangered woodpeckers. And, ultimately, it was bad for the woodpeckers and many other forms of biodiversity that would have probably preferred the more mature (and presumably more diverse) forests made up of 80-year-old trees.

Source: See endnote 16

of that species found on their land ("new" meaning above an initial baseline), and sell those credits to other developers who intend to damage that species' habitat or harm the species somewhere else.17

Not much is known about the size and breadth of species banking across the United States, though it appears that there are more than 70 species banks and that these might trade anywhere from $100 million to as much as $370 million in species credits each year. Whatever the size, the use of conservation banking means that species banking, also known as "conservation banking," can turn a species liability into a species asset.18

This is just what one company in Colton, California, discovered. While the municipal government there sued the federal government over the Delhi Sands Flower-loving Fly, saying the government had no place regulating where people can build their houses, a sand and gravel company called Vulcan Materials Corporation acquired 130 acres of prime fly habitat—the largest remaining contiguous area of it in the Colton dunes. But instead of hiring lawyers and attacking the fly's endangered species status, Vulcan decided to see if it could make the fly pay.19

Working with the U.S. Fish and Wildlife Service and the Riverside Land Conservancy, Vulcan set up a conservation easement on the land, created a management plan for the fly habitat, established a baseline for flies on its land, and obtained the right to sell "fly habitat credits" above that baseline to needy developers. The bank opened in June 2005 and by December had already sold three of its credits. Although Vulcan will not officially release the sale prices, reliable sources estimate that at least one credit sold for $100,000, although they also say the price has now risen to $150,000 per acre, as mentioned earlier.20 According to Kevin Klemm, the owner of the development company that was Vulcan's first customer, the credits were worth it: "The Vulcan Materials people were tremendous. They were business-like and accommodating. They didn't waste any time. The bank is


a tremendous value... I spent six years of my life trying to build 18 buildings." And presumably he got nowhere because the government made it illegal for him to harm the flower-loving flies. Now, with a bank from which to buy offsets, he has an option. To people like Klemm, the rapid response mitigation solution now offered by the Vulcan bank is no doubt a blessing.21

And Vulcan is not alone. There are now conservation banks in the United States that sell credits on everything from vernal pool fairy shrimp and valley elderberry longhorn beetle to tiger salamanders, Gopher Tortoises, and prairie dogs. As noted, these markets may be worth as much as $370 million a year. The conservation of endangered species has thus become a very real, and very profitable, business opportunity.22

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