What Price Biodiversity?

Economic Incentives and Biodiversity Conservation in the United States


By Dana Clark and David Downes

From the halls of Congress to the counter at the local coffee shop, controversy rages over the costs and benefits of protecting endangered species and biodiversity. CIEL's new report, What Price Biodiversity? Economic Incentives and Biodiversity Conservation in the United States, demonstrates that the price of protecting biodiversity is both acceptable and affordable.

What Price Biodiversity? describes existing programs that are working to give private citizens economic incentives to protect wildlife and habitat. It also suggests policy changes that wouuld save money and protect biodiversity by removing damaging subsidies. The report addresses the arguments behind the current takings dispute and describes efficient ways of strengthening the relationship between economic health and conservation.

The incentives described in What Price Biodiversity? are relevant to ongoing debates about the use of economic incentives in reauthorization of the Endangered Species Act; the 1995 Farm Bill; and tax policy reform. Specific areas of focus include: tax policies; agricultural policies; and the use of market mechanisms (such as tradeable development rights) to protect habitat. This summary is intended to highlight a few of the important points that are covered more thoroughly in the full report.

Background

Biodiversity is the diversity of life on earth, on which we depend for our survival. The variability of and within species and ecosystems helps provide some of our basic needs: food, shelter, and medicine, as well as recreational, cultural, spiritual and aesthetic benefits. Diverse ecosystems create the air we breathe, enrich the soil we till and purify the water we drink. Ecosystems also regulate local and global climate. No one can seriously argue that biodiversity is not valuable.

Nor can anyone seriously argue that biodiversity is not at risk. There are over 900 domestic species listed as threatened or endangered under the Endangered Species Act, and 4,000 additional species are candidates for listing. We are losing species as a result of human activities at hundreds of times the natural rate of extinction. The current rate of extinction is the highest since the mass extinction of species that wiped out the dinosaurs millions of years ago.

The Economics of Biodiversity Conservation

The question which engenders serious controversy is whether society can afford the costs associated with saving biodiversity. Opponents of biodiversity conservation argue that the costs of protecting endangered species are too high. They complain that the regulatory burden on private landowners is too heavy, and that conservation measures impede development. They seek to override scientific determinations with economic considerations, and to impose cost/benefit analyses on biodiversity policy making.

An equally important question, however, is whether we can afford not to save biodiversity. The consequences of losing this critical resource could be devastating. As we destroy species and habitat, we endanger food supplies (such as crop varieties that impart resistance to disease, or the loss of spawning grounds for fish and shellfish); we lose the opportunity to develop new medicines or other chemicals; and we impair critical ecosystem functions that protect our water supplies, create the air we breathe, regulate climate and shelter us from storms. We lose creatures of cultural importance - the bald eagle is an example of the cultural significance of biodiversity and also of the need for strong regulations to protect species from extinction. And, we lose the opportunity for mental or spiritual rejuvenation through contact with nature.

There are many other costs associated with the loss of biodiversity, and other values associated with its preservation. Researchers are finding that protection of ecosystems rich in biodiversity can strengthen and diversify regional economies. For example, the estimated economic value of intact natural forests for recreation, production of fish and wildlife, and other benefits, is one-third to three times as much as their value for timber alone, according to the World Resources Institute. These are significant costs and benefits which should be included in any economic analysis of biodiversity conservation.

Much of the current controversy stems from private landowners who resent government regulation of their lands. Government regulation is necessary to protect a critical public resource from private destruction. However, individual citizens should not bear the full cost of protecting biodiversity, since their actions benefit society at large. Within the context of a strong regulatory framework with defined conservation goals, economic incentives can help defuse political controversy by providing increased flexibility and rewarding private sector conservation efforts.

Conservation strategies must be developed that make private landowners willing partners in biodiversity conservation. This is particularly important given that seventy percent of U.S. land outside of Alaska is privately owned. Even more significantly, more than fifty percent of species listed under the Endangered Species Act are found only on private lands, and many more have substantial parts of their remaining range on private property.

In many cases, reforms to benefit biodiversity will require the revision of existing incentives offered to the private sector by government policies. In many cases, economic policies send signals which conflict with the goal of species conservation. If biodiversity considerations are linked to the economic incentive, the signal sent to the private sector is harmonized rather than conflicting. Private landowners benefit from public assistance in many ways. These benefits include subsidized access to vital resources like water and roadways, price supports, and tax breaks, all of which increase the value of property. For example, the American Farm Bureau Federation has estimated that farm support payments have increased the value of farmland in this country by $250 billion. Public support could be conditioned upon requiring recipients to comply with existing laws and to implement management practices that embody sound principles of land stewardship.

In order to fully integrate economic and environmental policy, we must also examine the biodiversity impact of government subsidies. Government subsidies often stimulate or encourage activities that damage biodiversity. Tax breaks for extractive industries are a prime example of this problem. In addition, agricultural policies have a dramatic effect on land use in the United States. As currently structured, farm support programs provide perverse incentives that contribute to soil erosion, overuse of agricultural chemicals, and loss of wildlife habitat. Commodity price support programs are tied to production levels. At the same time, acreage reduction programs restrict the amount of acreage that can be planted. These policies work together to encourage intensive cropping and high levels of chemical inputs on land that is planted, in order to boost production and maximize the government subsidy. These negative effects of agriculture policy could be ameliorated by removing the perverse incentives, linking support to best management practices and purchasing conservation easements to keep certain lands out of agricultural production.

Examples of Existing Economic Incentives

There are many existing economic incentives that are already being used to support private conservation efforts in this country. One of the most important tax incentives is the income tax deduction for charitable contributions, which allows taxpayers to deduct the value of qualified charitable contributions from taxable income. Among other things, the deduction is specifically allowed for a donation of a real property interest for conservation purposes to a qualified organization. The deduction provides a financial incentive to dedicate land for conservation purposes and has stimulated donations of land or easements to land trusts around the country. According to the Land Trust Alliance, as of 1991, over 2 million acres had been protected with conservation easements. Conservation easements can be creatively designed to allow both biodiversity conservation and limited economic use of the land.

In the realm of agricultural policy, the Department of Agriculture has developed several conservation programs. Although they were not generally designed to promote biodiversity, these programs often result in significant biodiversity benefits. For example, the Conservation Reserve Program and the Wetlands Reserve Program operate by purchasing conservation easements from farmers in order to remove highly erodible lands, riparian areas, and wetlands from agricultural production. Although not designed with biodiversity benefits in mind, the CRP has had tremendous benefits for native waterfowl and other wildlife. The CRP program now covers 36.4 million acres, which is twice the size of all national wildlife refuges and state wildlife areas in the lower 48 states.

Finally, both environmentalists and private property rights advocates are exploring ways to build economic incentives into the Endangered Species Act in order to provide landowners with positive incentives to create or maintain habitat for endangered species. Many stakeholders are interested in adopting market-based approaches to habitat conservation. These include tradeable development rights (TDRs) and the habitat transaction method, which is a variation of the TDR process. Both of these systems can be used to control the social and environmental impact of development while maintaining the economic value of land within a community. These approaches are explained fully in the report.

Selected Policy Recommendations

CIEL's report contains numerous recommendations for ways to integrate economic policy with biodiversity conservation. For purposes of illustration, some of those ideas are highlighted below. Readers are referred to What Price Biodiversity? Economic Incentives and Biodiversity Conservation in the United States for a more thorough analysis of each of these issues, as well as for additional policy recommendations and for discussion of other related issues.

Tax Policy and Conservation

  • Create a Habitat Conservation Plan Income Tax Deduction. Lawmakers could provide an income tax deduction to private landowners trying to preserve habitat and biodiversity on their lands. The "Habitat Conservation Plan Deduction" could allow landowners to deduct from taxable income those expenses incurred in developing and implementing an approved habitat conservation plan under the Endangered Species Act. The deduction would be a way of mitigating the costs of habitat conservation plans required for endangered species on private property. The deduction could be modelled after the Soil and Water Conservation Deduction (Section 175 of the Internal Revenue Code), which allows farmers to deduct from taxable income specific expenditures for soil and water conservation that are made in compliance with a conservation plan approved by the U.S. Department of Agriculture or a comparable state agency.

    Estate Tax Reform: Current Use Value Assessment and Post-Mortem Transfer. Estate taxes are generally based on the "highest and best use" value of property in the decedent's estate. This type of valuation often results in an onerous tax burden for undeveloped or forested land. If real property is subject to a conservation easement prior to death or in the will, the valuation of the estate will necessarily have to reflect the restrictions on use, thereby resulting in a lower estate tax. The suggestions below are two ways of reforming estate taxes to encourage land conservation.

    (1) Allow executors of an estate to make a post-mortem donation of a conservation easement . Giving flexibility to executors - subject, of course, to the consent of the interested parties - to grant conservation easements on property located within the estate would allow them to lower the estate taxes burden by lowering the valuation of the property. This would help to avoid the common scenario where families are forced to subdivide and/or develop their land in order to pay the estate taxes (resulting in habitat and biodiversity loss). HR 864 and S 910 are two recent bills that would allow executors to donate post-mortem conservation easements on behalf of an estate, subject to certain restrictions.

    (2) Base the tax assessment of real property in the estate on actual use rather than the potential "highest and best use." Legislation could be designed to allow the assessment of estate taxes for environmentally important lands such as wetlands and forests to be based on current use rather than highest and best use, particularly if the descendants agreed to maintain the lands in their natural stage. The Wetlands and Greenspace Preservation Assistance Act of 1994 would have incorporated this idea, but died in committee at the close of the 103rd Congress.

    • Clarify Charitable Contribution Deduction for Donation of Water Rights. A new strategy for protecting instream water flows, which benefits biodiversity, is the donation of water rights to charitable organizations. Section 170 of the Internal Revenue Code allows an income tax deduction for qualified charitable contributions, which has been a critical incentive for protecting land. To eliminate confusion and encourage the donation of water rights, the Code could be clarified to confirm that charitable contribution of instream water rights qualifies for the deduction under section 170.

      Special Property Tax Treatment for Ecologically Important Land. States could reduce or eliminate taxation on ecologically important land where the owner commits to conserving it in its natural state. For example, the state of Minnesota exempts undisturbed wetlands and native prairie from property taxes, upon certification by a conservation agency. Similarly, the state of California reduces property taxes if a private landowner enters into a contract with the county or city to restrict land uses to those compatible with agriculture, wildlife habitat, scenic corridors, recreational use, or open space.

      Removing "Perverse" Incentives that Encourage Loss of Biodiversity. There are numerous tax provisions that cost taxpayers money and stimulate ecologically damaging activities. These perverse incentives should be targeted and removed. For example, subsidies that encourage accelerated extraction of non-renewable resources hurt future economic productivity and deplete natural capital. These "perverse" incentives have both environmental and economic shortcomings. CIEL's report details several perverse incentives that could be eliminated with ecological and economical benefits to the taxpayer. One example is the percentage depletion deduction, which allows windfall gains exceeding actual costs associated with the production of hazardous minerals such as lead, asbestos, mercury and uranium. The deduction results in annual revenue losses of over $1 billion per year.

      Ecological Tax Reform: Increased Fees and Taxes on Substances and Activities That Harm Biodiversity. Many economists argue that the U.S. should reform the tax code to shift the tax burden onto socially and environmentally destructive activities and away from productive, socially desirable activities such as income, labor and capital. Environmental taxes or fees could make sure that private firm and individuals absorb the costs (such as environmental damage or increased health care expenses) inflicted on society outside the market.

      Farm Policy

      • Condition support payments on sound land stewardship; expand voluntary programs and technical assistance; support sustainable agriculture. Farm subsidies should be conditioned on compliance with basic land stewardship standards, including measures to avoid loss of biodiversity. The use of economic incentives to encourage sound management practices, support sustainable agriculture, and protect fragile lands should be expanded. Technical assistance and cost sharing programs, such as are provided by the Forest Stewardship, Stewardship Incentive and Forest Legacy Programs should be fully funded and expanded.

        Reform the current production-based support system. Current policies encourage farmers to increase yield through the use of agricultural chemicals (which damage both terrestrial and aquatic biodiversity) and by converting marginal lands to cropland. (See discussion above and in full report.) Linking income support to socially and environmentally beneficial practices, rather than simply production levels, would eliminate many of the perverse signals sent by current agricultural policies.

        Market Mechanisms

        • Expand the use of multi-species, ecosystem-based planning processes. Tradeable development rights, discussed above, are an important market mechanism that can be used to assign economic value to ecologically significant habitat, and to channel development in predictable and environmentally sound ways. TDRs are also a valuable tool for implementing multi-species, ecosystem based planning and can be used to implement Habitat Conservation Plans under the Endangered Species Act.

          Develop eco-labelling programs. Eco-labelling is a valuable educational tool that provides consumers with information about the environmental impacts of the production and consumption of a product. This enables consumers to exercise their preferences for environmentally-friendly products, thus increasing the market pressure for sustainable products.

          Research and Education

          • Increase understanding about the value of biodiversity. Although scientists are accumulating evidence of biodiversity's value, this information has been slow to reach policy makers and the general public. We need to increase understanding about the benefits that biodiversity provides and the role it plays in our daily lives.

            Increase understanding of biodiversity and critical ecosystems. Better understanding of the distribution, abundance and interrelationships between components of biodiversity is critical to informed decision making. Greater information can help communities formulate predictable and sustainable development decisions. Programs such as the National Biological Service are vital to increasing our understanding of biodiversity and allowing informed decision making. The NBS should be supported and its findings integrated into policy making

            To order this publication, please contact CIEL's Administrator, Cameron Aishton.

             

           

         

       

     

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