Habitat banking (HB) is a market-based environmental solution that brokers ecosystem service benefits provided by land, including biodiversity conservation, in order to enhance the development towards sustainable living achievement. The fundamental premise of HB is identifying existing or degraded land and habitats that may be restored or enhanced, and addressing the historical loss of ecosystem service value at landscape and catchment scales. It creates economic incentives for restoring, creating and enhancing habitats to compensate unavoidable losses towards habitats and ecosystem services in advance of development actions, where on-site mitigation is difficult and would not result in such environmental benefits.
HB is essentially a market in which credits from actions with beneficial biodiversity outcomes can be purchased to offset the debit from environmental damage. The ‘banking’ aspect deals specifically with a biodiversity stockpile: biodiversity credits are produced and stored. They might have no ex‐ante links with the debits they are intended to compensate. The credits can be further bought by developers for funding the purchase of a site or for managing land under long-term agreement, for habitat creation, restoration or enhancement. So, for example, arable farmland might be used to create new habitats or managed in a way that promotes better biodiversity and landscape quality, where different types of credits can be used to supply different ecosystem services.
HB is in literature also referred to as biodiversity trading, biodiversity banking and conservation banking.
Introducing market-based mechanisms to ensure the delivery of ecosystem services is seen as a potential solution to the great challenges humanity is facing concerning environmental deterioration. It is, however, also acknowledged that applying market-based approaches is demanding in many respects. For one thing, it is difficult to raise the necessary finances. It is also challenging to construct ways of allocating these resources so that they reach the ‘right’ people and create the appropriate incentives.
This market-based scheme has been evaluated in a review made by the project Policymix and the Department of International Environment and Development studies (Noragric in Norway), among other existing financial mechanisms to protect biodiversity (for instance ecological fiscal transfers (EFT) and payments for ecosystem services (PES)).
Vatn, Arild, David N. Barton, Henrik Lindhjem, Synne Movik, Irene Ring and Rui Santos: Can markets protect biodiversity? An evaluation of different financial mechanisms. Noragric Report No. 60 (June 2011)