Stacking Opportunities and Risks in Environmental Credit Markets

• Date: 01 February 2011

2-2011 NEWS & ANALYSIS 41 ELR 10121

Stacking

Opportunities

and Risks in

Environmental

Credit Markets

by Jessica Fox, Royal C. Gardner, and

Todd Maki

Jessica Fox is Senior Project Manager, Electric Power

Research Institute, Environment Division, Palo Alto,

California. Royal C. Gardner is Professor of Law and

Director, Stetson University College of Law, Institute

for Biodiversity Law and Policy, Gulfport, Florida.

Todd Maki is Project Manager, Electric Power Research

Institute, Environment Division, Palo Alto, California.



Environmental credit markets for mitigating impacts

to wetlands, endangered species, water quality, and

carbon emissions have been established throughout

the United States. Recently, there has been much

debate about whether a conservation project should

be allowed to produce credits for multiple markets, a

practice broadly referred to as credit stacking. But pro-

ducing stacked credits for multiple markets using one

conservation action is not itself controversial; rather,

it is the resulting transactions—the sale or transfer of

the stacked credits—that can be contentious. Agency

rules regarding the relationship between environmen-

tal credit markets are not clear and sometimes con-

icting. Despite this, projects are moving forward

that establish frameworks for selling stacked credits.

To reduce uncertainty for both ecosystems and mar-

kets, it is critical to establish coordinated policies and

regulations to ensure that environmental mitigation

markets result in real, veried, and additional mitiga-

tion, especially when credit stacking is involved.

Environmental credit markets for mitigating impacts

to wetlands, endangered species, water quality, and

carbon emissions have been established throughout

the Unite d States. ese markets oer economic incen-

tives for private landowners to protect natural resources,

and the credits generated throu gh such conservation

actions may more ee ctively oset impacts than tra-

ditional tec hnological, fee -based, or project-by-project

approaches.1 W hile there are c oncerns reg arding the

ecologica l va lidation of the se ma rkets,2 interest in mar-

ket-based mitigat ion is growing, and regulator y a gen-

cies have developed policie s that guide market practices.

Recently, there h as been much debate (and confusion)

about whet her a conserv ation project should be al lowed

to produce cred its for multiple markets, a pract ice

broadly re ferred to a s credit stack ing.3 is Article pres-

ents resu lts of a U.S. national su rvey on credit sta cking,

discusses several st acking scenarios, a nd oers thoughts

on the need for agencies to provide clearer ru les on trans-

actions involving stacked credits.

Conservation on private lands can produce a suite of

important ecosystem services. Restoring a wetla nd, for

example, can result in waterfowl habitat, water  ltration,

and possibly carbon sequestration.4 Understandably, a pri-

vate landowner will likely want to maximize the economic

returns associated with the full suite of ecosystem services

that a conservation action generates. With the existence of

four markets in which environmental mitigation credits

can be sold, debate about credit stacking is intensifying.5

1. N’  C, C  W L U

 C W A (2001).

2. Margaret A. Palmer & Solange Filoso,  

Environmental Markets, 325 S. 575-76 (2009).

3. Jessica A. Fox,  

, in C  B B: A G  S-

 U  R B C T S 171-80

(Nathaniel Carroll et al. eds., 2008); G. Tracy Mehan, Establishing Mar-

 , 17

N.Y.U. E. L.J. 638 (2008); Danny Morris, Ecosystem  

  , Weathervane (Aug. 3, 2009), http://www.r.

org/wv/archive/2009/08/03/ecosystem-service-stacking-can-money-grow-

on-trees.aspx.

4. Irene Ring et al., Challenges in Framing the Economics of Ecosystems and Bio-

diversity: e TEEB Initiative, 2 C O  E

S 15-26 (May 2010).

5. Alice Kenny, , e Katoomba Group’s

Ecosystem Marketplace (2009), http://www.ecosystemmarketplace.com/

   

        

the development of the national survey, and to Adam Diamant

       

important comments and input. Royal Gardner’s work on this

 

Law. A report presenting the comprehensive results of the National

        



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