Offset payments can reduce environmental impacts of urban development

Abstract

The use of biodiversity offsets as a means to mitigate environmental damage whilst also accommodating for urban developer interests is becoming an increasingly popular policy mechanism. However, biodiversity offsets are not without their criticisms, and financial offsets have gained a reputation for allowing developers to buy their way out of responsibility for habitat restoration. Despite this, economic theory suggests that such economic instruments would also provide an incentive to reduce environmental damage as well as financing subsequent restoration activities. Observing the effects of these incentives on potential environmental damage are difficult, as usually what is apparent is only the final development proposal. Such an opportunity arose, however, through observing developer behaviour using an online planning tool developed by a local council in Southeast Queensland. The planning tool allows experimentation with different land clearing options and estimates the associated financial offset requirement of each. Analysis of successive applications of the planning tool from July 2015 to March 2017 suggest that developers alter their plans given the need to compensate for environmental damage. Here we show that, over the period of the data, the potential environmental damage from urban development was reduced by more than 55 per cent. Hence, as expected from economic theory, the financial offsets requirement economically incentivises developers’ decisions, which in turn leads to reduced environmental impacts.