Dynamics of habitat banking under changing conservation costs and habitat restoration time lags

Tradable permits are a popular instrument for environmental policy. Classical examples are emission control, but tradable permit systems are recently also promoted and applied to the conservation of biodiversity. This raises a number of challenges. One problem is that habitat turnover (the destruction of habitats and restoration elsewhere) is harmful to many species, even if the total amount of habitat is constant. Another problem is that the restoration of habitats often takes time, leading to time lags between the beginning of restoration activities and the time when the restored habitat is available for trading. It is therefore important to understand how restoration time lags and economic conditions affect habitat turnover. Using an agent-based model, we study the dynamics of a tradable permit market. In the model, conservation costs differ among agents and change in time, and habitat restoration takes time. Our results show the existence of trade-offs between conservation costs, the amount of habitat provided and the amount of habitat turnover. We discuss how habitat turnover can be controlled by an additional tax. We also find that restoration time lags can lead to feedback loops and oscillations in key variables and reduce the efficiency of the permit market. We conclude that temporal lags deserve a careful analysis when implementing tradable permit systems for the preservation of natural habitats and biodiversity.