The Legal Status of Environmental Credit Stacking
46 Pages Posted: 7 Jan 2014 Last revised: 5 Mar 2014
Date Written: 2013
Environmental credit markets have been established to offset impacts to wetlands, endangered species habitat, water quality, and the global climate system. As these markets mature, participants are exploring the concept of credit stacking, whereby a conservation project or parcel produces different types of mitigation credits for multiple markets (such as wetland and endangered species credits or water quality and carbon sequestration credits). If these stacked credits are unbundled, they may be sold in different credit markets to offset impacts from different activities. Such transactions raise concerns about additionality, interagency coordination, verification of ecological improvements, monitoring and management, and transparency. This Article examines eight different credit stacking scenarios and the emerging rules that govern the sale of credits. Generally, there is diversity in how different federal and state agencies handle credit stacking, and they have not issued clear rules on when unbundling stacked credits is permissible. The Article closes with considerations that agencies could take into account in developing a credit stacking protocol to avoid double counting and ecological loss. The credit stacking scenario where it may be most appropriate to consider unbundling is when the accounting units are pollutant-specific, such as is the case with water quality and carbon markets.
Keywords: environmental markets, credit stacking, unbundling, wetlands, mitigation banking, endangered species, conservation banking, water quality trading, carbon offsets, ecosystem services
JEL Classification: A12, D40, K32, Q18, Q24, Q25, Q28
Suggested Citation: Suggested Citation
By Tseming Yang