Ville Inkinen, Aarhus Universitet

"The Price of Additionality in Offset Markets: Evidence from US Wetland Mitigation Banking"

Abstract

Environmental offset markets, where environmental losses in one location are compensated with equivalent gains elsewhere, are increasingly adopted to reduce the cost of achieving conservation goals. Efficiency of these markets depends crucially on their additionality, or whether the market incentives causally increase the supply of environmental benefits. We quantify additionality in the US wetland mitigation banking program, one of the world’s largest and longest-running environmental offset markets. Using rich earth-observation data for over 900 wetland restoration sites established between 2001 and 2024, we estimate the causal effects of market participation on wetland extent and quality in a staggered difference-in-differences framework. We find that wetland mitigation banking generates additional environmental benefits primarily through extensive-margin wetland area establishment rather than through intensive-margin enhancement projects. Differences in cost structures explain this variability, as the cost of an offset from wetland area establishment is considerably higher than from wetland enhancement. We also find that additionality of wetland area gains increases as the opportunity cost of land use increases. These results highlight a fundamental trade-off between cost minimization and additionality in offset markets.

Contact person: Frikk Nesje