INTERNATIONAL TRANSFERABLE DEVELOPMENT RIGHTS

FOR. CONSERVING TERRESTRIAL BIOLOGICAL DIVERSITY

BY JULIE LYKE 

International Forestry Policy and Planning
USDA Forest Service

And

Sustainable Development and Conservation Biology
University of Maryland 

DECEMBER 12,1997 

EXECUTIVE SUMMARY

The U.S. government and the USDA Forest Service are committed to conserving global biological diversity. To date, most major conservation efforts have focused on regulating the overexploitation of particular species through the Convention on International Trade in Endangered Species of Flora and Fauna (CITES), though this approach is not cost effective compared to concentrating on conserving habitats. Habitat conservation, however, has been addressed largely through the establishment of protected areas, which have historically been identified for reasons other than biodiversity conservation and have therefore also failed to effectively address conservation goals.

In recent years. economic incentives have increasingly been used to address a wide variety of sticky environmental problems, from air pollution and carbon emissions to wetlands loss. Not only do they reduce the conflict between economic development and environmental protection, but they can make economic development the vehicle by which greater environmental protection is achieved. Market based incentives can also help to achieve the goal of biodiversity conservation effectively and efficiently. 

One kind of incentive system, based on transferable rights, is particularly useful for addressing problems of environmental policy due to its ability to separate the question of what control is undertaken from the question of who ultimately pays for it. This characteristic is potentially extremely important for biodiversity conservation because it can address concerns regarding private property rights and national sovereignty. 

Tradable fights could be used to create a system for compensating owners of land that is rich in biodiversity for the cost of not exercising their rights to develop their land. This proposal would require classifying land according to its conservation importance and restricting development in the areas of greatest importance to biodiversity, but requiring developers in other locations to offset their activities by purchasing development fights from those in restricted areas. In this way, demand for development would create a corresponding demand for conservation and those with high biodiversity land would be compensated for their lost opportunities to develop. The resulting activities would generate a reserve system that meets pre-established objectives. 

Versions of this plan have already been implemented in the United States in some environmentally sensitive areas. A variation on this theme, which requires classifying property according to its relative habitat value, has also been suggested to help save endangered species domestically.

This idea has recently been proposed to address biodiversity loss on a global scale. This suggestion is outlined in detail and elaborated upon here. The scheme would provide for the systematic identification and valuation of the most important areas of the world to be conserved and would establish a system of strategic payments from private sources as incentives for their conservation.

No new international institutions or agreements would be required to implement this plan. Pre-established indicators of national scale biodiversity, such as those outlined by various regional negotiations to define criteria and indicators of sustainable forest management, could be used to identify particularly important areas to conserve, based upon their biodiversity value, and the Global Environmental Facility could play a role in facilitating international transfers.  

CONTENTS

INTRODUCTION

            The commitment of the U.S. government and the USDA Forest Service to the conservation of global biological diversity is clear. The U.S. government has signed the Convention on Biological Diversity' and biodiversity conservation is a main objective of the Forest Service, as stated in its Strategic Plan for International Cooperation (USDA Forest Service 1995). The critical national level elements of biodiversity have already been defined by the "Santiago Declaration," which commits its signatory nations of which the United States is one to conserving ecosystem, species, and genetic diversity (Criteria and Indicators 1995). 

In this era of tight budget constraints and limited enthusiasm for U.S. engagement internationally, proposals to address global threats to biodiversity must create incentives for participation and least-cost solutions. A general trend toward using economic instruments and market mechanisms to attain both national and international environmental protection objectives has taken shape in recent years. The Convention on Biological Diversity, for example, calls on the parties to develop and implement economically and socially sound incentives for biodiversity conservation and an expert working group has been established to examine the use of economic incentives in this regard (Convention on Biological Diversity 1992, art. 11). 

Incentives and market forces are likely to be able to help address biodiversity issues since conservation is primarily a land use issue and market tools can be effective in reducing the resistance of states and private landowners to land-use controls. In particular, tradable rights programs can create mechanisms for compensating owners of undeveloped or undisturbed lands for their foregone development opportunities.   

To date, no international mechanism exists for valuing and exchanging biodiversity and its associated opportunity costs. This paper proposes such a system. The conservation objective of the system suggested here is to alleviate pressure for habitat degradation and retain the diversity of the biological elements and ecological processes inherent in nature. The method proposed recommends a technique for systematically Identifying and valuing areas associated with high biodiversity in terms of their conservation value and establishing a transferable development rights regime to create incentives for their preservation.   

POLICY CONTEXT

            Biodiversity refers to the variety and variability among living organisms and the ecological complexes in which they occur.² Thus the term encompasses ecosystem, species, and genetic diversity. Species loss resulting from human activity is occurring hundreds of times faster than the natural rate of extinction (Meffe and Carroll 1994). This rapid loss of biodiversity threatens to destabilize local, regional, and global ecosystems. While population pressure and rising per capita consumption of resources are the underlying causes of the problem, the direct causes include destruction, fragmentation, and degradation of habitat; overexploitation of species, introduction of alien species; and global climate change. Destruction, fragmentation, and degradation of habitat present the greatest problem by far for terrestrial resources due to the lack of market-based incentives to conserve them.

Conservation efforts to date have focused primarily on enacting legislation designed to regulate direct human impacts on species and on establishing protected areas. The leading binding international agreement regarding endangered species and biodiversity is the Convention on International Trade in Endangered Species of Flora and Fauna (CITES), which focuses on identifying species threatened by trade and establishing a system of trade restrictions to mitigate the threat of over‑exploitation. However, for most biological resources, overexploitation is less of a threat than habitat destruction. Therefore, while a system of trade restrictions may be an appropriate policy for over‑exploited oceanic species and the slowest growing and most valuable terrestrial species, those that are declining due to competition with humans for land (most biodiversity) are unlikely to be greatly assisted by the prevailing international regime for addressing biodiversity loss (Brown et al. 1993).  

In addition, for a variety of ecological and economic reasons, it is more cost effective to conserve habitats rather than species, especially in developing countries.³ Yet, conservation efforts focused on establishing protected areas to date have largely failed to address the inherent complexities of biodiversity conservation. For example, in the United States, most national parks and other protected areas were originally established as geological and recreational attractions, or for their aesthetic appeal, rather than for biodiversity reasons (Meffe and Carroll 1994; Clark and Downes 1996). In addition, the historical antecedents of land ownership have dictated reserve shape and size in many cases (Meffe and Carroll 1994). Thus, for historic reasons, many existing protected areas fail to encompass critical areas of high biodiversity and are not designed in a manner conducive to biodiversity conservation.

About 4.25 million km² (about half the size of the United States). or about 2.8 percent of the world's land surface, is protected in reserves worldwide (Western 1989). For many of these reserves, though, protection is nominal at best and destructive practices such as poaching, agriculture, and logging continue. The World Conservation Union (IUCN) advocates the goal of preserving a cross-section of all major ecosystems and calls for a reserve system of I million km², or 8 to 10 percent of the earth's surface (Western 1989). How these additional lands are identified and protected is critically important to the future of biodiversity conservation.

CREATING INCENTIVES FOR INVESTMENT IN CONSERVATION

Given that the most effective way to conserve biodiversity is by identifying and protecting critical habitats, biodiversity conservation is primarily a land use issue (Panayotou 1994). Yet, setting aside land for conservation has an opportunity cost in terms of foregone benefits from alternative land uses. Since the benefits of biodiversity conservation are often largely public while the opportunity costs of foregone development are mainly private, the problem essentially reduces to a basic divergence between the degree of investment in biodiversity that is desirable from a global point of view and that preferred from a local perspective. In fact, Wells (1992) has found that the net benefits of conservation through the establishment of national parks are the lowest for local communities (and may even be negative) and the highest for the national and global community. Due to this disparity, and the lack of a market-based mechanism for valuing biodiversity, the cost of losing habitat and its associated species is shifted to society rather than internalized by private actors and the perceived cost of engaging in activities that adversely impact biodiversity is artificially low.  

This suggests that international efforts to regulate biodiversity loss should be directed towards creating and maintaining a global premium for investments in biodiversity. This is an additional return, created through international financial transfers, that will flow to landowners who take steps to conserve their resources. One approach to accomplishing this is to create an incentive structure for encouraging desirable behavior by internalizing the benefits of conservation to those who hold control over the resources. Such a mechanism could provide a cost‑effective means of stimulating socially desirable and globally optimal land use allocations.  

The success of such an effort would require the establishment of a system for compensating landowners who take steps to preserve biodiversity for their lost development opportunities. How much compensation is required will be determined by the global market for biodiversity conservation (Appendix 1).

Tradable Rights

The establishment of a transferable fights - or tradable permits - regime is one way of creating a desirable economic incentive structure. Transferable rights can not only reduce the conflict between economic development and environmental protection, but they can make economic development the vehicle by which greater environmental protection is achieved (Tietenberg 1993)    

Tradable fights regimes and closely-related market-driven mechanisms have been proposed to address a variety of environmental issues, and many have already been implemented. For example, such programs have been used in the United States to meet or exceed air quality regulations, retain open space in land zoning efforts, and mitigate wetlands loss, as well as to conserve habitat (Tietenberg 1993), Clark and Downes 1996, Sohn and Cohen 1996). Tradable rights systems have also been employed to address problems of international scope, most notably carbon emissions and global climate change, the depletion of fisheries in international waters, and transboundary acid rain between Canada and the United States (Tietenberg 1993' Menz 1995). In addition, a global system of tradable forest management obligations has been proposed to address deforestation but was never implemented (Sedjo 1992).  

Tradable fights programs provide one possible vehicle for approaching the question of how to accomplish international sharing of global environmental protection costs. In essence the responsibility for identifying additional sources of control is transferred to the market. The key to the success of tradable fights programs is their flexibility, which is based on their ability to separate the question of what control is undertaken from the question of who ultimately pays for it. This characteristic is potentially extremely important, for both domestic and international environmental policy due to private property and national sovereignty concerns (Tietenberg 1993).

Recognizing Private Property Rights and National Sovereignty

For most of the issues cited above, domestic legislation or binding international agreements that mandate strict limits on environmentally harmful activities create the initial impetus behind the participation of sovereign states and private actors in tradable Fights regimes. However, since biodiversity is not uniformly distributed throughout the world, binding international agreements to limit habitat destruction have historically confounded diplomatic negotiations.  

In fact, the treatment of biodiversity as a public rather than a private resource and mounting pressures to conserve it are often perceived by landowners as a challenge to their property rights and by countries as a threat to their sovereignty over these resources. However, the primary objective of efforts to protect biodiversity is conservation, not redistribution of resources. Therefore, the first step in the creation of a system for conserving biodiversity internationally is to recognize the ownership of individual landowners and nation-states over these resources and their rights to utilize them in a way that maximizes their own benefits. Thus, the first principle for constructing an effective system for addressing biodiversity loss globally is to consider terrestrial biological resources as national resources. This fundamental principle Is already recognized by the Convention on Biological Diversity (Convention on Biological Diversity 1992, preamble and art. 3).  

Once this point is recognized, it is clear that registering global preferences for biodiversity conservation will require inducing private landowners and host states to exercise their fights in globally preferred ways through the establishment of a system of strategic payments. Since biodiversity conservation is often compatible with some degree of resource utilization, compensation payments may be reduced to the extent that development opportunities are allowed in the area. This, in essence, is the development fights approach to conservation. The only negotiable issue, then, is the terms at which the development fights over critical habitats would voluntarily be transferred elsewhere in the country or abroad.

Transferable Development Rights and Land Use Issues

Limited, tradable fights to develop land - or transferable development fights (TDRs) - are closely analogous to limited, tradable fights to emit pollutants. Both types of programs enable firms to buy and sell use rights to a resource use that is constrained by regulation (Tripp and Dudek 1989). TDRs offer one way to control the social and environmental impact of development while maintaining the economic value of land since they provide a mechanism for compensating landowners for not exercising their fights to develop their land. The concept of TDRs makes possible the creation of conservation areas by creating a market with demand and supply of development fights that result in an equilibrium price at which exchange or transfer of fights takes place.  

Under such a system, growth and development are managed by determining areas to be conserved, where little or no development is allowed, and other land areas which are suitable for higher density development, where more concentrated development is permitted. The local land use regulatory authority then allocates development fights to landowners whose property lies within designated conservation zones. All future development must be accomplished through the exercise of development rights. Landowners in the conservation zones can either exercise their fights within the development zones or sell them to others for use in areas where development is permitted.  

Though demand for development rights is unlikely to be initiated by legally binding agreements due to private property rights and sovereignty concerns, it can be created by unilateral actions that permit developers to bypass certain local environmental regulations to a pre‑specified degree if they purchase development rights. For instance, development may be allowed in the designated growth areas at higher densities than would otherwise be permitted.

The transfer of the development rights from the sending (conservation) area to the receiving (development) area enables the marketplace to compensate the owner of land where development is restricted in order to supply a public good (biodiversity). The buyer and holder of a TDR from a conservation area acquires the right to additional development (in the development area) beyond what non-holders are permitted. Alternatively the holder of a TDR may use it to offset other conservation obligations or environmental regulations he/she is otherwise obliged to meet (Panayotou 1994).  

Once both supply and demand have been created for TDRs, a market would materialize which would establish a price for them. ⁵ Once property owners in the conservation area sell their TDRs, they must register a conservation easement on their property deeds permanently restricting the development of their land (Tripp and Dudek 1989). Because development fights are created only through permanent land conservation, pressure to develop also stimulates an incentive to conserve. In this way, the creation of a TDR program can stimulate recognition of the environmental and social constraints to growth (Clark & Downes 1996).  

The TDR concept has already been implemented in the United States as a means of controlling the social and environmental impact of various land uses while maintaining the economic value of land within a community. For instance, TDRs have been used to limit development in the New Jersey Pinelands, an area of 1. 1 million acres in southern New Jersey, through the establishment of the Pinelands Development Credit System (New Jersey Pinelands Commission 1989). In addition, many resort towns located in environmentally desirable areas (such as Aspen and Telluride in Colorado and Big Sky, Montana) are facing increasing development pressures and considering the use of TDRs and other incentives to reward developers for preserving areas of ecological, scenic, or recreational importance (Clark and Downes 1996).  

Olson et al. (1993) have outlined a variation of the TDR approach, known as the Habitat Transaction Method (HTM), designed to help save endangered species in the United States. The plan expresses conservation objectives in terms of overall habitat preservation rather than in terms of the preservation of specific parcels of land. Any landowner who agrees to conserve or restore habitat within the planning area receives credits based on the conservation value that the landowner adds to the reserve system. Conversely, anyone proposing a project that would cause a loss of conservation value is required first to offer a number of credits based on the decrease in conservation value that would result from the development. Landowners who receive credits for conservation actions may either use them to develop elsewhere within the planning area or sell them to any other landowner who needs credits to compensate for project impacts. Demand for development thus creates a corresponding demand for conservation and the resulting conservation activities should generate a reserve system that meets pre-established conservation objectives (Olson et al. 1993).

While the HTM is similar to TDRs in that it also requires advanced planning by a community to preserve valuable habitat through the use of development rights, it differs because it classifies property according to its relative habitat value, which is based on biological criteria such as the presence of endangered species. Habitat values are then adjusted to take into account configuration factors such as connectivity with other habitat and the shape of habitat patches.  

Unlike TDRs which generally involve classifying particular land areas as either "sending" (preservation) areas or "receiving" (higher density) areas, HTMs do not directly restrict development on any specific piece of property. Theoretically, every piece of land could be developed or preserved. Thus, while economic incentives steer development away from ecologically valuable habitat, the HTM offers less of a guarantee that critical areas will be conserved. However, the incentive plan can be supplemented with other tools to address this problem. For example, the most important habitat areas could be purchased with public funds. In addition, such a system could include regulatory safeguards such as the establishment of absolute development thresholds for certain areas (Clark and Downes 1996).  

This method of addressing conservation issues is currently being applied in a habitat conservation planning exercise designed to conserve several different species in Kern County, California.⁶ Though the HTM was originally designed as a mechanism for conserving the habitat of endangered species, the concept can be generalized for use in addressing other conservation biology problems as well.

INTERNATIONAL APPLICATION OF TRADABLE DEVELOPMENT RIGHTS

TDRs have recently been proposed to address global biodiversity conservation as well (Panayotou 1994). TDRs can help preserve sites particularly rich in ecological and biological resources, both within a country and internationally, without depriving their owners of their development rights and without requiring government compensation of landowners.  

In principle, the total land area of a country can be divided into development areas and conservation areas. Countries could set aside habitats for biodiversity conservation and divide each habitat into a number of TDRs. Pre‑established indicators of national‑scale biodiversity, such as those outlined by various regional negotiations to define criteria and indicators of sustainable forest management, could be used to identify particularly important areas to preserve, based upon their biodiversity value to the country as a whole.  

The indicators of biodiversity delineated by the Santiago Declaration, for example, provide a framework for identifying high priority areas for conservation with respect to biodiversity at the scale of nation‑states for most temperate forested nations (Criteria and Indicators 1995) (Box 1). Other regions have similar agreements (e.g. the Tarapoto Process and the Helsinki Process). These indicators imply that special consideration is due to such variables as the spatial and temporal heterogeneity, degree of protection, and contiguity of various forest types as well as species diversity, the conservation status of certain at‑risk species, and trends in the distribution and abundance of forest dependent species when determining conservation objectives and priorities for forested areas.

Each TDR would state the location, condition, diversity, and a degree of protection of the habitat and any special fights that it conveys to the holder. Land owners in designated conservation areas would be allowed to sell or transfer their fights to property in the established development area. Since the development area is likely to be several times larger than the conservation area, there would be a strong demand for development fights from those in the development area as long as these rights can be used in lieu of land in the development area (e.g., to sidestep zoning or building regulations). TDRs will have significant economic value if the overall pressure for growth in the region exceeds the number of development fights available‑ As land is set aside in conservation areas, land available for development becomes more scarce, thereby increasing the land values in the growth (or TDR receiving) areas. The value of TDRs will increase concomitantly, because they enable developers to build at a greater density in growth areas (Tripp and Dudek 1989).  

TDRs could then be offered for sale both locally and internationally at an initial offer price that fully covers the opportunity cost of failing to develop the corresponding land unit (i.e. the net present value of the income stream of the forgone development opportunity).⁷  

Thus an active market in development rights would be created through which land owners in conservation areas would be fully compensated for their "frozen" development rights and would thus share in the benefits of economic development. TDRs would make information about the value, cost, and level of protection of biodiversity more transparent and facilitate the free flow of information between buyers and sellers. The price that TDRs would command in the market would convey information about the value (marginal benefit), the supply cost (marginal cost), and the level and value of protection of habitats from which TDRs originate, thereby internalizing the costs of mismanagement to their users (Panayotou 1994).  

The potential buyers of TDRs include local and international organizations, local and international foundations and corporations, developed country governments, chemical and pharmaceutical companies, scientific societies, universities and research institutions, conservation organizations, or even individuals. The motivation for purchasing TDRs would vary among prospective buyers. Some may have direct use values such as prospecting for new chemicals or pharmaceuticals, while others may express their non‑use values through the purchase of TDRs. Some might even buy and hold TDRs if they expect them to rise in value as a result of decreasing supply and increasing demand due to population and income growth or change in tastes and increase in environmental awareness. Certainly every new discovery of a valuable species, or even a new use of existing species found in a particular habitat would increase the value of the TDRs of that site (UNEP 1995).  

The great advantage of this financing mechanism for conserving biodiversity is that it clarifies the opportunity costs of not developing an area of land and provides a vehicle for the beneficiaries of conservation to pay them. Debt‑for‑nature swaps are rudimentary applications of tradable development rights without the full benefit of tradability and market competition (UNEP 1995).  

Creating International Demand for TDRs

One way governments can stimulate demand for TDRs is by providing credits to domestic firms and property owners to be used in lieu of satisfying local environmental regulations for acquiring of TDRs from elsewhere. For example, authorities in the United States could allow developers who obtain sufficient TDRs to bypass local environmental laws such as building codes, forest harvesting and replanting regulations, environmental emission standards, C02 emission controls, and the like, or to meet reduced standards.  

A criticism of this method of stimulating demand is that it accomplishes conservation at the expense of the domestic environment in the credit‑issuing country. However, one way to address this problem is to tighten environmental regulations from current levels and then provide offset credits for buyers and holders of TDRs. Another method is by introducing a conservation tax and then allowing people the option of paying this annual tax or purchasing and holding TDRs in lieu of the tax (UNEP 1995).

The Need for a Standard "Conservation Unit"

The conservation value of acquiring TDRs must be well‑defined and quantifiable if credits are to be issued domestically based on their acquisition from other countries, since TDRs issued per unit of land area would not necessarily have equivalent worth in terms of biodiversity conservation. For example, under the proposed system, protection of any one hectare of land would not necessarily be equivalent to protection of any other one hectare of land. In fact, the system would need to recognize that land differs in type and condition and management, and therefore differs in its biodiversity value. Thus, the conservation credit‑issuing authorities would need to be able to distinguish between the value of protecting, for example, ten hectares of Virgin wet tropical forests, which are rich in biodiversity, and the value of protecting ten hectares of northern boreal forests, which are less rich in biodiversity and far more abundant than virgin wet tropical forests. This means that one who fulfilled their environmental obligations by protecting tropical forests would have to protect fewer acres than if they fulfilled them by protecting northern boreal forests, for example. By the same token, the value of preserving an elongated hectare of land would not necessarily equal that of a circular hectare of the same habitat due to their differing area/perimeter ratios. Thus, an acceptable conversion factor for quantifying TDRs in terms of biodiversity conservation must be developed and agreed upon in order for TDRs to have a standard value in the eyes of those who will ultimately issue credits to TDR holders.  

The ability to quantify the value of TDRs in terms of conservation would allow the conversion of TDRs issued in various countries into standard units of measure. The definition of a standard conservation unit could systematically relate the value (benefit) of decreasing development pressures in one area to the foregone benefit of decreasing pressures somewhere else in terms of conservation. That is, the degree of biodiversity conservation inherent in each TDR must be able to be expressed in terms of standardized and quantifiable units which would allow these values to be compared.  

The system suggested here is based upon the premise that objective measures of conservation value can be defined in terms of conservation units that indicate the biodiversity value of a particular plot of land. Conservation units can be used to quantify the conservation actions that must occur to assure the persistence of those species and ecosystems and to determine acceptable incremental trade-offs between biodiversity conservation and loss.  

Unfortunately, quantifiable units that are practical for use in policy making are not as readily identifiable for biodiversity issues as they are for many other environmental issues such as the depletion of international fisheries (individual fish) or global change (molecules of carbon) which are more readily tradable. What factors should be considered when valuing TDRs. in terms of biodiversity conservation" Key questions regard the location of the conservation area, its condition, the diversity it contains, the degree of protection it enjoys, and any special landholder rights that may be conferred. Each of these factors should be considered in assessments of the initial conservation value of a parcel of land in terms of standardized "conservation units."  

Defining TDRs in Terms of Conservation Value

Since the system described here provides that landowners will receive credits, or will be required to pay credits, based upon the definition of the conservation value of their land, how conservation units are defined is extremely important. For example, depending upon the definition of a conservation unit, landowners may have a strong incentive to cooperate with adjacent landowners to protect land in configurations with long-term conservation value and, conversely, to avoid actions that would significantly diminish long-term conservation value. Reducing the definition of conservation value to a relatively objective formula facilitates efficient transactions and allows landowners to calculate readily the costs and benefits of various development and conservation scenarios (Olson et al. 1993). In addition, once the elements of conservation value are defined, they can be issued different weights according to their relative importance. 

The critical elements of value that define a conservation unit will be determined by the specific conservation goals of the credit-issuing authority. The more TDR-consuming nations that can agree on these goals, the stronger the market incentives will be for TDR suppliers. A definition of conservation value for a particular site can be developed by assigning biodiversity quality points and subsequently adjusting them based upon a variety of additional landscape level factors of consideration.

ESTABLISHING A BIODIVERSITY INDEX  

Inherent Site Quality

A necessary part of any process of establishing a biodiversity index for assessing the conservation value of TDRs is first to consider the nature of the impacted system itself The site in question should be ranked in terms of its biodiversity importance vis-à-vis other sites and assigned a value that captures its relative importance. 

Site quality points can be assigned to the land areas associated with TDRs with a range of values between 0.0 and 1.0 points per unit area relative to the extent to which the physical, biological, and other environmental characteristics of the land are desirable. In addition to those listed in Box 1, which have already been determined as fundamental by temperate forested nations, many other quantifiable indicators of biodiversity have been defined which could be used as a basis for assessing site quality (Reid et al. 1993).

For example, factors considered in making a site quality assessment could include such variables as forest types, the quality of characteristic vegetation, and the presence or absence of indicator species. For ecological communities or ecosystems, quality can be measured by physical properties that reflect ecosystem diversity, function, or health, such as topographic diversity, watershed integrity, or proximity to other protected lands; or by biological properties, such as the distribution and abundance of select indicator species, vegetational community composition, or proportion of invasive alien species (Olson et al. 1993).  

The habitat quality a site provides for selected species may be considered as well when assessing its biodiversity value. A widely practiced method in the United States uses a Habitat Suitability Index (HSI) which reflects a ratio of actual habitat quality to optimal habitat quality to assess habitat quality for a particular species.⁸ To evaluate the aggregate habitat quality of an area, habitat quality measures can be converted to numbers of habitat units (HUs), where HU=HSIxArea.⁹ The advantage of this and similar approaches is that they are flexible and, because they are unitless, can be compared among species and be given additive scores. The use of HSI may be applied to particularly important species, such as indicator species, keystone species, and other strongly interactive species.

In addition, since different locations vary in species richness (centers of diversity), uniqueness (centers of endemism), and degree of endangerment (hotspots of extinction, for instance because of imminent habitat destruction), one or more of these criteria could be used to prioritize potential areas for protection (Begon et al. 1996). 

Assessments of conservation value should also consider the importance of protecting representatives of as many types of communities and ecosystems as possible (Pressey et al. 1993). To ensure complementarity among sites., new sites could be selected based upon the degree of complementarity its features share with the others that already exist in the reserve system. A number of algorithms are now available to carry out this procedure efficiently. For example, one gives more weight to uniqueness of community or land system and another to the average rarity of the land systems present in different locations (Begon et al. 1996). A related but different approach identifies irreplaceability as a fundamental measure of the conservation value of a site. Irreplaceability is an index of the potential contribution that a site will make to a defined conservation goal and the extent to which the options for conservation are lost if the site is lost (Begon et al. 1996).  

Another major element to consider is the relative value of the site since the value of the area is a function of the proportion of the habitat that remains. For example, the loss of the last hectare of an ecosystem would be unacceptable, and hence, should be assigned an infinite value (even if the habitat involved were of low biodiversity, such as a sand dune) whereas the loss of one hectare if 1,000 hectares remain would be much less. To the extent that the ecosystem or species concerned requires some minimum area for long term survival, this value function would tend toward infinity as the area approaches that minimum value (Munasinghe 1993).  

In addition, the value to be ascribed to the site may depend upon whether what remains is secure. For example, the cost of the loss of I hectare of habitat if 1,000 remains might be valued as negligible if that habitat is protected from encroachment. On the other hand, if the remaining 1,000 hectare is vulnerable to encroachment, then the loss of that I hectare under consideration might be assigned a much higher value.  

Thus, site quality assessments provide a basis for establishing the number of quality points to be conferred on an area (based on the variety of factors discussed above) which may then be multiplied by the land area associated with the TDRs in question to achieve an overall biodiversity index. This index can provide a foundation for assessing conservation units and issuing credits for the acquisition of TDRs once it has been adjusted to account for additional factors of consideration. The biodiversity index associated with site i, Bi, would be defined as Bi=SiAijWj where Aij is the hectares of ecosystem of type j at site i; and wj is relative biodiversity value of type j (Munasinghe 1993).