Biodiversity-positive tradable permit schemes allocate tradable rights to use natural resources or emit pollutants within ecological limits, promoting both environmental sustainability and economic efficiency. This chapter explores the role of these instruments in promoting sustainable use of biodiversity, identifying several schemes in fisheries, water management and land use sectors. It highlights the critical factors that influence the success of these instruments, including how they can be designed to promote environmental effectiveness, cost effectiveness and equity.
Scaling Up Biodiversity‑Positive Incentives
Delivering on Target 18 of the Global Biodiversity Framework
Abstract
Biodiversity-positive tradable permit schemes allocate rights to use natural resources or pollute within ecological limits, thereby promoting environmental sustainability. Trading these rights enhances economic efficiency by enabling cost-effective reductions in environmental impact. By defining a fixed quantity of allowable resource use or pollution, well-enforced tradable permits provide greater certainty over environmental outcomes than other instruments such as taxes.
Biodiversity-positive tradable permit schemes are implemented across various sectors in both developed and emerging economies, with at least 33 schemes covering 25 countries. They regulate fisheries, water management and land use.
Experience with tradable permit schemes highlight best practices for increasing their use and effectiveness:
Establishing robust caps and quotas based on sound ecological data is essential for environmental integrity. Caps and quotas should be reviewed and adapted to respond to changing ecological, climatic and economic conditions.
Effective stakeholder engagement is crucial for scheme legitimacy and success. Engaging regulators, industry and communities from the outset enhances compliance, mitigates conflicts and improves the adaptability of permit markets to evolving socio-environmental challenges.
Regulatory oversight and monitoring systems improve transparency, accountability and compliance. Tradable permit schemes should incorporate independent verification, real-time tracking and publicly accessible registries.
Tradable permit schemes should remain adaptable to evolving environmental, social and economic conditions. Periodic evaluations, pilot programmes and stakeholder feedback mechanisms support continuous improvement, while aligning these schemes with broader policy frameworks enhances their long-term resilience and effectiveness.
Addressing equity concerns requires clear permit allocation methods and market oversight. Transparent and fair permit distribution mechanisms help prevent market distortions and inequities.
This chapter examines the role of biodiversity-positive tradable permit schemes in managing natural resource use and reducing environmental impacts. It begins by outlining the economic rationale for using tradable permits to allocate resource rights efficiently while maintaining ecological limits. The chapter then provides an overview of the current use of biodiversity-relevant tradable permit schemes across fisheries, water management, and land use. It explores key insights for scaling up these instruments, including setting science-based caps, engaging stakeholders, implementing pricing mechanisms to promote market stability, enhancing transparency and ensuring strong monitoring and enforcement.
Tradable permit schemes are economic instruments that set an absolute cap (i.e. limit) on aggregate resource use or pollution and allocate permits to firms that can be traded (hence often referred to as cap-and-trade programmes) (Tietenberg, 2006[1]).1 These schemes align with the polluter pays principle by ensuring that those who are responsible for pollution or environmental degradation bear the costs associated with it (OECD, 2016[2]).
By defining a fixed quantity of allowable resource use or pollution, tradable permits provide certainty over environmental outcomes, distinguishing them from economic instruments like environmental taxes, which set prices but do not guarantee specific quantity reductions. This aspect is particularly important in contexts where ecological tipping points exist or where stringent environmental safeguards are needed (Dasgupta, 2021[3]).
Tradable permits are underpinned by two core economic principles: internalising externalities and promoting cost-effective resource allocation (Pirard, 2012[4]). First, tradable permits address market failures caused by externalities – costs or benefits that affect third parties and are not reflected in market prices. By internalising these externalities, tradable permits should ensure that those who use environmental resources bear the full cost of their actions, aligning individual incentives with social welfare (Tietenberg, 2006[1]).
Second, tradable permits create incentives for polluters to reduce their environmental impact at the lowest possible cost (Bovenberg, Goulder and Gurney, 2005[5]). Entities that can reduce their emissions or resource use more cheaply will do so and sell their excess permits to those facing higher reduction costs. This market mechanism aims to ensure that pollution or natural resource exploitation reduction occurs where it is cheapest to achieve, leading to overall cost-efficient reductions in environmental harm (Bovenberg, Goulder and Gurney, 2005[5]).
There are two main ways of allocating permits. The first approach is grandfathering, where permits are allocated to existing entities free of charge, typically in perpetuity. The other approach is auctioning. If permits are auctioned, these schemes can also mobilise finance (Box 5.1).
Grandfathering allocates permits based on past emissions or historical production levels. This approach is often used to gain political acceptance by minimising impacts on existing businesses by distributing permits at no direct cost. While it can be easier to implement and reduce initial compliance costs, it may create inefficiencies and inequities by rewarding past pollution and discouraging early adoption of cleaner technologies. Furthermore, it can perversely incentivise firms to increase emissions before the scheme starts to secure more permits.
Auctioning permits involves selling them to the highest bidders, ensuring allocation to those who value them most. This method is more economically efficient, avoids politically contentious debates over the allocation of rents and provides stronger incentives for innovation and emission reductions, as firms must pay for each permit. Furthermore, auctioning generates revenue, which can, if desired, be used to finance other environmental initiatives or used to offset distortionary taxes, enhancing the overall welfare impact of the scheme. However, auctioning may face resistance from entities due to the upfront financial burden it imposes.
The choice of allocation method has implications for equity and the political feasibility of implementing the system. Grandfathering reduces disruption for existing users but may impose barriers to new entrants, while auctioning tends to be more equitable and generates revenue but entails additional cost to the firm. Hybrid approaches that combine elements of both are often used to balance political feasibility with environmental goals. For example, initial schemes may allocate a portion of permits through grandfathering to reduce resistance from established industries, while shifting to auctioned permits as schemes mature. This gradual transition allows stakeholders to adapt while increasing the scheme’s economic and environmental efficiency.
Source: (Cramton and Kerr, 2002[6]), Tradeable carbon permit auctions: How and why to auction not grandfather, https://doi.org/10.1016/S0301-4215(01)00100-8; (Ellerman, 2003[7]), Tradable Permits: A Market-Based Allocation System for the Environment, https://www.ifo.de/DocDL/forum1-03-focus.pdf; (OECD, 2017[8]), The Political Economy of Biodiversity Policy Reform, http://dx.doi.org/10.1787/9789264269545-en; (Tietenberg, 2006[1]), Tradable Permits in Principle and Practice, http://dx.doi.org/10.1093/acprof:oso/9780195189650.003.0004.
Tradable permit schemes have been used in environmental policy since the 1970s, to address the "tragedy of the commons” (Hardin, 1968[9]). First introduced to address air pollution in the United States, tradable permit schemes now operate in many more (predominantly OECD) countries to address various environmental challenges. Today, at least 33 biodiversity-positive tradable permits schemes are in force across 25 countries (OECD, 2024[10]), to address fisheries management, water quality and quantity, and habitat/land protection. Biodiversity-positive tradable permit schemes focus on regulating extractive activities to prevent ecosystem degradation while ensuring sustainable resource use. Most schemes operate in the fisheries sector.
5.2.1. Tradable permits in fisheries management
Biodiversity-positive tradable permit schemes in the fisheries sector are commonly referred to as Individual transferable quotas systems (ITQs). ITQs set specific Total Allowable Catch (TAC) limits and issue individual quotas that can be traded among fishers.
One of the motivating factors for the establishment of ITQs is to promote sustainable fishing by shifting fisheries away from open-access regimes that often lead to resource depletion. In several cases (e.g. Iceland and the United States), they have been implemented in times of impending collapse of a fishery (Costello, Gaines and Lynham, 2008[11]). The main arguments for introducing ITQs is that they eliminate the need to “race to fish”, thereby increasing economic returns while reducing overcapacity and overfishing (Sumaila, 2018[12]).
Fisheries managed under ITQs not only show lower collapse rates but also tend to achieve higher profitability, increased fish stock biomass, reduced overcapacity and lower emissions compared to those managed under more traditional frameworks. For example, by 2003, the proportion of collapsed fisheries under ITQs was approximately half that of non-ITQ fisheries (Costello, Gaines and Lynham, 2008[11]). These systems not only halted but, in many cases, reversed the downward trajectory of fish stock health (OECD, 2022[13]).
ITQs are effective in maintaining target fish stocks at sustainable levels, however, they alone are insufficient to address the broader ecological impacts of fishing (OECD, 2017[8]). ITQs are one of several fisheries management tools, most of which increased in use from 2019-20 (Figure 5.1). While ITQs have contributed to stock conservation by aligning economic incentives with ecological health, reducing bycatch, and protecting non-target species, to fully achieve their potential ITQs must be integrated into broader fisheries management strategies, including fundamental measures such as gear restrictions, area restrictions, and fishing seasons, alongside adaptive quota setting and bycatch reduction measures. While ecosystem-based fisheries management (EBFM) is often considered the gold standard, its implementation remains limited due to complexity and cost. Additionally, marine protected areas (MPAs) are generally not designed as fisheries management tools, though they may provide indirect benefits for fish stock recovery (Hoshino et al., 2020[14]) (Hoefnagel and de Vos, 2017[15]). Effective implementation requires adapting these systems to the ecological, social, and economic characteristics of each fishery to ensure both stock sustainability and habitat protection (OECD, 2017[8]).
Note: The OECD countries included in the data set used for the figure are Australia, Canada, Chile, Colombia, Denmark, Estonia, Finland, France, Germany, Greece, Italy, Japan, Korea, Latvia, Lithuania, the Netherlands, Norway, New Zealand, Poland, Slovenia, Spain, Sweden, the Republic of Türkiye, the United Kingdom and the United States. The emerging economies included in the data set are Argentina, Brazil, China, Peru and Chinese Taipei. TAC: total allowable catch; ITQ: individual transferable quota. The number of stocks using the tool is given in brackets.
Source: (OECD, 2025[16]), OECD Review of Fisheries 2025, https://doi.org/10.1787/560cd8fc-en
ITQs have been implemented in more than 20 countries2 (Hoshino et al., 2020[14]; OECD, 2024[17]). The Netherlands was among the first countries to introduce an ITQ (est. 1980s), which evolved from an individual quota system established in 1976. The ITQ was reformed in 1993 into a combined ITQ and co-management system, where fishers were grouped into Producer Organizations (POs), which managed quota allocations, ensured regulatory compliance and implemented conservation measures (Hoefnagel and de Vos, 2017[15]). Iceland (Box 5.2) and New Zealand were also early adopters, introducing ITQs in the 1970s and 1980s for selected species and then gradually extending them to additional species (Stage, Christiernsson and Söderholm, 2016[18]). In the United States, the Atlantic surf clam fishery operates under an ITQ system since 1990 (NOAA Fisheries, 2024[19]). More recently, in 2017, Finland introduced an ITQ, where fishers are under the jurisdiction of the Ministry of Agriculture and Forestry, which is responsible for ITQ system design, implementation and allocation of quotas (Hanstén, Haapasaari and Kuikka, 2021[20]).
Iceland introduced its first ITQ system in 1979 targeting the herring fisheries. A uniform ITQ system covering most of Iceland’s fisheries was subsequently introduced in 1990 and has since evolved. Overfishing was a problem in the early years of the IVQ and ITQ system (1984-95), especially in the cod fishery. Over time, however, the implementation of the ITQ system in Iceland has significantly reduced overfishing and contributed to the recovery of fish populations.
The Icelandic ITQ system is built on a foundation of TAC limits, scientifically determined by the Ministry and the MFRI to safeguard fish stocks. In the beginning, the Ministry of Food, Agriculture and Fisheries set the TAC for many species, most importantly cod, consistently higher than what the Marine and Freshwater Research Institute (MFRI) recommended. This is most likely the reason most stocks in Icelandic waters declined in the 1990s. Further adjustments were made between 1990 to 2000 to expand the ITQ system, including the inclusion of smaller boats and an increase in the number of species managed with TACs. By 2019, 27 stocks were managed under TACs, eight of which followed internationally approved Harvest Control Rules (HCRs), ensuring sustainable management.
Each quota is expressed as a percentage of the TAC for a specific species, ensuring flexibility and long-term sustainability. A feature of the system is its restriction on quota concentration; no single entity is allowed to own more than 12% of quotas for demersal species, promoting equitable access across fishing communities. For pelagic species, the cap is set at 35%. Such regulatory caps prevent monopolisation, ensuring that smaller operators and diverse stakeholders retain opportunities to participate in the fisheries sector, thereby balancing economic and social pressures while maintaining sustainability. Considering this, the reduction in fishing effort has secured the sustainability of most of the commercially exploited species.
The ITQ system also aims to incentivise practices that align ecological goals with economic incentives. The system's transferable quotas enable fishers to optimise their operations by trading or pooling quotas, allowing them to meet economic needs efficiently while minimising waste and the risks of overfishing. Over time, the system has demonstrated adaptability through its ability to adjust quotas in response to changes in fish stock dynamics, enhancing resilience to environmental uncertainties and long-term ecological sustainability. The economic stability and improved profit margins observed during the maturity phase (Figure 5.2), also highlighting the economic success of this market-driven approach. By balancing ecological stewardship with economic performance, the ITQ system serves as a model for sustainable fisheries management and offers a scalable framework for embedding biodiversity-positive incentives in other natural resource sectors.
Source: Data retrieved from (Statistics Iceland (Afkoma Sjávarútvegs), 2025[21]) Statistics Iceland, Afkoma Sjávarútvegs, Fisheries Performance - Statistics Iceland. Built on (Gunnlaugsson and Valtysson, 2022[22]), Sustainability and wealth creation, but no consensus: Recent decades in Iceland’s ITQ-managed fisheries, https://doi.org/10.1016/j.marpol.2021.104836.
Source: (Gunnlaugsson and Valtysson, 2022[22]), Sustainability and wealth creation, but no consensus: Recent decades in Iceland’s ITQ-managed fisheries, https://doi.org/10.1016/j.marpol.2021.104836; (OECD, 2017[8]), The Political Economy of Biodiversity Policy Reform, http://dx.doi.org/10.1787/9789264269545-en; (Stefánsson, 2024[23]), Individual Transferable Quotas to Promote Sustainable Fishing in Iceland, https://www.slideshare.net/slideshow/workshop-on-scaling-up-biodiversity-positive-incentives-jon-thrandur-stefansson/272889328.
ITQs are used in several developing countries, particularly where governance and institutional capacity are relatively strong, and high-value fisheries exist (Jardine and Sanchirico, 2012[24]). Examples include Argentina, which manages key fisheries like hake and toothfish under ITQ systems, Namibia's ITQs for hake and rock lobster and Morocco's ITQ system for cephalopods (Sanchirico and Jardine, 2012[25]). These systems aim to sustainably manage resources while optimising economic benefits in high-value export fisheries.
Argentina was not well equipped to sustainably manage the rapid growth of its fisheries (Box 5.3). Before the Federal Fisheries Act of 1998, no comprehensive national fisheries law existed. The limited entry management approach established in 1991 was insufficient in halting the rising capacity in Argentine waters (Young, 2013[26]). The Federal Fisheries Act in 1998 mandated the development of a quota-based catch share programme and a provisional individual quota system was in place for Argentine hake starting in 2001 (Bertolotti et al., 2016[27]; Young, 2013[26]).
Argentina introduced its Regime of Individual Transferable Catch Quotas (Régimen de Cuotas Individuales Transferibles de Captura), following the Federal Fisheries Act of 1998. After more than a decade of design and planning, the implementation of a first provisional individual quota system in 2001, the system was officially implemented in 2010 to manage four key species: Argentine hake (Merluccius hubbsi), Patagonian grenadier (Macruronus magellanicus), Patagonian toothfish (Dissostichus eleginoides), and southern blue whiting (Micromesistius australis). These species represent a substantial portion of the industrial fishing fleet’s activity (approximately 47% of total Argentine landings in 2012) and are essential for national employment and export earnings.
The system’s objectives include sustainable exploitation of fish stocks, maximising national employment, and promoting economic stability. Under the ITQ framework, quotas are allocated to individual vessels based on a multi-criteria weighting process that considers catch history, domestic employment, processing sector contributions, and economic investments. Measures such as social and artisanal reserves, reallocation funds, and conservation reserves ensure equitable distribution and sustainability.
One of the key achievements of the ITQ system has been 100% compliance with TAC limits across the managed species. Before its implementation, these limits were regularly exceeded, leading to overfishing and stock depletion. The ITQ system has stabilised stocks such as Argentine hake and Patagonian toothfish while preventing overexploitation of others like Patagonian grenadier. The Patagonian grenadier fishery even earned Marine Stewardship Council certification in 2012.
The transferability of quotas provides operational flexibility, enabling companies to adapt to market and environmental conditions. However, the system includes restrictions to prevent excessive quota concentration; for example, a single entity cannot own more than 10-15% of the quota, depending on the species. This ensures the participation of diverse stakeholders and protects smaller operators, although ITQs can also lead to fleet consolidation, favouring larger vessels over small-scale fishers. Additionally, the system has, in some cases, created a rentier class of fishers – quota holders who lease their fishing rights rather than actively participating in fishing activities.
Despite these advantages, ITQs are not always suitable for all fisheries. High transaction costs can make them impractical for less commercially valuable species, and in multi-species fisheries, they can be challenging to implement due to ‘choke’ species – where the exhaustion of one quota prevents further fishing, even if other species quotas remain unfilled. While the Argentine ITQ system has improved sustainability and economic efficiency, some challenges remain. Monitoring and enforcement mechanisms, such as onboard observers and advanced surveillance systems, are critical to preventing overfishing and ensuring compliance. These measures have helped maintain stable employment levels and ensured that management costs remain sustainable.
Source: (Bertolotti et al., 2016[27]), Individual transferable quotas in Argentina: Policy and performance, https://doi.org/10.1016/j.marpol.2016.05.024; (Young, 2013[26]), Catch Shares in Action: Argentine Individual Transferable Quota Program. Environmental Defense Fund, https://fisheries.issuelab.org/resources/22776/22776.pdf;
In 2000, Morocco, with help from FAO, established fixed sector quotas for three fishing sectors in the cephalopod fishery (freezer, coastal, and artisanal sectors). The government further divided these sector quotas among individuals into ITQs, which are transferable within each sector (Jardine and Sanchirico, 2012[24]).
5.2.2. Tradable permits to address water quality and quantity
Tradable permit schemes exist also for water management, notably to either address water quantity issues or water quality issues. These systems operate by setting a cap on water use (i.e. water quantity) or pollutant discharge (i.e. water quality) and allocating permits that can be traded among users so that the aggregate cap is achieved at the lowest overall cost.
Water quality trading (WQT) systems have been implemented for reducing or controlling water pollution, reducing the costs of water pollution control following the imposition of a cap on pollutant emissions by regulators (Brears, 2023[28]). They typically involve point sources (such as industrial plants) and non-point sources (such as agricultural runoff), where entities with lower costs of reducing pollution can sell excess reduction credits to those facing higher costs.
The United States (US) established the world’s first WQT system in the 1980s, with WQT schemes now also active in Australia, Belgium (Box 5.4), Canada and New Zealand (Liu and Brouwer, 2023[29]). The United States has implemented water quality trading in various watersheds to reduce nutrient pollution. For instance, the Nutrient Credit Trading programme in the Chesapeake Bay, initiated in 2005, is designed to reduce nitrogen and phosphorus, which contribute to eutrophication in the Bay (DOEE, District of Columbia, 2024[30]). In Australia, the Hunter River Salinity Trading Scheme (HRSTS) in New South Wales (Australia) aims to manage saline water discharges from industries within the Hunter River catchment and the Protection of the Environment Operations and water trading systems regulate water quality and distribution (New South Wales EPA, 2002[31]). The scheme operates by issuing salt credits that regulate discharge opportunities based on river flow and salinity levels. Participants, such as coal mines and power stations, are required to hold regulated licences and can only discharge saline water during high river flows to minimise ecological impacts.
In New Zealand, the Lake Taupo Nitrogen Trading Programme, launched in 2011, is designed to protect the water quality of Lake Taupo, the country’s largest freshwater lake (Duhon, Kerr and McDonald, 2015[32]). By establishing a cap on nitrogen discharges from land use in the lake’s catchment, the programme allocates Nitrogen Discharge Allowances (NDAs) to landowners and enables the trading of these allowances to manage and reduce overall nitrogen pollution.
Flanders, Belgium introduced a nutrient emission right system for farmers in 2007. The NER-D system controls nutrient emissions (particularly nitrogen and phosphorous) from livestock farms, aiming to protect water quality and biodiversity. NER-D sets a cap on the nutrient emissions permissible from each farm whereby farmers receive emission rights proportionate to the livestock they maintain (e.g. cattle, pigs, poultry). The rights are tradable, allowing for flexibility in managing emissions. Farmers must comply with specific rules to expand operations, typically by acquiring additional emission rights from other farmers. The transfer system aims to ensure that the overall nutrient emissions do not exceed regional limits (Vlaamse Landmaatschappij., 2024[33]).
In 2024, the Nitrogen Decree introduced stricter regulations to prevent an increase in overall nutrient emissions. Effective from February 2024, the following regulations were introduced:
Dormant Rights Calculation: 'Dormant' nutrient emission rights are calculated and potentially retired to prevent unused rights from contributing to future nutrient emissions.
Abolishment of Additional Rights: The decree abolishes additional rights previously granted for manure processing, thereby preventing the growth of livestock numbers based on processed manure capabilities.
Transferability: Farmers can transfer rights between farms, subject to restrictions. The ability to transfer nutrient emission rights between farms is limited to control the overall emission levels more effectively.
Nitrogen Decree: Effective February 2024, it restricts nutrient rights transfer, calculates 'dormant' rights to prevent excess emissions, and abolishes additional rights for manure processing.
Categories: Different rights apply to various livestock types.
Source: (Vlaamse Landmaatschappij., 2024[33]), Nutriëntenemissierechten (NER-D), https://www.vlm.be/nl/themas/waterkwaliteit/Mestbank/mest/NER/Paginas/default.aspx.
The second category of water tradable permits is water quantity tradable permits. These water permits allocate a fixed amount of water rights among users, which can subsequently be traded. This approach aims to enhance water use efficiency and sustainability by allowing water rights to move to higher value uses while maintaining overall water withdrawal limits, thereby helping to protect ecosystems (Brears, 2023[34]). Water quantity trading systems are active in Australia, South Africa, UK and US.
The first formal water quantity market in the Murray-Darling Basin, Australia, was established in the 1980s, with significant reforms and expansions occurring in the 1990s and 2000s. In 2007, in response to the Millennium Drought, the Australian Government enacted the Water Act 2007, establishing the Murray–Darling Basin Authority (MDBA) to create and enforce a Basin-wide plan for sustainable water use. In the Murray-Darling Basin, water trading has allowed allocations to shift to uses with higher economic returns while enabling more efficient resource management (Brears, 2023[34]). While water trading has at times been associated with concerns about social impacts – such as the displacement of small farmers and speculative market behaviour – recent research finds limited evidence to support such concerns. Studies suggest that market mechanisms have generally enabled irrigators to better manage financial stress, adapt to climate variability, and, where necessary, exit farming with more dignity and ease when needed (Wheeler, 2022[35]). Nevertheless, perceptions of inequity and market manipulation persist in public discourse, underscoring the need for transparency and integrity in water market governance, as emphasised in recent reform efforts (DCCEEW, 2022[36]). In 1998, South Africa introduced its water trading system as part of the National Water Act (NWA), which established the legal framework for managing water resources, including the ability to reallocate water use rights through trading. The NWA aimed to promote equitable access, sustainability, and efficient use of water resources across the country.
In US, the Fox Canyon Water Market in Ventura County, California, represents a pioneering example of using tools to address groundwater sustainability challenges (USDA, 2020[37]). Developed as part of California's Sustainable Groundwater Management Act (SGMA) of 2014, the market enables agricultural producers to buy and sell groundwater allocations based on their needs (California State Water Resources Control Board, 2024[38]). The system operates as a cap-and-trade programme where groundwater usage is capped, and unused allocations can be traded among producers. Another example is the Stormwater Retention Credit (SRC) Trading Program, implemented in Washington DC by the Department of Energy and Environment (DOEE). This program exemplifies an innovative approach to managing stormwater runoff through a market-based approach (DOEE, District of Columbia, 2024[30]). Launched in 2020, the programme incentivises property owners and developers to install green infrastructure or remove impervious surfaces to reduce runoff, earning tradable credits in return.
In December 2020, the United Kingdom launched the Wheatley Watersource trading platform,3 aiming to facilitate water trading and sharing within the Suffolk East water catchment region. The platform enables license holders of water abstraction, such as agricultural users or golf courses, to trade surplus water (Wheatlye Water Source, 2022[39]). While the initiative aims to support drought resilience, its contribution to biodiversity outcomes depends on whether trading operates within a fixed cap that safeguards environmental flows and prevents over-abstraction.
5.2.3. Tradable development rights to protect specific landscapes or habitats
Another form of tradable permit scheme is Tradable Development Rights (TDR). These instruments can be introduced in response to growing pressures on habitat loss, deforestation, urban sprawl, and broader biodiversity decline, often exacerbated by unsustainable land-use practices. By enabling landowners to trade development rights, TDR programmes create financial incentives to protect ecologically sensitive areas while accommodating growth in regions more suited for urban or industrial expansion (Grover et al., 2018[40]).
The core principle of TDR is straightforward: landowners in conservation-priority areas voluntarily transfer their rights to develop land to other parties, typically developers or municipalities, who can use these rights to increase the density or intensity of development in designated growth areas. This approach aims to maintain the ecological integrity of areas critical for species and habitat provision, water regulation, carbon sequestration, and other ecosystem services. The financial gains from selling development rights provide landowners with an alternative income stream, reducing the pressure to exploit these areas for economic purposes (Grover et al., 2018[40]).
While less common, TDR programmes have been implemented in both developed and developing countries, with notable examples in Brazil (Box 5.5) and the United States, where most examples of TDR programmes can be found (e.g. Pinelands, New Jersey, Box 5.6, King County, Washington and Seattle).
The Brazilian Forest Code's Environmental Reserve Quota (Portuguese acronym, CRA) aims to promote forest conservation and sustainable development. This mechanism allows landowners to transfer the right to develop land in high-priority conservation areas to regions more suitable for development, thereby preserving forested areas and maintaining biodiversity.
The Brazilian Forest Law N. 12561/2012 sets minimum standards for native forest protection on private properties, known as Legal Reserve (LR), which requires landowners to maintain a fixed amount of area as native vegetation within their properties to protect biodiversity, varying from 80% in the Amazon, 35% in transition zones between the Amazon and Cerrado, and 20% in the Cerrado, Atlantic forest, Caatinga, Pantanal and Pampa biomes. Properties with less forest cover than the minimum LR requirements may compensate for their deficit in other properties if both are in ecologically equivalent regions. The Environmental Reserve Quota (CRA) is an economic mechanism to offset LR deficits in private properties. It is a legal title representing areas with intact or regenerating native vegetation that exceeds the minimum LR requirements of a property. CRA can be traded on the market in a similar way to other tradable development rights: landowners who have forest assets (beyond the legally mandated threshold) will negotiate with those who have forest liabilities by establishing a cap-and-trade CRA market.
More specifically, an amendment, Legislation (Decree no. 9.640/2018), included a forest trading mechanism that allowed landholders who deforested more than was legally allowed before 2008 to buy Environmental Reserve Quotas (CRA) to compensate for forest deficits. It established that CRA can be issued on forest surpluses of existing LRs when forest cover proportions are higher than those defined by the state's Ecological-Economic Zoning Plan (EEZ).
Source: (Brazilian Ministry of Justice and Public Security, 2012[41]), Law No. 12,651, of May 25, 2012: Provides for the protection of native vegetation, https://www.gov.br/mj/pt-br/acesso-a-informacao/atuacao-internacional/legislacao-traduzida/lei-no-12-651-de-25-de-maio-de-2012-senasp_eng-docx.pdf; (Grover et al., 2018[40]), Transfer of Development Rights : Technical Note, http://documents.worldbank.org/curated/en/260991541401819816/Transfer-of-Development-Rights-Technical-Note; (May et al., 2015[42]), Occasional Paper 131. Bogor, Indonesia: CIFOR, https://www.cifor-icraf.org/publications/pdf_files/OccPapers/OP-131.pdf; (Pinillos et al., 2021[43]), Landholders' perceptions on legal reserves and agricultural intensification: Diversity and implications for forest conservation in the eastern Brazilian Amazon, https://doi.org/10.1016/j.forpol.2021.102504; (World Bank, 2018[44]), Transferable Development Rights: Technical Note, https://documents1.worldbank.org/curated/en/260991541401819816/pdf/Transferable-Development-Rights-Technical-Note.pdf.
In US, the TDR programme in Montgomery County, Maryland, focuses on protecting agricultural lands and rural spaces from urban encroachment (Montgomery County Office of Legislative Oversight, 2023[45]). Through this programme, property owners in designated rural areas can sell their development rights to developers who wish to increase density in designated receiving areas, such as urban growth corridors (Montgomery County Planning Department, 2025[46]). In King County, Washington DC, the TDR programme aims to conserve environmentally sensitive areas by redirecting development pressure to urban zones (King County Department of Natural Resources and Parks, 2025[47]). The programme allows landowners in ecologically critical areas, such as those with wetlands, forests, or other habitats, to transfer their development rights to developers in urban regions where higher density is desired.
The New Jersey Pinelands, designated as the first national reserve in 1978, represent a significant example of a TDR program aimed at protecting ecologically sensitive areas while accommodating development. Spanning seven counties and 53 local authorities, the Pinelands are home to diverse ecosystems, including pine and oak forests, wetlands, and a major aquifer, providing vital habitat for plants and wildlife as well as recreational opportunities for nearby urban populations.
The TDR program forms a cornerstone of the region’s Comprehensive Management Plan. Local authorities’ zoning powers have been co-ordinated to channel growth into designated receiving areas across 23 municipalities, ensuring that increased density in urban growth zones is achieved through the purchase of Pineland Development Credits (PDCs). These credits are allocated to landowners in sending sites, with the number of credits varying based on the land’s environmental sensitivity. For example, 1 PDC is granted for 39 acres of upland, while only 0.2 PDCs are issued for wetlands, reflecting the higher vulnerability of the latter.
The program has been supported by public outreach campaigns and investments in infrastructure, such as sewer systems, to facilitate development in receiving areas. To address potential market imbalances, the New Jersey Pinelands Development Credit Bank was established in 1987 with USD 5 million in capital. The bank serves as a buyer of last resort, guarantees loans secured by PDCs, and maintains a registry of transactions.
This TDR framework has helped protect critical habitats and ensure sustainable land use. Unlike simpler models, such as Montgomery County’s TDR program, the Pinelands approach is more targeted, avoiding the oversupply of development rights while achieving better conservation outcomes.
Source: (Grover et al., 2018[40]), Transfer of Development Rights : Technical Note, http://documents.worldbank.org/curated/en/260991541401819816/Transfer-of-Development-Rights-Technical-Note; (New Jersey Future, 2011[48]), Case Studies in Transfer of Development Rights. New Jersey Future, https://www.njfuture.org/wp-content/uploads/2011/07/Case-Studies-in-Transfer-of-Development-Rights-8-10-Intern-report.pdf.
Tradable permit schemes have proven to be a flexible and effective approach to managing environmental resources and reducing pollution. However, the use and the effectiveness of these schemes can vary significantly based on their design and implementation. This section discusses key elements to scale the use and effectiveness of biodiversity-relevant tradable permit schemes.
5.3.1. Set stringent caps based on robust scientific evidence and clear objectives
The environmental integrity of tradable permit schemes depends on well-calibrated caps that reflect ecological limits and incorporate a precautionary approach, ensuring they are set conservatively, sometimes below scientifically established thresholds, to account for uncertainty in ecological processes (Halley, 2024[49]). Setting transparent science-based caps that are also enforceable ensures that permit markets function effectively while preventing resource depletion or excessive pollution. The level of precaution needed depends on the predictability of the resource. For instance, in water management, inflows and outflows are generally measurable, allowing for caps to be set closer to the available supply (Yim and Posniak, 2024[50]). In contrast, fish stocks are subject to complex ecological processes, environmental variability, and data limitations, requiring caps to be set below estimated limits to mitigate the risk of stock collapse (Halley, 2024[49]). This precautionary approach ensures that tradable permit schemes remain robust even under conditions of uncertainty. Periodic reviews and adaptive management strategies should also be embedded in the system design to align with evolving scientific knowledge, changing environmental conditions and policy goals.
Over time, tradable permit schemes in the fisheries and water management sectors have evolved, adjusting caps to improve alignment between economic incentives and environmental objectives. For example, Iceland's ITQ system highlights the importance of tailoring regulatory frameworks to local contexts (Stefánsson, 2024[23]), introducing a system of TACs based on scientific recommendations, in response to declining fish stocks. The ITQs integrate scientific stock assessments to adjust quotas dynamically, ensuring sustainability under changing ecological conditions (Arnason, 2002[51]; OECD, 2017[8]).
In New Zealand, the Quota Management System (QMS) manages one of the world's largest Exclusive Economic Zones (EEZs), spanning 4.4 million km² and hosting approximately 13 000 fish species. The scheme establishes an aggregate TAC for each stock, measured by volume (e.g. tonnes) in specific zones. The TAC is allocated annually among user categories, including commercial and recreational fishers. Quota owners receive rights to an Annual Catch Entitlement, and financial penalties are imposed on those who exceed their quota to discourage overfishing (Hersoug, 2018[52]). The system has shifted from input controls (e.g. gear restrictions) to output controls (e.g. TACs) and has incentivised fishers to adopt less environmentally damaging and more innovative practices. By setting clear harvest limits and enforcing financial compliance mechanisms, the QMS has helped to significantly decrease fishing effort (Box 5.8).
In contrast to many other countries implementing an ITQ system primarily to restore overfished stocks, the Finnish herring stock biomass had remained fairly stable from 2014 to 2021 and the introduction of the ITQ system was driven primarily by the need to address economic inefficiencies in the fishing sector (Hanstén, Haapasaari and Kuikka, 2021[20]). The previous system allowed open access to the national quota for all registered commercial fishers and led to the "race to fish" phenomenon. The open-access quota, which was not scientifically defined and lacked ecological justification, created a highly competitive and unsustainable environment where fishers rushed to catch as much as possible before the quota was exhausted. This management approach often led to mid-season closures, increasing operational inefficiencies in the industry (Hanstén, Haapasaari and Kuikka, 2021[20]).
Concerning water management systems, the Murray-Darling Basin Ministerial Council introduced a cap, in 1995, in response to concerns about over-extraction, limiting water diversions to 1993–94 levels to balance consumptive use and environmental sustainability. In 2012, the Murray-Darling Basin Plan, developed by the Murray-Darling Basin Authority (MDBA), set Sustainable Diversion Limits (SDLs) to manage water extraction and ensure the long-term health of the Basin's rivers and ecosystems. This case involves both permanent water trading (the trade of water entitlements) and temporary water trading (annual trade of water allocations) (Murray-Darling Basin Authority, 2024[53]). Allocations are adjusted annually based on inflow conditions and stored water availability. The programme allows users to adapt to changing water needs and availability while promoting efficiency. In the Murray-Darling Basin, water trading has allowed allocations to shift to uses with higher economic returns while enabling more efficient resource management (Brears, 2023[34]).
The Fox Canyon Water Market system, in Ventura County (US), operates as a programme where groundwater usage is capped, and unused allocations can be traded among producers. Groundwater allocations are set within regulatory limits established under the Sustainable Groundwater Management Act (SGMA), providing a structured framework that allows for broader participation without risking over-extraction (Brears, 2023[28]). SGMA mandates the creation of Groundwater Sustainability Agencies for each groundwater basin, which are responsible for developing and implementing Groundwater Sustainability Plans. These plans are based on hydrogeological assessments, historical extraction data, and recharge rates to define the sustainable yield – the maximum groundwater that can be extracted without causing depletion or land subsidence. In the case of Fox Canyon, the Fox Canyon Groundwater Management Agency enforces groundwater allocations based on past usage patterns, setting an overall cap to prevent over-extraction. This cap-and-trade system allows water users to trade unused allocations, promoting efficiency while maintaining environmental safeguards (Brears, 2023[28]).
Similarly, the Stormwater Retention Credit Trading Program in Washington, DC, establishes retention obligations that property owners must meet through on-site measures or credit purchases, creating a scalable system that maintains environmental integrity as trading volumes increase (DOEE, District of Columbia, 2024[30]).
In the case of water quality trading programmes, the cap is generally designed based on Total Maximum Daily Loads (TMDLs), which set the maximum amount of a pollutant that a water body can assimilate without violating water quality standards (Kroetz et al., 2017[54]). The TMDLs must also account for seasonal variations in water quality and include a margin of safety (MOS) to account for uncertainty in predicting how well pollutant reductions will result in meeting water quality standards (US Environmental Protection Agency, 2024[55]).
In New Zealand, for example, the Lake Taupo Nitrogen Trading Programme, with the aim to restore the lake’s water quality to 2001 levels by 2080, capped nitrogen discharges to historical levels, targeting a 20% reduction from the 2001-05 baseline. Addressing diffuse nutrient pollution primarily from agriculture, by 2012, 128 tonnes of nitrogen were removed, with 11% of pastoral land converted to forestry to reduce inputs into the lake (Duhon, Kerr and McDonald, 2015[32]). The reduction of nitrogen, which contributes to harmful algal blooms, thereby improves aquatic habitats and supports the resilience of native species and ecosystems within the lake and its surroundings (Spicer, Swaffield and Moore, 2021[56]).
Similarly to fishery and water management, a clear and well-defined cap is also essential for the efficiency of the tradable development rights programme. In Brazil's Tradable Development Rights programme (Box 5.5), the Environmental Reserve Quotas are defined based on Legal Reserve (LR) requirements and can be issued only on surplus forest areas exceeding the minimum LR thresholds, which mandate that private landowners maintain a minimum proportion of native vegetation on their properties, varying by biome: 80% in the Amazon, 35% in transition zones, and 20% in other biomes such as the Cerrado and Atlantic Forest (Pinillos et al., 2021[43]). These percentage requirements were established under Brazil’s Forest Code, reflecting a combination of ecological considerations, land-use history and political negotiations, rather than being strictly based on habitat value, ecological risk, or biodiversity decline rates. Properties that fall below these requirements must compensate by acquiring CRAs from landowners with surplus native vegetation, ensuring ecological equivalence between traded areas (Frickmann Young and Castro Scarpeline, 2021[57]).
Other transferable development rights programmes, such as those in Montgomery County and King County in the United States, also use predefined conservation quotas to ensure that as trading expands, urban development remains contained within designated growth zones while protected areas retain their ecological function (Harman, Pruetz and Houston, 2015[58]; World Bank, 2018[44]).
5.3.2. Engage with stakeholders in the design and implementation of schemes
Stakeholder engagement is critical to the successful implementation and operation of tradable permit schemes. A participatory approach, involving regulators, industry actors, local communities, and environmental groups, can enhance acceptance, compliance, and legitimacy. Early consultation helps to identify concerns, mitigate potential conflicts and improve equity in permit allocation (Boiral and Heras-Saizarbitoria, 2015[59]). Transparent governance structures, clear communication and mechanisms for ongoing dialogue ensure that permit systems are perceived as fair, leading to improved stakeholder buy-in and sustained participation (Boiral and Heras-Saizarbitoria, 2015[59]).
For example, the introduction of ITQs in fisheries often leads to uneven economic outcomes, generating both "winners" and "losers" (OECD, 2017[8]). Limited engagement of some stakeholders in the reform process, notably fishers and their communities, contributed to these disparities. For instance, in Iceland, discontent with the way the initial free allocation of fisheries quotas had led to a distinct set of “winners” was an important driver of subsequent policy reforms (OECD, 2017[8]). This lack of meaningful consultation and participation sometimes resulted in reforms that favoured larger, more capitalised fishing operations, while smaller-scale fishers and their communities faced reduced access to resources and economic hardship.
Regulators can also increase stakeholder engagement by maintaining transparency and regularly reporting performance (Section 5.3.2), not only by involving fishers as quota participants but also by including diverse groups such as small-scale operators, Indigenous communities, and civil society organisations in governance and policy design processes. Regulators foster trust and demonstrate accountability, and building public confidence is essential for gaining social licence and ensuring the success of regulatory frameworks. Moral suasion, through evidence-based communication of the system's benefits, strengthens incentives for compliance, while responsiveness to stakeholder concerns ensures that the framework remains equitable, inclusive, and reflective of diverse needs (Halley, 2024[49]). Effective stakeholder engagement is an important element of successful tradable permit schemes, as demonstrated also by the HRSTS in New South Wales. The HRSTS involves a diverse set of stakeholders, including government bodies, industry representatives, and local communities, all of whom contribute to the decision-making process surrounding salinity management (Figure 5.3).
To enhance governance and ensure continued stakeholder input, the HRSTS Operations Committee was established in 2003, several years after the scheme’s introduction, to improve stakeholder engagement and regulatory responsiveness. The committee advises the NSW EPA on the operation and performance of the HRSTS, serving as a platform for stakeholders to voice concerns, provide input on policy adjustments, and collaborate on setting operational priorities (Yim and Posniak, 2024[50]).
Source: (Yim and Posniak, 2024[50]), Hunter River Salinity Trading Scheme in New South Wales Australia, https://www.slideshare.net/slideshow/workshop-on-scaling-up-biodiversity-positive-incentives-audrey-yim-and-david-posniak/272889413.
5.3.3. Promote transparency to build trust and reduce transaction costs
Transparency in permit allocation, trading rules, and market operations enhances trust, credibility, and efficiency (Halley, 2024[49]). Publicly accessible registries and digital tracking systems can improve market oversight, reduce information asymmetries, and lower transaction costs for participants. Disclosure of permit ownership, transaction histories, and compliance performance enhances accountability and prevents market manipulation (Yim and Posniak, 2024[50]). Furthermore, clear reporting and independent verification mechanisms reinforce confidence in the integrity of tradable permit systems.
The continuous evaluation of outcomes and the implementation of system improvements are factors for the success of tradable permit schemes. Regular review cycles, as seen, for example, in the Hunter River Salinity Trading Scheme in New South Wales, integrate technological advancements and stakeholder feedback to enhance programme effectiveness (Yim and Posniak, 2024[50]). Moreover, a key component of the scheme is the public registry, which enhances transparency by recording permit ownership, trading activities, and compliance performance (NSW Environment Protection Authority, 2024[60]). This publicly accessible system helps ensure accountability, track market dynamics, and support regulatory oversight, reinforcing trust in the scheme’s governance.
Programmes like the New Zealand QMS and the U.S. National Pollutant Discharge Elimination System (NPDES) for water quality trading employ robust data-sharing mechanisms, including fishery-dependent monitoring and water quality trading platforms, ensuring participants and the public have access to accurate and timely information (Bentley, 2024[61]; Halley, 2024[49]). Similarly, for the Iceland’s ITQ system, the establishment of a national registry for quota transactions further enhanced transparency, reducing transaction costs and strengthening trust among stakeholders (OECD, 2017[8]).
Similarly, in Australia, the MDB’s success is underpinned by robust institutional frameworks, including transparent water registers, scientifically determined sustainable diversion limits, and independent oversight by the Murray-Darling Basin Authority (MDBA). These elements have ensured the enforcement of caps on water extraction and provide confidence and to build trust among market participants (Wheeler et al., 2017[62]).
Blockchain technology’s recent emergence offers new opportunities to enhance transparency and accountability in environmental markets. A study on the MDB water market found that inaccessible or unrecorded transactions hinder effective regulation, while the lack of public data contributes to misconceptions, misinformation, and low market confidence (IBM & Arup, 2023[63]). Moreover, there is currently no single entity responsible for the ongoing and effective monitoring of trading in the Basin. To address these challenges, a blockchain-enabled platform4 has been proposed to modernise market operations, ensuring real-time tracking, secure record-keeping, and improved data accessibility (Shahab and Allam, 2020[64]). Blockchain’s decentralised structure provides an immutable ledger, reducing the risks of data manipulation, fraudulent trading, and incomplete reporting. By integrating smart contracts,5 the system can automate regulatory compliance, preventing unauthorised trades and streamlining administrative processes. This approach aligns with the Australian Competition & Consumer Commission (ACCC) Water Market Inquiry (2021[65]) and the Department of Climate Change, Energy, the Environment and Water (DCCEEW) Water Market Reform Roadmap (2022[66]), reinforcing the need for greater oversight, enhanced data-sharing, and more transparent governance mechanisms in Australia’s water markets.
5.3.4. Strengthen monitoring and enforcement
The effectiveness of tradable permit schemes depends on robust monitoring, reporting, and verification frameworks. Advanced tracking technologies, such as satellite monitoring, electronic reporting, and automated compliance verification, can enhance enforcement efficiency. Regulatory agencies should implement strong compliance mechanisms, clear penalties for non-compliance, and independent audits to ensure permit holders adhere to environmental limits. Strengthening enforcement capacity helps prevent fraud, maintain market stability, and uphold environmental objectives.
Effective monitoring tools and requisite capacity can help ensure proper implementation of tradable permit schemes. For example, New Zealand’s QMS has developed enhanced monitoring tools, including on-board cameras and trawl surveys, which have improved compliance and reduced illegal practices such as discarding (Halley, 2024[49]). The system also implements financial penalties and compliance payments, increasing the marginal cost of overfishing and deterring quota violations. Additionally, the QMS includes a ‘balancing regime’ that requires permit holders to align their catch with Annual Catch Entitlements (ACE), linking quota pricing to sustainable harvesting behaviour. However, the effectiveness of this system depends on strict monitoring and enforcement, as weak oversight could lead to overfishing or non-compliance with sustainability objectives (Halley, 2024[49]). Despite these advances, ongoing monitoring remains essential to address ecosystem-wide effects, particularly for non-target species and habitats impacted by some fishing methods (Dasgupta, 2021[3]).
ITQs promote self-policing and compliance by granting resource users a vested interest in sustainable management. By giving fishers a sense of ownership, these systems create strong incentives for responsible practices, including participation in monitoring efforts. Effective monitoring can be further enhanced by engaging fishers directly in the process. The Dutch ITQ system incorporated co-management groups, where fishers participate in monitoring efforts, enhancing transparency and compliance while reducing illegal landings (Hoefnagel and de Vos, 2017[15]). Similar monitoring principles apply to water permit schemes, where robust frameworks ensure regulatory compliance and environmental protection. To facilitate the uptake of tradable water permits, Wheeler et al. (2017[62]) proposed a readiness assessment framework consisting of three key steps: (1) assessing hydrological and institutional needs; (2) evaluating market development and implementation issues; and (3) establishing robust monitoring and review systems.
In Australia, the Hunter River Salinity Trading Scheme uses continuous real-time monitoring to track saline discharges during high river flows, protecting aquatic ecosystems from salinity spikes that could harm native species and disrupt habitats (Yim and Posniak, 2024[50]). Monitoring stations along the river measure flow rates and salinity levels, classifying the river’s state into “low flow”, “high flow”, or “flood flow” categories. These real-time data points allow regulators to detect excessive discharges immediately, ensuring that salinity targets are not exceeded and that the total allowable discharge is allocated based on tradable salinity credits (New South Wales Environment Protection Authority, 2003[67]).
For the Fox Canyon Water Market, continuous monitoring ensures compliance, with GSAs required to review and update their GSPs every five years to respond to environmental changes and ensure long-term sustainability (FCGMA, 2024[68]). By integrating adaptive management and market mechanisms, this approach balances water conservation objectives with economic flexibility.
Enforcement mechanisms must also be stringent and include appropriate penalties for non-compliance to deter violations. This can involve regular inspections, audits, and public reporting of compliance status. Transparent and fair enforcement processes build trust in the system and ensure that all participants are held to the same standards. Additionally, regulatory authorities must have the capacity to respond swiftly to violations, maintaining the credibility and effectiveness of the scheme. These enforcement mechanisms are essential for maintaining the integrity of tradable permit schemes, preventing market manipulation, and ensuring long-term compliance with environmental regulations (Boiral and Heras-Saizarbitoria, 2015[59]).
In the United States, the Chesapeake Bay Nutrient Credit Trading Programme aims to reduce nitrogen and phosphorus pollution, which contributes to eutrophication and habitat degradation. The programme allows point sources (e.g. wastewater treatment plants), and non-point sources (e.g. agriculture), to trade nutrient reduction credits, creating a flexible, cost-effective approach to pollution control. Comprehensive monitoring assesses impact and guides adaptive management. Progress is tracked via multiple indicators, such as submerged aquatic vegetation abundance, blue crab populations, oyster reef restoration, and phosphorus loads (Figure 5.4). The Chesapeake Bay Watershed Model estimates nutrient loads by incorporating data from stream monitoring stations, wastewater discharge reports and remote sensing surveys. Regular assessments allow policy makers to adjust regulatory caps, refine credit trading mechanisms and target efforts effectively. The programme’s data-driven approach enhances accountability and optimises strategies.
Note: Panel a) Estimated Additional Area (km2): Adverse weather, water clarity, or security restrictions in military air space prevented aerial imagery. For unmapped areas, SAV estimates are based on the prior year’s survey. Panel d) Loads simulated using CAST19 version of Watershed Model and reported wastewater discharge data. “Natural” contains e.g. CSS Forest, Harvested Forest, True Forest, CSS Mixed Open, Mixed Open, Shoreline, Stream Bed and Bank, Headwater or Isolated Wetland, Non-Tidal Floodplain Wetland.
Source: (Chesapeake Bay Program, 2025[69]), Chesapeake Progress Abundant Life, https://www.chesapeakeprogress.com/abundant-life.
Source: (Brears, 2023[34]), Tradable Permits Financing Water Security and Green Growth, https://doi.org/10.1093/oso/9780192847843.003.0011 (DOEE, District of Columbia, 2024[30]), Stormwater Retention Credit Trading Program, https://doee.dc.gov/src.
5.3.5. Adapt schemes to respond to lessons learned and changing environmental, social and economic contexts
Tradable permit systems should remain dynamic and responsive to evolving conditions. Periodic evaluations, pilot programmes and stakeholder feedback mechanisms allow regulators to refine scheme design. Adjustments in permit allocations, trading rules and compliance measures should be based on empirical evidence and emerging best practices. Additionally, integration with broader policy frameworks – such as climate strategies, conservation policies and socio-economic development plans – enhances the long-term resilience and effectiveness of tradable permit schemes.
In some cases, initial permit allocations need to be revisited to ensure fairness and avoid windfall gains in tradable permit markets. This is crucial for maintaining public trust and long-term viability. Initial permit allocations can create unintended distributional effects, benefiting some stakeholders disproportionately while disadvantaging others, particularly new market entrants and smaller operators.
Concerns over distributional effects in water markets, such as in the Murray-Darling Basin, highlight the need for clear allocation rules and market oversight to prevent distortions. Regular reviews of allocation mechanisms, including the potential for auction-based distributions or redistribution measures, can help ensure that tradable permit schemes promote both economic efficiency and social equity (Wheeler, 2022[35]). In the case of ITQs for fisheries free allocations have led to permits concentration and barriers to entry, prompting later policy adjustments to improve equity (e.g. in Iceland and Denmark).
In many cases, the introduction of ITQ systems have initially been introduced for a smaller set of species and once accumulated experience and evidence has indicated that the programme has worked, additional species are introduced to the ITQ. For example, Denmark introduced its first ITQ system for herring in 2003, followed by mackerel in 2004, and had extended ITQs to most species by 2007 (Merayo et al., 2018[70]). Similarly, Iceland introduced its first ITQ for the herring fishery in 1979 (building on experience with IQs introduced in 1975), and by 1991 had introduced ITQs in all its fisheries (Table 5.1).
Source: (Arnason, 2002[51]), ‘’Key Steps in the Evolution of the ITQ Management System: A Chronological Overview’’ in A review of international experiences with ITQs: an annex to Future options for UK fish quota management, https://www.forest-trends.org/wp-content/uploads/imported/cemare-report-58-anarson-itq-pdf.pdf.
New Zealand’s QMS has evolved to balance economic success with sustainability, growing in value from USD 1.51 billion in 1986 to USD 6.62 billion in 2019 (Hersoug, 2018[52]) (Box 5.8). However, challenges such as quota concentration, equity concerns, and unintended consequences like high grading, where fishers discard less valuable catch to maximise the value of their quota, require ongoing policy refinements (Williams et al., 2017[71]). The system remains a key example of how tradable permit schemes can support industry growth while upholding environmental goals.
The primary goal of the 'Fisheries 2030' strategy adopted in 2009 is to "maximise benefits from the use of fisheries within environmental limits." The tradable permit scheme is designed to sustain fishing yields, prevent overfishing, and enhance cost efficiency. This approach has significantly increased the number of fish stocks near or above sustainable limits, boosting the fishing industry's value.
The QMS has had impacts on fish stock by aligning fishing practices with sustainability goals, by setting clear harvest limits and incentivising compliance through financial mechanisms (e.g. financial payment set to allow fishers to cover costs, increasing marginal cost of overfishing, and by penalising fishers who exceed their rights). The system has helped reduce overexploitation and stabilise fish stocks.
The QMS is widely acknowledged for achieving its economic and environmental goals. As of 2016, 83% of the 150 assessed stocks were above the 'soft' limit (i.e. not depleted or overfished), and 94% were above the 'hard' limit1 (i.e. not considered to be critically low or collapsed). In 2023, the 87.5% of scientifically evaluated stocks are above stock biomass limits. Several stocks have seen notable successes, such as hoki (Macruronus novaezelandiae).
New Zealand has become a significant fish exporter, with 95% of the commercial catch and 75% of aquaculture production being exported, contributing approximately USD 1.5 billion to the economy. Despite its success, the QMS has faced challenges. The concentration of quota allocations has raised equity concerns within the industry. Additionally, the system can incentivise practices like 'high grading' (focusing on quality over quantity) and dealing with bycatch overruns, which can lead to catch limit violations.
1. A soft limit triggers a requirement for a formal, time-constrained rebuilding plan. Fisheries that fall below a hard limit should be considered for closure.
Source: (Dasgupta, 2021[3]), The Economics of Biodiversity: The Dasgupta Review, https://assets.publishing.service.gov.uk/media/602e92b2e90e07660f807b47/The_Economics_of_Biodiversity_The_Dasgupta_Review_Full_Report.pdf; (Hale and Rude, 2017[72]), Learning from New Zealand’s 30 Years of Experience Managing Fisheries Under a Quota Management System, https://www.nature.org/media/asia-pacific/new-zealand-fisheries-quota-management.pdf; (Halley, 2024[49]), Learnings from Implementation of Tradeable Rights, https://www.slideshare.net/slideshow/workshop-on-scaling-up-biodiversity-positive-incentives-steve-halley/273276334; (Ministry of Fisheries, 2009[73]) https://www.mpi.govt.nz/dmsdocument/5032-Fisheries-2030-New-Zealanders-Maximising (Williams et al., 2017[71]), Triggering system innovation in agricultural innovation systems: Initial insights from a community for change in New Zealand, https://journals.sagepub.com/doi/abs/10.1177/0030727017708500.
In the Netherlands, the evolution of these schemes has shown impacts on fishing capacity and market dynamics. The introduction of ITQs in 1985 aimed to address overfishing and overcapacity in the flatfish sector but initially failed to reduce fishing capacity effectively as illegal fishing/exceeding of quota occurred (Hoefnagel and de Vos, 2017[15]). Overcapitalisation of the fleet, particularly in beam trawlers, increased significantly – by 60% from 1975-80 – as fishers continued to "race for fish" due to insufficient enforcement of quotas. The reduction in fleet capacity from 1989-2010 was primarily driven by declines in flatfish stocks, which made fishing less profitable. At the same time, a persistent issue in EU fisheries has been the setting of TACs above scientific recommendations, which has contributed to overfishing pressures and delayed more effective capacity reductions. The ITQ system was gradually extended as additional species have been progressively brought under a TAC (e.g. quotas for cod in 1994, and for herring and mackerel in 1996). By allocating specific quotas and introducing co-management groups, the inclusion of fishers in the co-management process fostered greater compliance with quotas and increasing fishing sustainability. These measures contributed to the stabilisation of key flatfish populations, such as plaice and sole (Hoefnagel and de Vos, 2017[15]).
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← 1. Baseline-and-credit schemes also exist but are not common in the schemes most related to biodiversity and are therefore not discussed here.
← 2. The OECD PINE database identifies the following 22 countries as having active ITQs: Argentina, Australia, Canada, Chile, Denmark, Ecuador, Estonia, Finland, Iceland, Lithuania, Mauritius, Morocco, Mozambique, Namibia, Netherlands, New Zealand, Norway, Peru, Portugal, South Africa, Spain, Sweden, United States (OECD, 2024[17]).
← 3. Developed in collaboration with Anglian Water, Essex & Suffolk Water, and Water Resources East.
← 4. “Blockchain is a shared, immutable ledger that facilitates the process of recording transactions and tracking assets in a business network. All network participants have access to the distributed ledger and its immutable record of transactions. With this shared ledger, transactions are recorded only once, eliminating the duplication of effort that’s typical of traditional business networks” (IBM & Arup, 2023[63]).
← 5. Smart contracts are self-executing contracts where the terms of an agreement are directly embedded into code. Operating on blockchain networks, they automatically enforce rules and conditions without intermediaries, ensuring transactions are executed only when pre-set conditions are met.