Kick start


How to kick start a space preserving economic system

Let’s use a hypothetical county as an example, and let’s say that it has protected a certain volume of space by placing conservation easements on some land within the county1. The county is now in a position to make money from this preserved space without jeopardizing its protection. The county claims space credits for the earlier preserved space, and then sells the space credits to developers who want to fill other space with their developments2.

A jurisdiction would establish a space preserving economic system as an outgrowth of the commitment of its voters or their representatives to a future with open space. A jurisdiction’s commitment to open space preservation means that its proceeds from sale of space credits will be used to protect additional space.It would make sense, but also bears explicit statement here, that whatever profits the jurisdiction might realize from selling space credits should be used to establish more conservation easements—and these, in turn, create additional, future space credits that can be sold to protect even more space. Jurisdictions that create space preserving economic systems should be long term participants in that system. What they need to do, however, is to participate in a transparent way that does not lead to perception that the space credit market is being manipulated.

A wise county would not put all of its space credits from earlier space preservation on the market at once, because this would flood the market and depress the price of space credits. Remember, the long term goal is to generate income that can be used to protect more space; this means that selling space credits at a reduced price is likely to defeat the long term goal. At the time of startup of a space preserving economic system for an area, the market price is unknown…

What is the price of space?

One way to kick start an area’s space market is to auction off publicly held space credits, but in quantities that are likely to match demand—so as not to flood the market and depress the price. An early auction of space credits would give developers confidence by telling them the price that they may expect to pay for space. Early investment in space preservation and space credits is financially sensible.In fact, developers may elect to buy space credits before they need them, if they expect the price to rise. Over the long term, the price of space credits is certain to rise as the supply of space goes down—so early investment in space preservation and space credits is financially sensible.

Everyone wins

After a kick-start auction, the county has money that it will use to protect more space. Developers know the price of space, and may lock in space-purchase savings by buying credits before they are needed (and remember, these can be re-sold at any time on the area’s space credit market). Private parties who are protecting, or considering protecting, space with conservation easements now know the approximate value of the space credits that their easement will create.

Credits for old space?

There is a question that each jurisdiction needs to consider carefully: can the holders or makers of conservation easements already in place claim corresponding space credits?  If space credits are granted for historic space preservation, then new space preservation may be delayed. This is a decision that each jurisdiction must consider carefully.If this is allowed, then development at the start of the program will not generate new preservation. The example given above, where it is a public entity that owns the credits for old preservation, can be an exception—IF the public entity is required to re-invest proceeds from space credit sales in further space preservation. That would minimize delays in preservation of new space. A requirement to invest proceeds of space credit sales in new space protection cannot be imposed on private parties; to do so would be to violate unencumbered ownership and free market transaction of space credits.

Thus, in this preliminary and quite superficial analysis, it seems that publicly owned old space preservation might be granted space credits, but privately owned old space preservation should not.

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Steps to Space Preservation
Standards

Space credits, when they are granted, represent a geographic reality in the same way that surveyed area of a parcel represents a geographic reality. Standards and their enforcement ensure that space credits are consistent and believable.

Regulations

Land titles, their transfers, and liens against them, are recorded by county officials. This recording provides confidence about land ownership, and is required by regulations. Similar regulations are needed for space credits. Additional regulations are needed to specify and maintain qualifications of persons and institutions involved in the creation and management of space credits.

Economic Framework Perspectives

Requiring space credits to be owned prior to development and then relinquished when development is complete, changes the economics of development. Here are some perspectives on those changes.

Footnotes:
1 The agreement that creates a conservation easement will specify who owns space credits associated with that easement; it may be the land owner, a party that paid for the establishment of the easement, the land trust that holds the easement, or another party (see How?). Because a preexisting easement may not have, at the time of its creation, specified space credit ownership, it would be best to restrict after-the-fact space credit claims to parcels for which the owner established the easement. Public lands of this sort are less likely than private lands, to get caught up in legal contests over space credit ownership. It would not be good for the whole space preservation system to have space credits, a marketable commodity, legally contested.
2 This scenario has the side effect of delaying new space preservation. See the section Credits for old space? on this page.