Nicholas Institute for Environmental Policy Solutions
September 2016

A Review of the Use of Early-Action Incentives in U.S. Environmental Markets

A Review of the Use of Early-Action Incentives in U.S. Environmental Markets

Early action can refer to activities undertaken prior to a regulatory program or the generation of a particular service before its use to mitigate an impact elsewhere. In U.S. environmental markets, early action can result in multiple benefits. One benefit is facilitation of market function by helping to generate a sufficient supply of viable, low-cost credits to buyers and gain momentum in new markets. Another benefit is providing advance mitigation, which can speed the delivery of ecosystem services. As markets emerge and mature, early action can help reduce lags in environmental performance, improve outcomes, and encourage innovation in mitigation approaches. Multiple tools have been proposed for encouraging early action in ecosystem services markets. To varying extents, these tools have also been deployed, providing valuable experience and insight into their functioning. This paper presents several case studies of how these tools have been used in wetland and stream mitigation, species and habitat banking, greenhouse gas emissions reduction and sequestration, and water quality trading. It finds that early action incentives necessary to motivate sellers differ from those necessary to motivate buyers and that interventions should account for this reality. The tool or approach best suited to encourage early action may also vary as conditions change and new barriers arise. Anecdotal evidence suggests the potential for benefits to accrue from early action, but additional data on the costs and benefits of early action are needed to inform the selection and implementation of specific tools. A revised version of the paper appears in the journal Land Use Policy.